Aiding development: the way forward

1. Aiding development: the way forward Dutch development policies reviewed and renewed

2. Aiding development: the way forward Content • Criticique on development cooperation • Scientific Council for Government Policies • Analytical model • Social or economic focus • Government respons: some considerations • Modernizing development cooperation

3. Aiding development: criticism 1 • Critique started when development cooperation started: 61 years ago • Critique grew significantly at the turn of the century. • A closer look: at least 3 categories of criticism to be distinguished. • legitimacy of aid • effectiveness of aid • efficiency of aid delivery

4. Aiding development: criticism 2legitimacy • Aid makes poor countries and poor people dependent. • Financially: the problem of grants • Socio-economically: the beggar problem • Politically: the legitimacy problem • Aid ends up in the wrong hands • Corruption • Elite capture of aid • Supporting development should be more focused on our own interest. • Motivation: self interest, shared responsibilities, strategic benefits.

5. Aiding development:criticism 3-effectiveness • Aid does not lead to results • MDG’s: too broad and too much a human development concept • No results framework, no results based management, weak governance • Pro-development coherence across governments more important than aid • From trade not aid to aid for trade

6. Aiding development: criticism 4-efficiency • Aid industry: • too many organisations, lots of bureaucracy • overlapping mandates • division of labour • Non predictability • Intelligence • Step by step with intensive learning • Demands for accountability and results

7. Aiding development: WRR • WRR stands for Wetenschappelijke Raad voor het Regeringsbeleid or Scientific Council for Government Policies. • WRR : independent advisor to the government on strategic policy issues • January 2010 ‘More ambition, less pretension’.

8. Aiding development: WRRThe analysis (1) • WRR redefines development: “development is almost always defined as a deliberate acceleration of modernization, interpreted as the synchronized fourfold transition of economy, government, political system and society”. • Let us consider this model more in depth

9. Aiding development: WRRThe analysis (2) Economy Governance Politics Society

10. Aiding development: WRRThe analysis (3) • The proces of transformation involves each of the four domains, but in the perception of WRR the engine of transformation is the economy • This choice comes back in the advice to move away from investing in social development towards economic development

11. Aiding development: WRRThe analysis (4) • This choice however is cumbersome. Not in all societies and not in all periods of time, the economy needs to be the engine of transition. • Path-dependent trajectories can and must be discerned. Not only for the economy to catalyze development, but also for the point of entry of pressure to change.

12. Aiding development: WRRThe analysis (5) • For this to understand, the binding constraints approach of Rodrik is of help • This theory defines development as the subsequent removal of the most pressing binding constraint to development. • The most pressing binding constraint can be in any domain.

13. Aiding development: WRRThe analysis (6) • Where does the pressure to change come from? • In practice: from outside • Usually in the form of a perceived threat • Usually through a network of elites • A side step: the theory of Douglass North • Primitive states or limited access societies are held backward because of a deep monopoly of power and economy by elites

14. Aiding development: WRRThe analysis (7) • Why should elites want to change? • Because of outside threats • Because of exposure to new sources of wealth • What have we seen happening in practice: • First relieving the monopoly on the economy • Second relieving the monopoly on power • Example: South-Korea

15. Aiding development: WRRThe analysis (8) • Let us now move back to WRR and Rodrik • Development is about transition; transition starts from outside; the most pressing binding constraint will come forward; in practice this has been the economy. • Thus WRR concludes: economic development is the way to go.

16. Aiding development: WRRThe analysis (9) • What is problematic? The fact that most developing countries are not in a starting position, but already in transition: • Exposure to the global economy • Exposure to global public goods • Exposure to an international architecture for problem solving • Exposure to international powerplay

17. Aiding development: WRRThe analysis (10) • Development is an iterative process, not a linear process. • Therefore in all 4 domains constraints need to be solved iteratively • That is why country and context specificity is needed • External influence can help, but usually only where change is happening. • Therefore donors should link to those struggles for change, where a difference can be made.

