Foreign Aid & Civil Society
The Incentives of Development Aid
The longer I stay here, the more skeptical I am of development assistance.
Examples keep emerging of the perverse effects of development aid. In the refugee areas of Nairobi - such as Eastleigh (where Somali refugees have settled) - donor dollars provide health services, water, and infrastructure. While the neighborhood is not heaven, what does this do to surrounding areas? Ignored by both donors and the government, they are deprived of public investment and end up far worse than their neighbors. What kind of justice is this?
Or, take the current drought in Kenya. The UN and other agencies had been warning about an impending famine for months. The government, with stockpiles of maize in the west, did not act to prevent it. Why? Because doing so would have meant foregoing millions of dollars in relief aid that is now pouring in to line the pockets of corrupt officials.
In Development as Freedom, Amartya Sen argues that no democracy has had a major famine. But he did not account for countries so dependent on foreign aid that the incentives of politicians are skewed. Politicians no longer have to answer to the general public. If they fail to feed the hungry, they - and the media - can blame development agencies.
And this is to say nothing of the incentives within the UN. One of my earliest posts was about how people in the UN are obsessed about finding funding and then spending it. I now know why. Because project funding is often tied to salaries, with an official’s salary often coming from a project. That is definitely a strong performance incentive, but absolutely the wrong kind.
So why do projects come into being? Because I need my paycheck. Or, because a donor I know has an interest in a certain theme - perhaps a unit head at the World Bank likes to work in ICT; or someone at SIDA wants to focus on youth employment; maybe the new IDRC priority is governance. Whatever the case, projects come about because of a confluence of a number of interests. They take on an identity of their own and become so powerful that challenging them may be not only impossible but inadvisable.
I must admit there are several exceptions to the rule. People work hard, and like to believe they are making a difference. The question I struggle with, and to which my answer is constantly contradictory, is what is the role of development aid? And of the wider UN?
It is common in banks to tie performance measures to revenue generated. But the UN is not a bank. Tying performance to resource mobilization or delivery takes the UN away from its beneficiaries - the people. It makes the UN’s first priority resource mobilization. Serving the reality and needs of people becomes a distant second. If we are to believe that people respond to incentives, development assistance changes the incentives of those delivering it - as well as those receiving it.
Discussion
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[...] As I’ve argued with friends, the incentives of development aid are all wrong - meant to preserve the very poverty it is supposed to cure. But first, three points of note from the report and the WB’s response to them. [...]
[...] As I’ve argued with friends, the incentives of development aid are all wrong - meant to preserve the very poverty it is supposed to cure. I will return to those objections taking a theoretical and empirical perspective. But first, three points of note from the blog entry. [...]
[...] In that, Posner uncovers an exceptionally illuminating contradiction of IDA. The very countries that decry welfare at a national level have no qualms about applying welfare at an international level. He also mentions other problems and limitations of IDA, in particular dependency and incentives of recipient countries, the resource/aid curse, and the true value of charity. [...]