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Financing For Development (FFD3)

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“Some worry putting too sharp a focus on using aid as leverage risks neglecting the need for public funding to countries or sectors private investment is unlikely to reach. ” This is all about the value of the alliance of public and private money or PPP.  Its a debate which has been a long time coming. The question is – are PPPs serving the interests of the recipients or the donors ?? OR – are they about building domestic capacity in recipient countries or more about finding politically convenient, and risk averse, ways of pushing out money?

Comment on Nancy Birdsalls ‘my-two-big-worries-about-world-bank’ CGD 11/3/14

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On a recent CGD blog Birdsall wrote about the rationale for and the reorganization of the World Bank. “Short of a new vision, (the World Bank) faces an existential threat of growing irrelevance and obscurity as rising incomes in big emerging markets reduce the demand for and logic of the bank’s country loan model.”

Indeed – a major re-think of the rationale of the institution is long past due. The goal of a global organization in the 21st Century should center on the provision of Global Public Goods – projects that address climate change and the environment, global health, nutrition, global food security and pests, global infrastructure, global financial stability, etc. These are indisputably part of and appropriate overall goal. The World Bank should adopt this goal as its primary long term focus and it should reorganize its structure to achieve it. This will be difficult because it will require a major change in its sovereign lending model but it is essential. And it does not require major external consulting advice, little of which has apparently done anything useful given that recommendations are thrown out every few years. It requires a systematic internal re-think with a sensible time horizon.

Continual reorganization of the boxes will never achieve useful results if the fundamental goals of an organization are not credible and not subscribed to by the people that have to do the work.  If on the other hand the goals are re-set so that the majority do subscribe wholeheartedly to them then the organizational boxes will tend to re-align themselves automatically.

The short term horizon under which successive World Bank Presidents from the US have operated (with the exception of McNamara) is at the root of the trouble, along with the weakness of the Executive Board. (Please read my book on ‘Reforming the World Bank’ (Cambridge 2011).

World Bank meetings and world bank reforms – Deja Vu

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After my nearly 30 years of observation inside and outside the World Bank a critical factor in  meaningful reform is the way the Bank’s  Presidents are selected. For those who don’t know, they are chosen by the President of the US, under an agreement with the shareholder nations, and since the Bank’s foundation in 1944 they have all been US nationals.  Many (e.g. Zoellick, Wolfowitz, Wolfensohn) have taken the job as  part of a career at the top of the Washington political establishment and since their next hoped-for appointment might well require approval of  the US Congress which thinks the Bank needs permanent reengineering if not close-down they are obliged to don the mantle of persons-of-action, whether they like it or not,  making  visible, sweeping  changes in the “pin-stripe bureaucracy”, supported by new sound bytes about ending poverty etc, after which they have to declare victory – all within the short, five years before they are reappointed or move on.  All in all, they have to be quick change artists.  Well folks, this may sound excessively cynical but the fact is that the solutions to the Bank’s problems are long term, not short term. No amount of showmanship, moving the boxes around and cutting the alleged fat will per se do what is needed, and past experience suggests it will lead to further dysfunction. What can be achieved by replacing ‘global networks’ (old) with ‘global practices’ (new)? Nothing. Trust me – the solution involves a broad re-thinking of what the Bank should be doing in the 21st Century and a reorganization to perform that role (like the change of direction made by Robert McNamara).  That’s a big deal –  and it almost certainly means changing the focus to ‘global public goods’ – climate, environment,  health, economic stability, infrastructure etc. It  means specializing, and dropping its current practice of rushing into every country and sector to be the ‘lead agency’ regardless of its competence or ability to deliver results, and it also means abandoning a lot of country-centered work (changing its sovereign lending model). That’s definitely long term stuff.  But its essential. Please read my book “Reforming the World Bank – 20 years of Trial — and Error” (Cambridge University Press).

Another conference on aid effectiveness !

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In April 2014 was held the first ‘high level meeting of the ‘Global Partnership for Effective Development Cooperation’, in Mexico City. This was a follow-up to the last high level meeting which was on ‘Aid Effectiveness’ held in 2011 in Busan, S, Korea which followed the previous high level meeting of the same name in Ghana in 2008 which followed the previous high level meeting of the same name in Paris in 2005 which followed the previous one in Rome in 2003 which followed what I suppose was the original one in 2002 at which the international donors came up with the ‘Monterrey Consensus’.  That adds up I think to 12 years talking about the renewal of development aid. Each meeting has produced an agenda for action and each follow-up meeting (seriously) has reflected on the lessons learned about why the last agenda for action was not seriously achieved.

