04 February 2011

Foreign Aid for Scoundrels

Wiliam Easterly writes:
[T]he nations and organizations that donate and distribute aid do not care much about democracy and they still actively support dictatorships. ... [T]he French government continued to aid the Hutu government [of Rwanda] even after the genocide had become public knowledge. Foreign Aid for Scoundrels, William Easterly, 'New York Review of Books', 25 November 2010
How does this happen? One reason is institutional inertia:
Aid agencies exist to give aid, so they must keep the money flowing. The department of an aid agency assigned to help a country may not get a budget next year if its officials don't disburse to the country's ruler this year; so they hand out funds no matter how autocratic he is.
And it's a fact that institutions have objectives that can have little to do with their lofty mission statements. Indeed, their over-arching goal, the one that over-rides all others is that of self-perpetuation. How could it be otherwise? As in biological evolution, considerations such as well-being are important only insofar as they they influence survivability. Since funding determines survivability of institutions, and since nobody bothers to check (pdf) the performance of institutions, let alone reward them according to their success, the current, corrupt, destructive aid regime is an inevitable result.

This is where Social Policy Bonds could make a difference. Under a bond regime, organizational existence would not be taken as a given. In a neat reversal of the current system, the efficient achievement of a targeted outcome (the welfare of a poor country, say) would determine the structure and nature of the organizations that pursue that goal. If any agency trying to improve the welfare of a poor country's people were inefficient, it would lose funding by investors in the bonds. The structure, composition, and all activities of all agencies would be totally subordinated to the bonds' targeted goal.

Of course the Social Policy Bond principle can be applied to the welfare of people in the rich countries too, where there is plenty of inefficiency and the system of poor people subsidising the rich is a long-established tradition (see my posts aid for big business, fisheries, and energy and New Zealand's policy of subsidising movie tycoons). It can also be applied to global challenges, such as climate change or, indeed, any catastrophic event.

It won't be though. The Social Policy Bond idea has been in the public arena for more than 20 years now. The level of interest from individuals, the academic world and think-tanks is heartening; but from policymaking institutions - well, the word 'nil' perhaps overstates their enthusiasm for this (or any other) idea that threatens their funding.

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