Aid evolution: a system beyond planning, markets and networks

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.

The concept of evolution is interesting to apply to development processes, as it would turn the current paradigm on its head: a lot of proclaimed principles  work against the grain of the self interest of the actors, and by striving to commonly defined goals, the actors flock towards one-size fits all fads instead of trying to optimize the results of their own efforts. An evolutionary approach would make donors flock to high result areas, but also reward higher benefits when specializing in a less crowded area.

Beyond planning, markets and networks

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.

Admitting that coordination problems are insoluble could point in a more fruitful direction, such as specializing more and then you won’t have to coordinate

As only a few aid agencies have the wherewithal for good research, the research of the World Bank and DFID is dominating the discourse on development. It is not surprising that the best course of action for a whale like the World bank is probably not the best course of action for a mountain goat like Luxembourg or Switzerland. Under the current paradigm, the Paris Declaration, this is largely ignored. All should invest more in basket funds and budget aid2. If a small donor would strive to get some expert knowledge in only a niche, like in land management in mountain areas, their credibility and added value would probable be way beyond their monetary contribution, while the value of money in a basket fund is never much beyond the nominal value. What is the best course of action for the World bank might not be the best for the recipients, nor the individual contributing donor. As the consensus tries to cover all aspects af development, it pushes the donor countries to spread their support thinly, towards all good causes. This is something where the World bank might strive for, but for a small donor it leads to a ridiculous number of small contributions.

At the same time, the current consensus leads donors to select the same donor darling countries, or the same sexy themes of gender and development. In the current paradigm, where the budget and not prior evaluation is the tool for deciding on an intervention, the donor has no incentives to search for his own niche.

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

A number is simple and authorises everybody to judge whether it is much or not. However, in development the amount invested is seldom related to the results. The drive for higher project amounts is not based on economies of scale, but rather on the capacity of donors to manage transactions. The difference in efficiency between interventions rank from micro-interventions with huge payback (e.g. the Sant’Egidio community succeeding peace negotiations in Mozambique) to huge interventions with catastrophic results (the US intervention in Vietnam?) with combination in between.

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.


1 The greatest Show on earth, Richard Dawkins, 2009, p 218

2 Let alone the Paris declaration is mostly based on in house World Bank research that has been found inconclusive in subsequent World Bank research reviews.

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