Contrasting inferences

Two quite contrasting conclusions can be drawn from my post yesterday.

1. Even the grandest strategies can trip up over little details that are easily overlooked. In development programming never forget to check what is happening in the finance ministry. (Suggested by @BonnieKoenig)
2. If something as simple as lack of an appropriate budget code is what is stopping action then clearly the government concerned are not that interested. Just because the minister read the speech you carefully prepared for them, does not mean they believe in this stuff heart and soul.

Is your glass half full or half empty today? Or is it both?

What’s stopping action on climate change?

Many things apparently. One developing country, I hear today, has no budget code for climate change so officials have no incentive to provide budget for climate change adaptation.

More on monetising nature

Last week I blogged about how, despite all its drawbacks, monetising nature has a lot to be said for it in its ability to tap into the global system of values. As luck would have it I was not the only person pondering these questions that day; David Bent was also struggling with the challenges of lack of clarity over sustainability issues, but his dilemma was that of a consumer unsure as to which was the most “sustainable” carpet to buy.

David’s challenge was to determine which was the most sustainable carpet, what forms of sustainability were good value for money versus which primarily worked by appealing to middle class faddishness, and that the complexity in this field was such that the salesperson struggled to explain the differences and thus to make a well-informed recommendation. When confronted with these multiple interacting and complex variables on top of the standard set of consumer choices, such as colour, pile, look, pattern of the carpet, it is not surprising that even an expert can quickly become bewildered.

However, if each of these different variables could be priced then the problem would be rapidly reduced to the standard choice of which products do you like most (in a subjective sense) versus their respective prices. For instance if carbon were taxed or otherwise priced, those manufacturers who sought to reduce their carbon footprint would benefit from lower prices compared to their competitors. They need not directly reduce their carbon footprint, however, they might find it cheaper to buy offsets off the shelf, e.g. from forest protection. Water and biodiversity can be similarly priced and thus incorporated into our economic decision making. Yes having the wrong price can be harmful, but it is easier to adjust a price once you’ve agreed the principle, than it is to agree it in the first place as has been highlighted by the entrenched opposition to global climate change negotiations.

I think part of the problem is that many environmentalists hope or assume that biodiversity and landscape conservation can all be marketed like ecotourism. While some tourists will always opt for the simple pleasures of the Costa del Sol or the bright lights of the nearest shopping paradise, there is a very substantial market of tourists who want to go somewhere different, that feels a bit special, makes them feel a bit special, and is away from the beaten track. The hotels that appeal to such tourists are all unique in their own particular way, little of which boils down to price, although accessibility can have a big impact on the price at which services can be delivered in remote wild locations. Ultimately, such tourists are choosing a place, with all its attendant charms and flaws: more than anything else, it is an emotional choice.

A shopper in need of a carpet, however, is in a totally different position. They have no access to the sort of  detailed information about the sources of the products they are comparing or glossy photographs of the landscapes, and even if they did would unlikely to be motivated enough to want to peruse it all in detail. Instead they want a mechanism that makes their life easy. This doesn’t have to be entirely monetary, e.g. the energy efficiency star ratings system is rarely translated into the dollar cost to run the device concerned over its expected life span, but internalising such costs as carbon emitted or biodiversity lost into the product price, is the only guaranteed way to ensure the consumer pays attention (or pays the price for not).

Will monetising nature lead to distortions in how certain landscapes are managed? Without doubt. Will it be a shame if some unique characteristics are lost as a result? Yes. But if those unique characteristics are not sufficiently well appreciated to merit more stringent protection then that is s decision that society has collectively made. Moreover such distorted landscape management will almost certainly be better than converting the whole place to mechanised agricultural production.

At the end of the day the choice for society is very simple: pay for it, one way or another, or lose it.

Wherefore art thou Aid?

Nancy Birdsall and William Savedoff have an excellent piece over at CGD about one of the hidden pitfalls that lie in wait putting into practice a Cash on Delivery aid programme. In it they describe how targets, often a good thing for benchmarking performance, can fatally undermine implementation of COD. The problem boils down to this: if the donor government expects to disburse $2m through a COD programme and the recipient government expects to receive $2m through said programme, then it can be very difficult to deviate from that even though in practice one would expect variance either positive or negative, with negative deviation being the trickier but more likely scenario.

