Is rent-seeking effective development practice?

I must admit, I only now read “The undercover Economist”. It made me look with new eyes to the set-up of my environment: development and humanitarian assistance. It made me also look again at some behaviour of development actors in the

Rent-seeking is a natural tendency in the economy: It is always easier to try to make more money without producing anything than going through the effort of competing on the delivery. Typical examples of rent-seeking are protection rackets, cartels and monopolies, regulation or corporatist behavior to keep other entrants in the market out.

Rent-seeking is something we link normally to “corrupt third world bureaucracy”.

However, to what degree is rent-seeking behaviour embedded in the development thinking? Are organisations and institutions better understood when we accept that they maximize income and power instead of doing good according to their mandate and expertise? I will try to highlight some consensus thinking that carries risks for promoting rent-seeking behaviour. In order to decide whether this risk translates in real live rent seeking behavior, a more thorough study would be necessary.

I will touch briefly on 3 elements: the role of the gatekeeper and coördinator, government assistance and humanitarian assistance.

Development and humanitarian aid thinking is being dominated by some initiatives that claim to boost efficiency through the promotion of principles. Do these principles favour innovation and competition or do they strengthen entrenched powers and lobbies?

In most of these efforts, coördination and the role of the coördinator is central. OECD is leading the Paris Agenda on the global level, while the World Bank is leading the budget support efforts in the field. This gives both organisations indeed the possibility to boost their influence, power and ultimately, resources. The discourse of e.g. UNDP on their place at the table for sector wide approaches is telling: it looks like the benefits of being bestowed with the central role are important. The danger for rent seeking behaviour by these central players is important. However, it is not easy to separate a “well deserved leadership role” from the role of a rent-seeking gate-keeper: in most cases the well deserved leadership role could make some rent-seeking possible, with overall positive effects. However, the way the World Bank used flawed research to promote its role in the past is hinting that rent-seeking cannot be excluded.

In the humanitarian reform, the central place of OCHA and the UN-system is officially recognized, while there is de-facto competition from the NGO-sector, the Red Cross movement and MSF.

The OCHA headquarters extra-budgetary expenses increased from 20.5 millions in 2005 to 70 millions in 2009. The overall assessment is that OCHA became a lot more responsive and efficient in that period. However, this is a huge increase, that could have been used elsewhere in the humanitarian system.

The Paris Declaration is the father of all aid efficiency efforts. Only five principles underpin the Paris Declaration. Absent are poverty or governance results. The focus is on the process of aid transfers. By prioritizing the process an not the results, it entrenches the power relations within the described process. A declaration more geared to results would leave more leeway for innovation, in instruments, partnerships and processes.

The Paris Declaration starts from the absolute ownership by developing countries. This squarely puts the monopoly on strategies in the hands of the programme country government. Not the population, nor the Parliament. On a lot of issues this is normal (e.g. security, elections, even education). However, on other issues crucial for development, other actors might be better placed: banking, industrial development, even some forms of private education. Moreover, in some areas where government is the duty bearer, they might be able to limit themselves to a normative role. By putting the ownership fully in the hands of government, the Paris declaration limits the need for getting the backing and legitimacy from the parliament and the population. So it would not be surprising to see the governments getting Paris Type Assistance to have little problems to keep power, just like any petrol based government. This principle is even more risky when considering the number of governments without a popular mandate or without proper feedback systems. It is a fact that poverty alleviation is not a central thought for most governments in the world, not even in the North.

The second principle is that donors align behind the country government objectives and use local systems. Of course, when dealing with core government services, and the local systems are not broken beyond repair, this seems to be a good idea. However, development assistance is more than core government services and local tender procedures are often very much “tied” to national providers that are not always the most efficient or lead to a higher price, as the local market can be rigged.

Harmonisation is the next principle, with different aspects: donor countries coordinate (read: form a cartel, often lead by the member with the highest capacity such as the World Bank or DFID). On the other hand: the simplification of procedures and sharing of information are weapons against rent-seeking.

The other two principles, results and mutual accountability are possibly a protection against rent-seeking: if results are measured and acted upon, this feedback loop would lead to more results, and the increased accountability would equally improve the effectiveness.

The Paris Declaration obviously protects the signing parties, governments and important multilaterals from competition, while including a few guarantees against abuses.

Good Humanitarian Donorship is the other important “principles” document. The principles are legion: 23 principles, many of which are clearly putting results for the beneficiaries central: Principles 1 to 3 states what the results should be, for whom, and how we assure the beneficiaries get the results.

The general principles mostly strengthen this results oriented drive: promoting the humanitarian law, timely, needs based funding, involving of the beneficiaries in the humanitarian response, etc.

A risk for rent seeking resides in the needs based allocations: as it are the humanitarian actors who write the needs assessments and run the programmes afterwards, the manipulations of needs assessments is an obvious danger. Moving to a cartel-like approach with joint needs assessments will not solve this risk. An independent needs assessment or review is needed.

Principle 10 supports and promotes the central and unique role of the United nations in providing leadership and coördination, the special role of the Red Cross and the vital role of the UN, Red Cross and NGO’s in implementing the humanitarian action. Why the leadership to the UN and not to the Red Cross? Why do we give the lead on water provision to UNICEF and not to an NGO? Should there really be a lead? It is important to limit rent-seeking that the different competing actors are explicitly kept on board. Due to the mandate and legitimacy of the UN-system with all governments, this central role can be argued, but should also be earned in every crisis again.

Coherent action is needed in the logistics-intensive urgent operations. An hierarchical, army-like structure comes to mind. However, a regulated monopoly could be more effective than the current vague formulation, authorizing to harvest contributions for coördination, without the means to be held accountable. A privileged position is created, without a strong accountability structure.

Without any doubt, a lot of the improvements in the humanitarian system have been facilitated by principle 10. However, there is a risk for rent-seeking if the accountability is not properly in place.

As the main principles, numbered aptly numbered 1 to 10 are overwhelmingly gearing towards results, rent seeking might be more limited within the GHD-approach than in the Paris approach.

The good practices in donor funding however contain some obvious dangers for rent seeking: funding becomes all but guaranteed for the different humanitarian organisations, and depends solely on the needs of the beneficiaries, not on the efficiency of the execution. New requests are not met by prioritizing, but by new funding.

As an antidote, the standards, accountability and learning principles strengthen the oversight and innovation. Oversight and innovation makes it easier to identify rent-seeking and break entrenched interests.

The role of the civil society is generally recognised in development thinking. In humanitarian assistance the NGOs are even given a “vital role”.

Concluding, in the GHD principles, there are risks of rent-seeking, mostly by creating gate-keeper and coordinator functions. In the Paris Declaration this behaviour seems to most entrenched, and a further study whether this actually leads to rent-harvesting by these gate-keepers would be necessary.

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