Local units obeying local incentives and rules1
I remember the bleak look of the supermarkets in Nicaragua in 1992. Only a few products were available, nearly all from the same low quality brands. So where should we buy diapers, baby toys? I am speaking about the everyday things you need to run a household with two small kids. On the black market of course: the Mercado Oriental, where you ventured only with enough money to buy what you wanted. A market bustling with activity and offering products from all over the world. The government, which controlled a big chunk of the economy, trade, the borders, could not deliver simple products like diapers to the consumers, while the rough and bustling smugglers could.
Central in the concept of evolution is the principle that the result is not planned, but is obtained by local units obeying local rules and incentives, and each optimize their behavior to get for themselves optimal result, within the limits set by the rules. This is the secret of natural evolution, but also the way the Mercado Oriental could sell my kids a Korean bicycle.
Owen Barder wrote a thoughtful paper explaining exactly why it is important to move away from the current planning paradigm. In essence, the planning paradigm tries to ignore the political economy, the different interests at play in the aid environment. While a consensus is created at a higher level, the incentives to get low-level results are scant. Owen argues that instead of imposing a new plan, we should change the evolutionary pressures in order to get results where it matters, unleashing the powers of evolution by harnessing the potential of a market and network approach.
Perverse effects of joint agendas: the lemming effect.
The planning response to the lemming effect, where all donors fund the same interventions, is to create a trust fund, to support “underfunded” causes. A common complaint is indeed that some actors and causes are just not enough taken on board. The disadvantage of this kind of approach is its tendency to spread the money amongst all stakeholders (“more democratic than strategic”). It is just not done to judge the quality of the participating executing agencies. The possibility that nobody funds a project because of quality issues with the evidence base or the partner organisation is never really taken on board.
The social economy of incentives, rules and indicators
The current paradigm : an amount is a result; everybody using the same instruments and partners
The current incentives are very much skewed to a lemming – like approach to development. A mono-culture of approaches and priorities. If an approach is “hot”, everybody wants to be in the picture and rushes to join the stampede. The incentives are important to do so. Indeed, as the electoral cycle of 4 years coincides with the rotation cycle of development staff, success is not in results, but in announcements, commitments and project start ups, in line with the issues the international seminar circuit agrees upon. You shine today, not in 4 years’ time. Everybody moved on by then. The rules on “good” donor behavior will stimulate the donors to walk jointly the same paths. The current rules that donors abide with are more about how do we do what, than what should we get to. Indeed, if the MDGs would be taken seriously as a basis, the interventions would fight child mortality directly, not basket funds based on long term comprehensive plans.
The current approach, is geared to joint photo-opportunities at coordinating events and funding complex “innovative financial products” such as pooled thrust funds, Cerfs and Errfs, with overall unclear oversight structures.This approach seems to contain risks for an elected official, as all politics are eventually local.
Like buying a government bond as an investment, following the crowd isn’t exactly a bad investment: the results will be dependable, but average. However, development needs bold initiatives, where high returns and failure are the two sides of the same coin, with evaluation as a way to flip it
From identity to added value
In development, like in business, an added investment should never be decided on the average return of the investment, but on the marginal return. What will be the real added value of a small donor topping up a World Bank effort and contribute 0.3 % to a trust fund for basket funding? Wat is the benefit for a skilled plumber to start an Internet company, because the internet is where the money is? Would taking out a loan to invest in the internet startup be really the best the plumber can do?
What if a donor stopped caring about the effectiveness of the system as a whole, but looked at the results of his own money instead? Deciding on real evidence based results for the beneficiaries.
The main question should not be “what do the others do? ” but “where can I make a difference”. The Easterly post “Do what you are actually good at, or what you should be good at?“makes an eloquent case on New Zealand. But other examples abound: an analysis of the Netherlands development cooperation “less pretention, more ambition” advocates concentrating on what the Netherlands are actually good at, like water management, instead of just supporting the World Bank ideology of the day.
A focus on measuring and expected impact and evaluating results on a case by case basis should be central, in order to determine exactly how high the added value of the marginal investment is. The evidence base of effectiveness should replace the current set of proxy indicators for donor effectiveness, as they are contained in the Paris declaration or the Accra agenda for action.
For a donor politician, this seems an easy sell towards his voters: Our contribution to develpment will be linked to our national identity, like the Dutch building dykes, the New Zealanders training pacific students and helping sheep farming. We are our own man. And where we cannot help, yes, we just abstain or support whoever can do best.