One can understand the recipient government’s situation; they would surely always want to get the full $2m even when, according to the agreed formula, their performance only merits $600k. But, what I find particularly disappointing is the tendency for the donor to want to disburse the cash any way. There are explanations of a sort: the donor has budgeted that amount, so returning it to their home treasury can mean reduced budgets in future, and maybe the desk officer find themselves in a tricky situation in their relationship with the beneficiary government, which is most easily resolved by giving in, and handing over the full amount. But none of these are very satisfactory. Pressure to disburse can be resisted with a little bit of backbone, and donor governments seem able to cope with varying budgets for things like unemployment benefit, so surely ought to be able to cope with aid budgets that fluctuate?

In my opinion the real issue, and one which fatally undermines so much of official development aid, is that the whole international aid system is constructed around the needs of the donors, not the recipients. Hence the desire to push out the $2m regardless. If we can agree that COD aid is at least an idea good enough to be worth trying, why are we trying to shoe-horn it into a rigid budgeting framework that will not support it?

The problem is that it is the act of giving which has come to be celebrated, not the outcomes of that giving. Politicians get the media coverage they crave when they announce the donation, not when (if?!?) the programme delivers on its promises. Why else the ridiculous focus on aid budgets reaching 0.7% of GDP?

If we wanted to design a system to actually deliver useful benefits to poor people world wide, rather than to reward donors, we would never come up with the system we have now. Cash on Delivery seems like an eminently sensible step in the right direction, but I fear that the required wholesale reform of the aid system is unlikely to occur before market forces and economic conversion over time remove it much of its original raison d’être, as has happened recently with the cessation of British government aid to India.

But in the meantime, if the mainstream media, in developing as well as developed countries, could learn a little self-restraint, and refuse to report any announcements of aid, just maybe we might start to have a chance …

Monetising nature

“Finally, conversion of complex landscapes into numerical and monetised metrics instrumentalises peoples and non-human natures so that these conform to a homogenising system in which money is the mediator of all value. This can displace local eco-cultural knowledge, practices and values which may be more benign for biodiversity, thereby reducing options for transferring maximum socio-ecological diversity to our descendants.”

That is Sian Sullivan on writing on Financialisation, Biodiversity Conservation and Equity: Some Currents and Concerns (emphasis in the original).

It is both an important point and also rather stating the obvious. (Important, because in our enthusiasm we are apt to forget the obvious rather too often.) However, I think such analyses sometimes miss the point in failing to fully consider the counterfactual.

We cannot put anywhere as much of nature as we would like into protected areas, and even where we can someone needs to pay for their running costs. So how can we incentivise management of other parts of the world to promote conservation and environmental issues? More to the point how can we do so efficiently and cost-effectively?

Monetisation is often not simple – just ask any REDD project proponent – but once completed you are tapped into the only globally understood system for valuation of products and services and for trade of said values.

The environmental movement is not sufficiently resourced to undertake entirely bespoke conservation in every place of interest. Monetisation may be a crude tool, but it is brutally efficient, in both positive and negative senses. It may also be the only tool available to deliver wider scale conservation.

Hat tip: Just Conservation

When the threat of war may be good for us

So Jeffrey Sachs doesn’t entirely agree with Acemoglu and Robinson in their diagnosis as to Why Nations Fail.

“The authors incorrectly assume that authoritarian elites are necessarily hostile to economic progress. In fact, dictators have sometimes acted as agents of deep economic reforms, often because international threats forced their hands.”

Sachs goes on to give a few examples, none of which post-date the fall of the Berlin Wall and Fukuyama’s End of History, unless you count the Chinese miracle, but my understanding is that that has its roots earlier. With the exception of a couple of relatively small and particularly unstable bits of West and Central Africa, I doubt that many dictators today are that fearful that economic stagnation could lead to their defenestration at the hands of their neighbours’ armed forces. Which leads me to wonder, could the collective enforcement of world peace by the UN and various regional groupings (EU, ASEAN, AU etc) have a negative impact on economic development? (It also means that both Sachs and Acemoglu and Robinson could be right.) Put alternatively, has removing the threat of invasion removed one of those critical feedback loops that Owen Barder talks about when he describes development as an outcome of a complex system? (An argument I highly commend, check out the podcast too.)