18. Aiding development: WRRSocial or economic focus (1) • Struggle for change happens where binding constraints are felt. • In South-Korea we have seen that after initial restructuring of land to spark off agricultural growth, government became a binding constraint. Capacity to deliver was strengthened • At a later stage society became the arena for action, asking for political change • Democratization emerged as a solution to reaccelarate economic growth, etc.

19. Aiding development: WRRSocial or economic focus (2) • The conclusion therefore must be that development cooperation can not operate from a blue print scheme. WRR agrees • But this implies that sometimes government, sometimes economy, sometimes politics and sometimes society are the arena’s for effective development cooperation. • With its claim for economic development, WRR is close to adopting a blue print approach.

20. Aiding development: WRRSocial or economic focus (3) • The shift towards economy based on: • 80% expenditure towards social sectors • Aid dependency argument • Social sector spending has no structural impact on development • In fact the spending on social sectors has been considerable, but in the order of 50%. The mistake is of a highly technical nature (current price comparisons, financial commitments in stead of cash flow comparisons)

21. Aiding development: WRRSocial or economic focus (4) • Aid dependency is indeed often quite high. However, 2 remarks: • Economic growth is not matched by higher aid flows, therefore growth will reduce aid dependency • Eventhough aid flows went up last decade, aid depency in developing countries reduced overall and was consolidated in most specific cases • Tax income in nearly all developing countries of Dutch development cooperation has gone up as % of GDP.

22. Aiding development: WRRSocial or economic focus (5) • Social investments have direct benefits to economic growth. Education, HIV/AIDS prevention, general health, clean water availability all alike. The same is true for investing in governance capacity. • Finally, WRR neglects a division of labour already in place during Washington consensus.

23. Government response (1) • Yes, the economy is important. A shift to economic development is warranted. But for other reasons. • Growth is picking up in poor countries. In sub Sahara Africa some 17 countries have seen 5% annual growth over the last 15 years. Other countries also show positive per capita growth. • More inclusive government policies are needed. Therefore government should lead social investment programmes.

24. Government response (2) • Currently, donors are financing large part of social sector investments. • Donors shifting towards economic support and governments focusing more on social sector investments is a new divison of labour that needs to be negotiated. That is the aim. • The MDG programme therefore will become more partner owned.

25. Government response (3) • Pressure to change is now highly associated with globalization. • From the analysis it is clear that the issue of globalization does not only require the provison of global public goods at interntaional level, but the combination of delivering public goods at global, regional, national and local levels. • The challenge is therefore to operate within chains of delivery.

26. Government response (4) • GPG’s are the new talk in town. More precision is required. As a matter of fact, the distribution of and acces to GPG’s is usually the problem • This means that developing countries must become more active partners in the multilateral system. Also that system should become more binding in its commitments.

27. Government response (5) • Country specificity indeed. Dutch system of delegated aid management with strong presence at field level will be continued. • More focus on strengthening the local economy logically involves also the private sector. If expertise and added value are recognised by our partners, a natural involvement of private sector can take place. • Crucial is the knowledge and expertise: it will become the cornerstone of effective development policies.

28. Modernizing Dutch Development Cooperation (1) • Sub-Sahara Africa is to become the new growth market in the world economy • To enable growth to contribute to development, elite capture through monopolisation of power and economy must be minimized • This requires foremost dialogue, real political engagement and more vibrant societal linkages

29. Modernizing Dutch Development Cooperation (2) • None of these issues require hugh sums of money: knowledge, experise, involvement, level playing fields will be the themes for the future development cooperation. • The devlopment investments in future will be much more private than public. • In this NGO networks and private sector investments will play a crucial role.

30. Modernizing Dutch Development Cooperation (3) • This future prospect is not yet reality • Eventhough development cooperation will change and will once more become a knowledge intensive field of policymaking, current investments are still badly needed. • Change occur, but still fragile. Successes are considerable in terms of life expectancy, education, child mortality and economic growth. • This agenda needs persistence!