Aid
Beyond planning: markets and networks for better aid
Markets and networks: the way forward for aid?
Authors:
O. Barder
Publisher:
Center for Global Development, USA, 2009
Reforming the aid system is a well-worn mantra that, in practice, has witnessed moderate progress. The Paris Declaration, the Accra Agenda for Action are well-meaning directives but improvements have been very slow – in 2008 the OECD estimated that just 57% of aid was still “country programmable”, while only a third of aid was disbursed on schedule. Subsequently, reform of the aid paradigm is needed to counter such chronic structural problems and so prevent aid from doing damage to institutions in developing countries; to reduce proliferation and transaction costs; to increase predictability; to encourage more learning and improvement; and, in short, to ensure that aid is effectively used for poverty reduction.
Although the author of this paper uncategorically states that aid does work, he asserts that there needs to be a fundamental change in the political economy of aid. The aid system, the author details, reflects a deep-seated political equilibrium between the interests of donors and recipients. Reforms that involve moving away from that equilibrium, he continues, will not succeed and may contribute to eroding public and political support for aid; substantive, long-term change depends on finding ways to change the equilibrium.
Paramount in this, the paper states, is a shift away from the planning mindset. The author details that long coordination meetings among donors and with developing country governments do nothing to change the institutional and political constraints within which aid agencies operate.
Rather the paper makes a number of recommendations to effect change in the aid environment, including:
- Aid funders could make more use of market incentives to encourage innovation and efficient delivery of services. Markets will improve the effectiveness of aid only if the interests of the purchaser can be aligned with the interests of the intended beneficiaries
- Networks hold the promise of increasing and improving information; reducing transactions costs; helping to close the feedback loop between beneficiaries and funders, and providing a platform for collaboration
- Using markets and networks together more effectively may permit decentralised and uncoordinated decision-making to produce collectively beneficial outcomes in transparent and regulated markets. Aid agencies would find it politically difficult to pursue ineffective approaches (such as tied aid, or lack of predictability) if there were greater transparency and better measurement of results
- The aid architecture will not be reformed by intelligent design. Instead, policy-makers should focus on creating the conditions for a new ecosystem of aid institutions to evolve. Evolution requires variation and selection, so reformers should look for incentives and funding arrangements which promote innovation and reward success
- A collaborative market would invest in the standards and systems needed to support a network economy in development, encouraging the sharing of ideas and knowledge, and
underpinning a more transparent and accountable market for the delivery of development
services. The collective action challenge of putting such a framework in place is simpler by far than the current burden of day-to-day coordination and collective decision making in aid.