What happened to the power in empowerment?

I’ve just been listening to the latest but one Development Drums podcast, in which Andrea Cornwall and Prue Clarke discuss with Owen Barder where now for the gender movement in development. At one point Andrea Cornwall queries what happened to the power empowerment, accurately critiquing much of what goes by the name of empowerment in development as being almost entirely emasculated of any real shifts of actual power.

Professor Cornwall suggests that the bureaucratic nature of Big Aid is the culprit, that bureaucracies have trouble grappling with such issues. It is certainly in the nature of big bureaucracies to hoard power, but I would be inclined to point the finger elsewhere. Towards the end of the podcast, the discussion veers closer to my diagnosis without ever quite coming out and saying it. As for me, j’accuse the locus of international aid that puts it firmly within the diplomatic sphere.

Back when aid began as a quasi expiation of post-colonial guilt, I imagine it made sense to empower the newly independent governing states just launched. Then in the 1970s and 80s when aid focused a lot on capital inputs, new roads, tractors and power stations to go with those shiny new industrial policies the state to state model would have still been the most appropriate. But in the 21st century, when much western aid focuses instead on softer concerns like governance and participation, and service delivery in sectors such as health and education which aim to boost human capacity, such a model seems utterly out-dated.

Alas, most bilateral aid agencies are either part of the donor country’s foreign ministry or clearly subsidiary to said ministry, whilst the multi-lateral agencies are all ultimately controlled by diplomats. Indeed, donor country governments often justify aid budgets to their electorates in terms of self-interest and improving relations with international partners, i.e. that some quid pro quo may at some point be asked for and given. The US appears only to be one of the most brazen in its demand that every donation be prominently stamped as a gift from the American people, with humanitarian philanthropy apparently a poor second in political motivations for international giving amongst most donor governments. When the act of giving – those high profile pledges of funds – gains far more attention than any actual outcomes of giving, is it any wonder that aid agencies struggle to deliver meaningful development?

Coming back to the challenge of empowerment, the problem, as I see it, is that as soon as you define aid as a government to government transfer, your capacity to achieve any significant transfers of power are almost negligible. Turkeys do not vote for Christmas, and the prestige of a presidential jet, alas, nearly always appears to be higher priority than the provision of clean drinking water to a developing country’s people.

I suppose there is an argument which says that all the official government aid is a bribe to provide cover to the funding given directly to civil society groups which otherwise are liable to get painted as nefarious agents of foreign powers or other euphemisms of the dictatorati. Working as I do in community conservation, I try to remember – as I lament all the money wasted through largely ineffectual official bilateral and multilateral projects in this sector – that without such colossal greasing of the wheels it is extremely unlikely our small NGO would have ever even got off the ground. But, if that is the case, it would be nice to see rather more honesty about the processes and what they are expected to achieve. Channel money for empowerment and governance initiatives primarily through NGOs and other civil society groups, accept that official state aid will be primarily be spent on salaries and physical assets, and seek to work with that flow rather than against it. Whatever you do, please do not ever pretend that sending some senior officials on the next foreign junket (aka international workshop on governance best practice) is even remotely empowering for anyone who actually needs empowering.

You never know, we might just succeed in empowering the empowerment movement …

Does demanding contributions from local beneficiaries work?

Here’s a question for all you development research types (especially the randomistas).

A lot of community-level capital development projects these days seem to involve a requirement that the beneficiary community make a contribution towards the development. Sometimes this is in the form of free labour, other times it is financial. So, for example, a new bore hole and pump may cost around $20,000; the donor will pay the bulk but ask that the community stump up $1,000*; communities that cannot or will not stump up do not get the new well. The theory, as I understand it, is that if the community have had to stump up then they will value the development more, be more likely to take care of it etc, and the development project will be more successful as a result.  Conversely also, communities who do not stump up are assumed to not sufficiently want a new well, and thus the money is better spent elsewhere.

