We should be Scared, but not of what we’re Scared of

Be scared of him, not the Governator.

You should be afraid, just not of what you were afraid of at first...

Amidst the brouhaha over the Lancet article on aid fungibility, there’s one underlying question that seems not to have been addressed explicitly: what is the basis on which we expect funding (aid and domestic resources) to be allocated? I work in this field, and this basic problem has only been addressed with any quality in one place.

The comment on this topic is of sharply variable quality. Most of the voices critical of this evident of ‘fungibility’ deserve to be dismissed out of hand. Many suggest that by reducing own-funding to health the Governments concerned are committing a grave sin, based on absolutely no evidence on what the marginal return of the money moved was in the health sector compared to other sectors. These are single issue activists who lack the will or capacity to think more broadly than their specialism, and as Owen Barder has said, we should scorn them. Two contributions raise specific issues about resource allocation that we should explore further.

Not surprisingly, Owen’s is one of them, and his is the only contribution I would class as unreservedly useful, indeed excellent. He makes the most important point that we must hold in mind: the Lancet article actually does not address fungibility of aid. Aid would be fungible if the exact aid dollars that were earmarked for health could be used for education, transport or even private jets. What the Lancet article shows is that aid money in a sector can free up resources that the Government was always able to spend anywhere it wanted in a new area. That money was already fungible – it has simply been moved from one place to another in response to non-fungible funds. This is of crucial importance to this debate, because it means we can dismiss the question of fungibility altogether. What we are really talking about is resource allocation procedures governing the always-fungible Government resources.

Laura Freschi at Aid Watch makes the other contribution we should pay attention to, though I’m not uncritical of it. She says that donors use project support and earmarked funding to try and ‘force’ recipient Governments to use their resources ‘well’ by which she means ‘as the donors think they should’. This assumes that Governments will not change their own fungible resource allocation after the introduction of new, non-fungible resources by donors, so all aid money is purely additional to the sector it appears in. She says that if it doesn’t do this, then the argument for using earmarked funds disappears. This contribution is important, because it now introduces into the discussion the intentions of donor resource allocation and structure decisions, though I argue below this is an incomplete understanding of how it actually works.

So, how should resources for development be allocated, and how does the reality depart from this norm? Ideally, our resource allocation procedure would be entirely rational. Imagine a world in which no distinction is made between aid and local funds, and all money is fungible, the resource allocation procedure of Government should be straightforward. Looking at all the funds the Government has, it allocates a certain amount to core running costs (salaries, electricity bills and such) and then distributes the balance based on an analysis of the key constraints to the development of the country. If they have problems in health, education, infrastructure and private sector development, the rational resource allocation procedure would then address the constraining factors in each area. Given resources are scarce, we allocate them by looking at where the marginal benefit of each dollar is highest. If after we’ve spent $20 in health, we find that the marginal benefit in education is higher, we switch our attention there, and so on.

What we don’t do is just pour money in one sector until all the problems it faces disappear: doing this is counterintuitive, since after a point, each dollar would have a bigger impact in a different sector.

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You can build it. But they still might not come.


photo posted on www.post-gazette.com

Kevin Costner built the field and got a game going. I think he was lucky.

An anthropologist I know once told me a great story, which may be a rural myth. It was about a remote tribe in Papua New Guinea from which two members were given the opportunity to travel outside of their homestead to see the urban world in all its ‘glory’. When they returned, they recounted their experiences to the rest of the tribe, and they set about replicating one of the more amazing things they’d seen: an airport. They cleared a runway. They built an observation tower out of wood. They even crafted headphones with little reed antennae for the ground control team to wear. When they were done, they waited for the planes to arrive.

They never did. Building the structures, the visible artifices of an airport is only symbolic. The actual meaning of what an airport is, what makes it functional, cannot be seen. It lies in the relations between people and institutions and in agreements between them.

This anecdote constantly pops into my mind when I observe technical reform processes introduced by donors (often with domestic support) in African Governments. Mark Miller and Matt have both discussed this issue in the past. What they and I have in common (apart from devastating good looks and a rapier-sharp wit) is that we have all done time as long term TAs in developing country Governments. All of us have been witness to ambitious reform programmes stalling on the road to implementation or lying dead and ineffective after implementation. Yet only sporadically have the causes of this been critically examined and learnt from.

On this note, The Roving Bandit recently linked to an exciting post from the IMF’s Public Financial Management blog (and yes, I’m aware of the depths of geekery I’ve plumbed by using the word ‘exciting’ about the IMF and PFM). In it, Richard Allen makes a series of simple, reasonable statements about how technical reform should and shouldn’t be tackled in low income countries. Three things that had me high-fiving myself:

The experience of now-developed countries suggests that the process of establishing credible and robust budgetary institutions can take many decades, or longer. There is no reason to expect LICs to be different.

Because the necessary basics are not in place, many reforms are likely to fail.

Much more attention needs to be given to the political economy constraints to reform since changing budgetary institutions is not at root a technocratic issue.

The most important point Mr. Allen makes is the last one, and it extends beyond budgeting. Very few reform processes recognize that at root, the biggest problems in Government administrations are political economy problems. They are not technical or technocratic problems. Treating them as such can simply create new problems without actually addressing the original ones.

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If it’s good enough for New Zealand…

By Mark Miller

As a current employee of the Malawian Budget Division, I read with interest Matt’s blog on technological innovation and I’m sure he’ll no doubt be saddened to hear that this computer system is no further ahead than when he left it a year ago.

However, it struck me that in the field of budgeting at least this trait of ‘leapfrogging’ is sadly by no means specific to technology – whenever reforms are undertaken, invariably ‘international best practise’ (normally from New Zealand or some thoroughly un-governable nation) is the recommended yard-stick for governments to aim at.

Another innovation in budgeting championed by the donor community in recent years was ‘Output Based Budgeting’. Every Kwatcha in the Malawian budget is allocated to specific activities with specific indicators and targets. These indicators include deliverables such as ‘number of meetings attended’ and ‘% of office supplies provided adequately’. Formulating a budget in such a way is a monumental effort that no donor’s government would ever dream of attempting.

Perhaps my favourite example of thoroughly unsuitable ‘best practise’ was a consultant who visited Malawi to make recommendations on how the budget should be classified. Fresh from a trip to Australia where he had been impressed by the ability of government to revise its forecasts when the price of diesel changed by a cent, he proposed that Malawi needed to further disaggregate the budgeting for fuel down into petrol, diesel, paraffin etc. What made this observation particularly startling was that it came:

  1. During a 3 day black-out in the Ministry, with a generator unable to cover for the grossly over-stretched national grid.
  2. In a building where there are no light switches – all of them are either ‘on’ or ‘off’

I could not help thinking that when it comes managing of government’s energy resources we had bigger problems on our hands than refining our diesel forecasts.

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