A hypothetical proposition

Discussing my previous posts on the lack of donor success in stimulating serious governance reform in developing countries a friend asked, “So what’s the alternative?” Here’s how I think it could work if donors abandoned their posse-ocracy and actually got their act together, i.e. a purely hypothetical proposition.

It’s a form of  COD aid for GBS (that’s Cash on Delivery aid for General Budget Support for those not fully inducted into the development sector’s jargonology). You start by defining the general conditions under which you, a donor, are prepared to give GBS aid. You could do this based on national GDP, poverty rates, or following Andy Sumner’s recent conclusions (that most poor people are now found in middle-income countries), based on sub-national analyses. If you were sensible, you would define this on a marginal basis, like different income tax tiers that only apply to the amount of income above a certain threshold, so as to provide a smooth exit ramp out of GBS aid as countries (hopefully!) grow and reduce poverty amongst their citizens, although there would probably be a minimum amount ($10 million?) below which you just wouldn’t bother to disburse GBS aid to a country at all.

The important thing is that you make these same rules apply to all developing countries across the world, irrespective of previous national ties and other ‘strategic’ considerations. Thus any developing country with an interest in GBS (the juiciest form of aid) can instantly work out how much it could be in line to receive straight into their treasuries. Yummy! But, aid recipients have lots of different donors to bargain with, so you need to all agree on what are your conditions, and these should apply to all donors who join the system.

There could be certain minimum requirements, e.g. basic democracy; if you don’t meet these then no iced lolly, I mean GBS. But many other governance requirements could be handled through proportional reductions. E.g. if, as OECD DAC appear to, you really believe that a giant work of fiction entitled National Poverty Reduction Strategy is important, then you could say that not having one reduces the maximum GBS available by 10%. Such conditions could even have a temporal dimension, e.g. in year 1 you have to write the NPRS, so no reduction, but you lose 10% in year 1 if it’s still not written, and this could increase to 20% in year 2 etc. Of course, as any blogger knows, good story-tellers need to be kept in gainful employment, so you should also demand the NPRS be updated every so often (5 years?), and the penalties are reinstated if you don’t keep up with this process.

More usefully you could make sliding-scale conditions around financial management processes, audits, democratic oversight of budgets and the like. Some could even work in reverse; extra iced lollies for the best behaved! Some conditions will be general and widely applicable, others may be specific to the developing country concerned. E.g. developing countries who let big corruption scandals go unpunished in the courts would lose their GBS.

The big benefit of this system would be that developing countries would have a clear set of goals, and remove the usual messy negotiations surrounding renewal of GBS. Earlier this year Malawi had its GBS from the UK suspended due to increasing authoritarianism; with well-designed rules this might have translated into a gradual withdrawal, plus a clearer understanding on the part of President Mutharika as to the road that he was heading down and the implications of doing so. Like Saddam Hussein and his WMD, developing countries often believe they can snub their donors to little effect, and only discover too late when they are wrong.

Moreover developing countries would have a clearer view of how they are faring against their peers, with the knowledge that those who reform most effectively will get the most the cash. Conversely, if there are insufficient reformers, donors need to be strong enough willed to simply use the money to pay down their national debts, and stop the nonsense that just because money has been put on the table that it has to be used. All society is built around rules-based systems, and in every walk of life we see the benefits of this approach and the clarity it brings. Why should development aid be any different?

There are two big dangers I can see with this my hypothetical proposal. One, which it shares with the rest of COD aid, is the need for rigorous independent processes to determine when conditions have been met. For national level governance controls this is always going to be a politically fraught process, and there will probably be more grey areas than the simpler deliverables that mostly are suggested as targets for COD aid, but I don’t see that this has to be a show-stopper so long as the political will can be found, and donors do not break ranks at the first sign of trouble.

Secondly there is a danger of development by blueprint. The design of the various conditions would need to be smart enough to allow for local flexibility and adaptability in how they are implemented without compromising on the essential governance improvements that are sought. I would imagine the conditions would need plenty of tweaking as we went along. But arguably donors are already doing this, pushing things like the World Bank’s Medium Term Expenditure Framework, and the basics of sound financial management cannot vary much with social setting.

Finally, I would also note that such an approach might not be very clever in the most fragile states where political compromise is the critical criterion against which all policies will need to be judged, and where a certain amount of leakage through patronage networks an unpleasant but necessary price to pay for peace. As the recent example of Afghanistan shows us, determining when to move to a more normal treatment of such issues is a very tricky judgement call to make.

Aid effectiveness and governance experts have probably already dreamt up such a system, spotted the flaws in it, and discarded it, but if so I haven’t read about it. (This says more about my reading habits than anything else.) But when even the normally upbeat Owen Barder is moved to say “The development sector is in a mess.” I am inclined to think that almost anything is better than the status quo and needed if we are to sustain political support for aid in donor countries. Unfortunately the status quo is real, and all of the above is purely hypothetical.

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4 responses to this post.

  1. [...] A hypothetical proposition on governance reform – http://bottomupthinking.wordpress.com/2011/09/30/a-hypothetical-proposition Sharing is caring: why handing out money is a good practice – [...]

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  2. Hi, nice article.

    As you know, I am not a big friend of Budget Aid. It is probably a nice solution for behemoths like DFID or The world Bank, but most donors are not the World bank (see also http://www.youtube.com/watch?v=owGykVbfgUE). As a small donor (everybdy is small compared to the World bank) the added value of budget support must be diminished with the increased complexity of the system.

    The problem is that GBS only works in a small band (see Owen his post): ten to 12 countries worldwide are really stable enough, have institutions that work good enough etc. moreover, once they work really well, the disadvantages from the project approach disappear: the system is so well developed, that they can manage donors at lower levels (lowering transaction costs in one go: GBS is always high level).

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    • That’s an interesting thought: if you’ve got the capacity to manage GBS then you don’t need it. Also the fact that it is a niche form of aid only relevant to a few countries. (Think I must have missed that point by Owen.) Still, even if most countries were not eligible, the existence of such a fund with clear rules for qualification might provide some kind of incentive for non-performing countries who are close enough to the threshold to up their game. Countries bent on pursuing another route, e.g. Zimbabwe before the unity govt, presumably would not be persuaded to change their ways!

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  3. […] on a whole ladder of rising levels of cash support for good behaviour such as I’ve mused about before. It’s never going to happen, of course, and even in the case of democracy, I am sure all parties […]

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