The second part of that theory has the obvious flaw that some communities may simply be unable to afford $1,000, but still it is a very seductive idea for directing aid to those areas which will benefit from it and value it most, and also increasing the likelihood of sustainability. If I were in charge of a programme offering such capital development grants I think I’d incorporate the requirement in my programme’s design.

But, does it really work? Or does the requirement for a local contribution simply slow down disbursement, miss out some needy communities altogether, and save the donor a negligible amount of money (unless so few communities can afford the contribution they don’t even spend the entire programme’s allocation)?

In particular I wonder whether if the community had to pay $1,000 for the new well then they might only value it at $1,000. Such a valuation might not even be completely irrational if the community sees other neighbouring communities also getting the new well for the same price (i.e. the wider programme effectively establishes the local price), and, following previous practice by the same and other donors  in the area, the community may consider it a reasonable chance that if in 5-10 years time the pump is broken, some donor will offer to repair it for another token contribution of $1,000.

Moreover, assuming this is now a ‘community-owned’ well it is unlikely that it provides value to any one individual of over $1,000, especially when labour is so cheap, and the primary water fetchers (women) have less political influence, and thus individual incentives for maintenance may be dulled. Cohesive, well led communities can of course overcome these challenges, but they are the exception that proves the rule of the tragedy of the commons from which communal investments often suffer. And investing in local community governance is a long, expensive undertaking which does not sit well alongside a quick in-and-out capital development programme.

Has anyone ever done any research on this issue? The relatively long time periods required to judge sustainability might be one challenge, but I could also imagine how it might be possible to measure earlier proxy indicators of likely success within a couple of years of installation. Anecdotal  evidence of success in NGO projects is not without interest in this area, but it might suffer from a question of attribution in relation to this measure versus other forms of support that the NGO provides as part of the integrated package.

Please enlighten me in the comments.

* I’m not a water engineer. These prices may be completely unrealistic. The exact numbers are not important to my basic point.

The Charges against Big Aid

Terence, the Waylaid Dialectic, tears a couple of fair sized strips off Jonathan Starr’s self-righteous polemic about Big Aid. Terence’s points are well made, but I think not the whole story.

For a start, stripping away the pomposity, Starr is surely right when he says Big Aid has an accountability problem. As I and many other bloggers have remarked time and time again, our ‘customers’ are not the same people as those who pay the bills and that leads to massively misaligned incentives. Starr thinks he’s solved this by charging for his Somaliland school’s services, but (as Terence points out) since that only covers a fraction of the true costs – most of which are subsidised by volunteer teachers providing their time for free and him donating a pile of cash – I am not convinced he’s closed that case.

Still, for those of a certain political persuasion, the suggestion that our governments may be throwing millions of dollars at an unaccountable bureaucracy with a poor record of delivering its stated target results will be a like a red flag to a bull. International aid is surely not the only programme funded by Western governments to be susceptible to such a charge, but nonetheless we need to be able to justify aid spending in economically straitened times, and at present I do not think we can do so convincingly for large portions of government aid budgets.

Part of the problem, I think, is what Terence alludes to at the end of his piece when he states:

“Some aid fails because it’s bad. But a lot of aid is actually pretty good. And the reason why it still fails, when it fails, is only sometimes to do with the qualities of the people and organisations delivering it. More often, failure stems from the simple fact that the problems aid is being asked to solve are frequently close to intractable.”

There are two responses to calls for cash to be spent on problems that are “close to intractable” (aka wicked problems): (a) conclude that any investment of resources is highly unlikely to yield any results and thus refrain from any attempt to tackle said problems, or (b) determine that such problems are too important to be just ignored, and that it is fair and reasonable to take a few risks and try a few different approaches to see what might work. (Whatever you do, just don’t equate big problems with the need for big amounts of cash!)

