1. University of Antwerp The history of development cooperation Hasselt University Interdisciplinary Course North-South Crossing borders 16 February 2011 Robrecht Renard

2. University of Antwerp slide 2 Outline 1.The history of aid: the money 2.The history of aid: the ideas 3.Too many aid deliverers 4.Donor collective action problems 5.Conclusion

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6. University of Antwerp slide 6 2. The history of aid: the ideas periodpreferred aid modality major constraint addressed donor attitude to partner government 1960- 1980 projects- physical capital - human capital bypass 1980- 2000 policy based support - macroeconomic policies bully 2000-budget support - ownership - governance - good donorship engage

7. University of Antwerp slide 77 1. Ownership (Partner country) mutual accountability Results oriented management 2. Alignment (Donor-Partner) Aligning with partner’s agenda Partner sets the agenda Using partner systems Establishing common arrangements Simplifying procedures Sharing information 3. Harmonisation (Donor-Donor) The 2005 Paris declaration

8. University of Antwerp slide 8 taxes ODA budget 3. Too many aid deliverers

9. University of Antwerp slide 9 taxes ODA budget bilateral aidmultilateral aid 3. Too many aid deliverers

10. University of Antwerp slide 10 taxesprivate donations ODA budget bilateral aid private aid multilateral aid 3. Too many aid deliverers

11. University of Antwerp slide 11 taxesprivate donations capital market ODA budget bilateral aid private aid multilateral aid 3. Too many aid deliverers

12. University of Antwerp slide 12 taxesprivate donations capital market ODA budget bilateral aid private aid multilateral aid 3. Too many aid deliverers Sources of aid Deliverers of aid

13. University of Antwerp slide 13 taxesprivate donations capital market ODA budget bilateral aid private aid multilateral aid $105 $63 32% 8%60% billion US$, 2005 data, based on Kharas (200?)

14. University of Antwerp slide 14 4. Donor collective action problems Excessive number of aid deliverers –signals a failure to collaborate –problem aggravated by what follows: Principal-agent relationship Samaritan’s dilemma Warm glow effects Missing feedback loops Donors in pursuit of too many goals

15. University of Antwerp slide 15 Me principal, you agent Recipient governments often are not pursuing development in their countries –this is not a question of individual morality –but a question of institutional incentives Aid is more and more being directed towards countries that are badly governed –well-governed countries manage well without aid Principal-agent theory –requires strong principal who can sanction the agent –but aid sanctions do not hurt the right people

16. University of Antwerp slide 16 The Samaritan’s Dilemma (J. Buchanan) Recipient High EffortLow Effort Samaritan No Help2,21,1 Help4,33,4

17. University of Antwerp slide 17 Samaritan dilemma If Samaritan is strongly motivated to help, recipient is in the more powerful position, and bad Nash equilibrium results –governments receiving food aid disregard agriculture –villagers do not maintain donor-funded infrastructure Through a credible strategy of withdrawal (conditionality), a tough Samaritan may avoid the bad equilibrium occurring Another effective strategy for the smart Samaritan may be to organize aid tournaments (selectivity)

18. University of Antwerp slide 18 Warm glow People feel good simply from the act of giving, irrespective of the results obtained –not to be confused with altruism Although warm glow is a powerful incentive for international solidarity, it can hamper collective action –donors prefer tangible (photographs) and ‘attributable’ results (projects), even if this contributes to donor fragmentation –Northern citizens bypass intermediaries (NGOs) in order to increase the warm glow, even if this reduces effectiveness (transaction costs for delivery and supervision)

19. University of Antwerp slide 19 Missing feedback loop Makes public opinion easily manipulated Gives undue importance to pressure groups –NGOs –universities –private sector (aid tying) Suggests an increased role for Parliament –provided it is better informed than public opinion –provided it does not only listen to pressure groups

20. University of Antwerp slide 20 Donors in pursuit of too many goals Development –technocratic: econonomic growth, health, education,… –political: democracy Global public goods –climate change –distress migration –drug trafficking –contagious diseases Non-developmental selfish donor interests –commercial interests (aid tying) –geo-political interests –security interests

21. University of Antwerp slide 21 Direct effects Donor managed project aid productivity of the project itself Budget support general productivity of the public sector

22. University of Antwerp slide 22 Direct effectsIndirect effects Donor managed project aid productivity of the project itself know-how transfer pilot function transaction costs weakening of public sector (donor-driven priority setting, poaching of recurrent resources and staff) Budget support general productivity of the public sector strengthening of the public sector (TA, policy dialogue, conditionalities)

23. University of Antwerp slide 23 Direct effectsIndirect effects Donor managed project aid productivity of the project itself know-how transfer pilot function transaction costs weakening of public sector (donor-driven priority setting, poaching of recurrent resources and staff) Budget support general productivity of the public sector strengthening of the public sector (TA, policy dialogue, conditionalities)

24. University of Antwerp slide 24 Conclusions High hopes of the aid approach that is advocated in the 2005 Paris Declaration are not being fulfilled –good principles –but naïve about incentives of major actors But there is no brilliant new aid paradigm looming over the horizon –this is still the best game in town

25. University of Antwerp Thank you robrecht.renard@ua.ac.be http://www.ua.ac.be/dev/bos