Incentives and the developing countries

In my latest book on Social Policy Bonds (first three chapters here) I point to perverse subsidies as the only really compelling evidence that governments in the western world can and do implement policies that damage the finances, social fabric and physical environment of their citizens. It's the persistence of these policies, given the longstanding evidence of their failure, that indicts them and casts a shadow over all government activities.

For countries outside the privileged west, though, we don't have to search hard for evidence of policy failure. Wars, civil wars, environmental depredations, and relentless poverty are commonplace. There's more democracy than there used to be, but it's clear that if governments were genuinely concerned about the fate of their populations they could do a lot better.

There are many thousands of dedicated westerners who devote themselves to improving the quality of life of people in the developing world. It's unfortunate though that the financial incentives on offer do not match the contributions they make. Financial incentives are important, not because would-be benefactors of the poor are greedy, but because they are human beings who want to do the best for themselves and their families, and if they can earn more for designing alluring packets of dog food than running an eye clinic in Ethiopia, then they will respond rationally and take the dog food contract. It's not greed, just as it's not greed when we make a decision to save a few cents by using a coupon to get a discount on dog food from the supermarket.

Life in the third world won't improve until the incentives change. Improving the incentives to achieve meaningful outcomes for the poor in the third world would not only motivate people more powerfully (or allow them to recruit agents and motivate them more effectively) but would enlarge that pool of people.

Fortunately we can do something about that. If we're wealthy, or have wealthy friends, we could back and issue our own Social Policy Bonds, perhaps swelling any redemption funds by encouraging contributions from the public. If you're interested, have a look at this document, which is an 18-page pdf file that takes female literacy as an example of how we in the west can bring about better outcomes in the developing countries.