The Mexico City conference at a cost of many millions of dollars focused on how the private sector can be brought into the aid process – nothing new about this of course – it has been going on for many years. Still, I am trying to remember why the private sector in general might be interested in a process that reduces its return on investment  (forgetting Bill Gates and the philanthropists who are non-Government rather than private). Or perhaps it has found a mechanism through aid to increase its return on investment?  Either way seems problematic – so is this fundamentally a viable or value-adding partnership?  How far could this really be about seeking ways to increase growth in poor countries (which as everyone knows has been only weakly if at all connected with aid) and how far is it really just part of the ongoing effort to re-assert the relevance of the enormous official and non-official aid establishment, while also giving large private firms another way to market their products?  These are of course seriously existential questions – not relevant nor convenient to this moment or other ‘moments’. The problem is that these existential questions tend to rear their heads rather often and the future of aid needs to be (seriously) addressed by people outside the establishment whose personal livelihoods will not be affected by serious decisions about reorganizing it or even seriously cutting it back to something that really adds value.

The Gates Annual Letter – Oh No

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gates.ly/1mTCrEw the Gates foundation 2014 annual letter reads inspiringly, but unfortunately a lot of it is off base. It sets up a straw man – a quasi-ignorant opponent of foreign aid who lumps together and attacks all types of aid and cannot see how the poor world is getting richer.  It says that many countries that used to be poor are now doing well, including in Africa, if only the doubters and naysayers would open their eyes. The basic problem with this assertion is that it involves a huge non-sequitur. Anyone who knows what’s going on would agree that many of even the poorest countries have been getting richer (at least up until 2009). But the whole point is that the countries that have done the best over time are simply not the countries that got a lot of development aid ! Take Morocco, Brazil, Mexico, Chile, Costa Rica , Peru, Thailand,  Mauritius, Singapore, Malaysia – all these countries that are specifically named in the Gates letter as doing well have none of them received significant  development aid in relation to the size of their economies (which is the relevant measure). As for other countries often held up as aid success stories, South Korea had a lot of aid but this was during the war of the early 1950s. The economy did not move for another 20 years so where was the connection? In fact the origin of South Korea’s industrial growth was probably the long term result of return migration of Korean workers from Japan. Take Botswana – this is not a story about development aid at all. It is a story about diamonds and sensible governance. Take China –  enormous growth but its aid to GDP ratio has never exceeded one half of one percent, a hardly noticeable proportion even of its annual GDP growth. Take India – now growing but its aid to GDP ratio has been less than one percent. These two countries account for a third of the World population so what has happened to them is significant.  Sorry Melinda, the countries that have suffered from high dependence on aid (over 10% of GDP for a long period of time) are clearly those that have done worst – a few in Asia, Latin America and the Pacific, but mostly in Africa, and it is Africa where the problem is now. Over the first decade of the millennium African countries at last started to do much better. But there is no evidence that this was to do with  development aid and plenty that it was to do with booming Global economic conditions.

But please note – I speak of development aid. This is in fact not exactly the business of the Gates Foundation. The Gates Foundation is rather about global health, global nutrition, education and global humanitarian aid. Much of this work is different  because it involves global public goods – inter- country help, emergencies and humanitarian activity, not so much national development strategies. So stick to global health and global nutrition. But in other respects the only way most poor countries can become wealthier, in the end, is through developing over time their own institutions, capabilities,  motivations, governance and capital, with development aid as a marginal help on technical issues if it can be done right. Development of a people’s capacity to produce wealth will not occur through massive infusions of cash from outside.

Easterly and Millennium Villages

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In  foreignpolicy.com/articles/2014/01/23/aid_amnesia

Bill Easterly complains of fatigue in discussing whether aid works with Jeffery Sachs. I agree. Sachs’ ‘Millennium villages Project’ for example  was something that could only have been conceived by someone who had little sense of the history of the failure of these types of projects. Look back to the ‘development villages’ of the 1960s in Africa. Economic Development  comes from people’s capacities, motivations and energy. It simply cannot be done through outside (charitable) cash assistance, and the larger the number of assistance providers the more dysfunctional it becomes. The recent history of Africa shows at last some increase in indigenous capacity and motivation, and the diaspora is investing – eg in Somalia expatriate Somalis are way ahead of the aid agencies in trying to put the economy on the road to recovery.  Diasporans at least have the cultural affinity with the beneficiaries, the motivation to succeed and to the take greater investment risks than aid agencies, (or general foreign investors).