Markets in everything: foreign aid edition

It is tempting to conclude that the answer is for donors to defer to the leadership of developing country governments… But that assumes away the problem. The balance of power between donors and recipients converges on an equilibrium which balances the various interests of the givers and receivers of aid, and the implementing agents.

If we find this equilibrium unsatisfactory, we have to change the determinants of the equilibrium, not simply try to move away from it.

That is from a new essay on aid by Owen Barder. His message: stop the pointless planning and navel-gazing. Aid is not going to be improved by better donor coordination.

Probably his most controversial suggestion: unbundle funding from the implementation of aid programmes and create a market for aid delivery.

Another: introduce entry fees to stem the proliferation of NGOs.

Comment here or on Owen’s blog.

5 thoughts on “Markets in everything: foreign aid edition

  1. It is clear from the paper, that the only poverty that ever shall be eradicated by it, will be the poverty of the writer.

    It is a paper written by an author who is paid for writing 40 pages of content, and nobody is expected to actually read this, or implement the policy suggested (the author himself says that it is only for provoking a discussion, he is not sure it contains a single good idea that will help anybody).

    I did read it, unfortunately. It was a complete waste of my time.

    Suppose that collaborative markets would be implemented in the aid world today, the way that is proposed in the paper.

    Suppose then that it brings nothing, a complete failure. Or that countries without collaborative aid markets, do much better.

    Will Mr. Barder be held accountable? What will this intact feedback loop tell him?
    Will Mr. Barder then refund the money to the Swedish International Development agency and the Flora Hewlett Foundation ?
    Will the author be sacked by his aid-employer, as would no doubt be the case in the private sector?

    No, of course not. There will be much more pages of such papers produced, more discussions provoked, and with some luck for him, a nice $ 200K job at a multilateral agency will be waiting for him. The poor will be delighted.
    And his own poverty eradicated!

    But as the last 5 pages of references suggest, there are many people like him, being paid for writing things about aid, citing each other and Adam Smith, none held to account when their policy recommendations end up badly hurting the poor.

    I guess this is the prevailing aid paradigm.
    Let’s get rid of it

  2. I would be interested to know, then, what the geckonomist thinks should be done about the current aid system.
    I actually quite enjoyed Mr. Barders article; being the son of a development worker and a development worker himself, I think he has a good understanding of the aid system and the possible remedies to its problems.
    It’s unfair, at the least, to criticize someone trying to stimulate discussion. If no one brought forth new ideas, how would things change? While I agree that the accountability of Mr. Barder to the effects of his ideas would be close to nil, in the current system the accountability of every ineffective donor is also close to nil, and I’d rather see donors help responsible for ineffectiveness than someone who is trying to push for a better system.
    I do recognize that one cannot automatically assume that just because a new system isn’t the old broken one it would be better; it may be far worse, and change for change’s sake should never be introduced. However, I do believe that introducing a bit more in the way of market signals to provide better feedback would be a good way to go. At any rate, I’m pleased to see a paper focusing on NIE on the CGD website, and I’m pleased to see the aid discussion go somewhere. While the solutions put forward in Mr. Barder’s paper may not be the perfect ones (and I don’t agree with all of them), discussion has to start before change is made. In a system where organizations are held accountable, the accountability has to start somewhere, and it should probably start with those charged with doing something rather than those who try to make suggestions for improvement.

  3. geckonomist

    I don’t know what money SIDA and Hewlett have paid CGD or why – presumably they pay for the administration of the working paper series. But for the record, neither CGD nor SIDA nor Hewlett paid me a dime for writing this paper.

    I have a day job (and judging by your reaction I probably should not give that up).

    I don’t feel at all repentant about having made it clear in the paper that I don’t know whether the specific proposals suggested in it will work in advance of them being tried (which is not the same as saying that I am not sure that it contains a single good idea). I prefer to be honest about the limitations of what I know. (I also made it clear that the specific proposals were not the main point of the paper.)

    I am sorry that you were not interested in a conceptual discussion of whether we could use market incentives and networked collaboration to make the aid system work better. But I don’t think I need to apologise for having spent my own spare time writing a paper on the topic, in the hope of having a discussion with other people who are interested in thinking about that question.

    I think that we agree on one thing: the need for more accountability of both people and institutions working in development. I’m sorry you were not persuaded by my suggestions for how we might achieve that. If you have other suggestions, I’d be interested to hear them.

    best wishes

  4. It is a shame that such interesting ideas shared in this post– grounded solid intellectual theory and well intended interest– from Mr. Barder have been derailed by such an inflammatory initial response.

    Mr. Barder, as a student of international aid and development, I am interested in the discussion of using market incentives to produce a better aid system. I am admittedly fairly ignorant in terms of economic theory and only moderately better versed in political theory, but have some preliminary thoughts on the questions your paper raises.

    Capitalism operates on the principle of competitive bidding, through which greater efficiency in produced. The vast majority of countries receiving aid from the IMF/World Bank, bilateral institutions, other UN entities, etc., are currently doing so under the provision that they open up their markets to the economic system of capitalism and the political system of democracy. This would seem to imply that free-market capitalism is the goal of aid. However, if this is true, then the current aid system seems to be functionally hypocritical in the lack of competition among NGO’s to produce results. Yes, the sheer number of NGO’s would indicate that there is competition for resources and respect, yet like other “big businesses” (banking, health insurance, agribusiness) once organizations have successfully legitimized their existence in the public eye, the follow through in deliverable services can be devastatingly absent. Perhaps greater follow through by donors in seeking results can in fact create more follow through in program implementation and/or more appropriate program goals.

  5. I also agree that any new ideas in improving the way aid works are worth consideration. The way the aid regime has, and is still working, could be considered criminal in many cases.

    I think there would be much more support for increases in aid, that could make a great deal of difference, if the public perception, and reality of what the aid is doing could be seen in a positive light.

    I think V is correct in that there are too many fingers in the pot and that there needs to be tighter control on where aid goes and, more inportantly, who controls it. There have been many lost opportunities, but we can make things better with the proper controls.