Whilst some donors may decide that approach (a) is what best suits them, we can surely also support the idea that taking option (b) can also be a good idea. The problem, as I see it, is that we are very rarely upfront about the risks of failure. Far too much of the conservation and development industry is extremely reluctant to admit to failure (or even just disappointing results); glossy brochures proclaim an unending procession of success stories.

So by all means we should try to tackle these almost intractable problems, but we should be honest about our expectations of success in advance (sensible risk management), and we should also balance our portfolio with a good number of projects which follow more tried and trusted routes.

ps. Disclaimer: I helped setup and run what must surely be the most ‘perfectest’ of NGOs (according to Terence’s classification), so may not be regarded as entirely neutral in the basis for my above-stated views.

Blame it on the speculators, why don’t you?

Catching up on what’s been on the Guardian’s Development Matters blog, I’m surprised that no-one else has yet chimed in on the dodgy economics on show by Christian Aid’s Alex Cobham when he points the finger at pension funds for helping drive up world food prices. Now I’m not an expert economist, so I will gratefully defer to anyone who can point out that the error in the following.

One of the basic principles of economics is that prices rise when demand exceeds supply, but then these price rises should stimulate further production thus taking the edge off price rises. So before we get to the pension funds, we have to ask ourselves, are there external factors driving up the price of food globally, to which we answer yes: rising populations, increasing prosperity (richer people eat more and eat more protein which takes a significantly larger land area to produce per unit than arable crops) and climate change are all at work, meanwhile yield improvements are tailing off a bit. This is why rich Arabs and others are buying up large tracts of Africa, and equally why the pension funds are investing in agricultural commodities.

The more important question, in my mind, is why has production not responded to these clear price signals? Farmers are better able to respond to incentive price increases than suppliers of other commodities: new mines and oil rigs take a while to come on stream, whereas farmers can easily up production the following year. Global food prices have been high for a few years now – albeit with plenty of volatility – long enough for farmers to respond. That they haven’t done so sufficiently suggests to me that there is something wrong with the operation of global food markets, which there is; they must be the most highly subsidised in the world and are also subject to various price controls and periodic export bans by twitchy governments.

That is not to say farming is not a risky business: it is, and global price volatility is ample evidence of this. However, commodity derivative markets can actually help a poor farmer who is weighing up whether or not to invest in additional seed or fertiliser this year: they allow the farmer to enter into a contract now to deliver at a fixed price later. (Since bad weather can easily wreck the best such laid plans, the farmer would be well-advised to buy some insurance too.) This is one thing often forgotten about financial derivatives: most (I hesitate to say all) were first devised to ameliorate risk for producers and consumers, not for the benefit of speculators.

However, in the developing country where I live and work, the state controlled marketing boards and cooperatives are extremely poorly run. I suspect very few people working in them even have any idea as to what a commodity derivative is, let alone how they could use them to support their farmers. It is a fine idea to provide floor price support to farmers, but these cooperatives do so so inefficiently that one really has to question their raison d’être. Simply closing them down over night without any replacement, as happened in some countries under IMF-led structural adjustment strictures during the 1990s, would probably leave farmers bereft of any support, but allowing them to be replaced gradually by private sector players, who at least have clear commercial incentives to boost production, would seem a sensible option to me, with governments reduced to a buyer of last resort to provide a guaranteed floor price protection that should insulate farmers from the worst kind of exploitation by the ‘evil’ middle men of agricultural commerce.

Although there may be fortunes to be made and lost along the way, speculative bubbles that do not have any foundation in market fundamentals will play themselves out in time. Moreover pension funds are not your average speculator; they tend to invest for the long run. If they thought there was a problem of over-supply in world farming they simply would not invest. Global agricultural markets must be massive; that speculators – whoever they may be – can have an impact speaks to me more of a tightness in supply coupled with artificial narrowing of the market by price controls and export restrictions.

I doubt that full market liberalisation is the optimal solution to agricultural commodity price volatility, and in any case it is clear that politically this is currently out of the question. But a lot could be done to make markets operate more efficiently, and to allow developing country farmers to benefit more from rising demand. Blaming pension funds and other speculators, however, is akin to shooting the messenger. Christian Aid should be capable of better than this kind of base populism.