Aid effectiveness

The United Nations Summit on the Millennium Development Goals ended a few weeks ago. Like many others, the German Chancellor Angela Merkel said that it was not only the financial resources made available to development cooperation that were important, but rather how effectively those resources were employed. These statements reflect the growing consensus that the volume of aid does not necessarily determine its effectiveness in terms of achieving key goals such as poverty reduction, peacekeeping and promoting democracy.

Cross-country comparisons do not provide robust statistical evidence that the volume of transfers has positive effects on economic development or "good" governance. Whether or not development policy is effective is thus not only dependent on the volume of aid, but also on the quality of the development policy interventions as a whole in a particular country. A considerable number of regulatory policy reforms are needed in order to boost aid effectiveness.

More money doesn't guarantee results

Development cooperation often addresses countries with limited administrative capacities, limited rule of law and low levels of democratic participation. It can, therefore, hardly be assumed that more money poured into such countries will automatically lead to greater effectiveness. As a result, development policy is always a risky investment of public resources.

Minimizing the endogenous risks of development cooperation requires not only partner countries, but also donors, who have a key role to play. However, one cannot automatically assume that aid and foreign policy agencies on the donor side will always focus their efforts on achieving the collective goals of the policy field.

Much like large parts of national health and education policy, cross-border development assistance is characterized by the redistribution of resources through the state, which comes along with huge challenges for regulatory policy. Very few would doubt the appropriateness of redistribution in domestic social policies, but it is also evident that interest groups active in these policy fields are not acting solely in the public's interests.

Here there is need for state intervention: not for taking over private activities or building bureaucratic monsters, but for establishing a regulatory framework that sets strong incentives for self-interested organizations to gear their efforts towards the achievements of collective goals.

Regulation reform needed

The same can be said of development policy. Most non-governmental organizations (NGOs), government implementing agencies, as well as multilateral organisations such as the World Bank or the United Nations Development Programme (UNDP) would most likely agree that international development funding must be increased because all these organizations benefit from that increase. But this common preference for more funds says little about how the strategic and organizational positioning of international cooperation can contribute to effectiveness and efficiency. However, growing criticism of the international aid industry and donor governments' subsequent commitment to institutional reforms indicate the need for reforms.

There are numerous regulatory problems in this policy field, including the proliferation of actors, projects and instruments over the past few decades, the escalating lobby activities of development policy actors in their play for scarce resources, the insufficient attention being paid to conflicting objectives in a steadily growing catalogue of goals and the duplication of responsibilities among multilateral and bilateral actors. All these deficiencies pose regulatory challenges that require highly differentiated solutions.

How are we to deal with economically successful autocracies such as Ethiopia and Vietnam, whose support may possibly benefit poverty reduction but which can also stabilize authoritarian structures? How are we to organize an effective division of labor between donors so as to relieve the administrative burden on recipients’ state structures, which particularly in least developed countries (LCDs) tend to be further weakened rather than strengthened on account of project proliferation? How can the legitimate bilateral interests of individual donors be embedded in an international framework that is underpinned by a weak and fragmented UN system? How can the billions pledged to developing countries for the required turnaround in climate policy be absorbed by states whose capacity to act is usually classed as insufficient or precarious?

Greater effort for common benefits

In order to be able to find answers to these questions, donor countries need parliaments that are capable of aggregating disperse interests in encompassing programs and governments that face up to their task of implementing regulatory frameworks geared towards the common good. For development assistance this applies at the national but even more so at the international level, since the effectiveness of this increasingly borderless policy field can be influenced only to a very limited degree by purely bilateral strategies.

Moreover, more courage is needed to openly address these problems rather than to cultivate the discourse that development policy’s effectiveness is essentially dependent on the amount of money spent. Taxpayers and recipients alike have a hard time understanding the current international aid system. There is a need for more transparency and an independent assessment of the development programs.

Without a doubt, these are not problems to which simple solutions can be found. To be sure - like in national education, health and environmental policy - the search of solutions will give rise to intense debate because regulatory reforms in times of scarce resources produce winners and losers. But regulatory success is highly in demand from a collective perspective of the policy field and therefore should form the heart of the debate on aid effectiveness.

Whether it will be possible to mobilize five or ten percent more or less funding is, in view of the regulatory tasks, first and foremost of lesser significance – although a large number of organizations that profit from development policy funding will of course vehemently deny that.

This column reflects the opinions of the authors.

Dr Joerg Faust is the head of the Governance, Statehood, Security department of the Bpnn-based think tank Deutsches Institut fuer Entwicklungspolitik, the German Development Institute.

The German Development Institute is one of the leading think tanks for development policy worldwide. The Institute draws together the knowledge of development research available worldwide, dedicating its work to key issues facing the future of development policy. The unique research profile of the Institute is the result of the cooperation between research, consulting and professional training. The Institute is building bridges between theory and practice and works within international research networks.

Author: Joerg Faust
Editor: Eva Wutke