Thinking carefully about mimicry

If donors are the ones creating the incentives for effective institutions, who knows if they will stick?

In a really interesting post, MJ over at Bottom Up Thinking discusses the connections between evolution and institutional development in aid-dependent countries, comparing the tendency for recipient governments to adopt the semblance of good institutions and practices with the concept of Batesian mimicry. Just as natural selection will favour insects that look like other, more dangerous insects, the external incentives that aid recipients face will push them to look far more effective than they actually are.

Lant Pritchett first posited this connection with evolution in a recent CGD podcast and an accompanying working paper with Michael Woolcock and Matt Andrews defined the practice as `isomorphic mimicry’: “the adoption of the forms of other functional states and organizations which camouflages a persistent lack of function.” Anyone who has walked into a government office with a sign proclaiming “this is a corruption-free zone” will understand this concept immediately.

I would argue that such behaviour is generated mostly by external incentives: in aid-dependent countries, donors carry some of the biggest sticks and carrots, and so create an enormous amount of pressure for governments to look effective. This is partially a result of a historical tendency to focus on monitoring inputs and best practices rather than paying attention to outputs.

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Yeeeah... I'm going to need you to go ahead and come in on... Sunday, too.

I was recently having a drink with a doctor who volunteers in a hospital in Tanzania, and the conversation inevitably passed to work (after we’d exhausted more interesting topics, like the Ashes). We were swapping notes on the working environment within our respective organisations, both arms of the extended civil service operating with local management, payscales, skills and equipment. It was surprising how similar our experiences were, despite the fact that he works in direct service delivery while I am safely ensconced several removes away in the Ministry of Finance, working in a technical and policy advisory position. Most of our conversation centred on the ways in which our respective working environments could be enhanced by better use and organisation of the central resource of both: the staff. Leaving aside poor technical skills, a well understood problem, we came up with a number of other troublesome issues.

At almost all levels, many staff don’t actually spend much time on their own jobs. They have extremely high workloads, in theory at least, and are not paid commensurately. At senior and middle-management levels, many therefore seek to supplement their incomes with consultancies or external projects of some kind. This takes many forms. Doctors can do consultancies at private clinics; economists and similarly trained staff can take on research projects or short term consultancies advertised by other Government departments; and many simply have businesses or commercial concerns (such as farms) outside of work and in different fields altogether. This inevitably reduces the time they spend on what is meant to be the core stuff of their job, with knock-on effects to their effectiveness and the effectiveness of the whole organisation.

The latter point is worth unpacking a little. Of course, if individual staff members are performing below their abilities, this will lower the performance of the organisation as a whole. But when it happens to management staff, there is a more insidious result as well. Most civil services I’ve seen in Southern Africa are very hierarchical, a reflection of societies in which generational conflict has been common, and seniority in almost all spheres of life brings enormous influence. When senior staff are constantly away, or take a long time to approve or clear work or decisions taken by those lower down in the food chain, the entire process of Government slows down to a crawl. This is frustrating in an office like mine, where getting a piece of analysis or a policy proposal cleared and published can take weeks, but it’s even worse in organisations that depend on swift action, such as hospitals, health centres, police stations and the like. In such contexts, well informed and competent people will be extremely reluctant to make a decision even when the cost of delay is extremely high. Part of this is due to a fear of repercussions arising from breach of protocol, but in part it is also because for many it’s simply inconceivable to take a decision without the explicit say-so of their superiors.

This isn’t the extent of management problems either; even when management is around problems are significant. In many cases, it seems that managers are particularly bad at distributing the workload of staff, meaning that some are constantly overworked and others constantly underutilised. In both cases, coupled with poor salaries, this results in very weak motivation and sometimes commensurately poor performance. This is partly a reflection of the common failure to adequately plan for a work cycle. Most Government functions have broad predictability in that certain things need to be done on a regular basis by a certain time, while emerging issues must also be dealt with as and when they emerge. This should result in pretty clear roles for staff in meeting recurring deadlines and a protocol for dealing with ad hoc issues.

A lot of people blame this problem on a lack of management skills, but I think there is something deeper going on. We’re not talking about rocket science here: it’s simply making a basic plan for what you do and occasionally checking it, and making sure people all have some work to do. Rather, I think there’s a great degree of bureaucratic politics at work as well. It can be very profitable to be the holder of knowledge, resources and skills in an underskilled and information-poor Government. They constitute personal power in the sense that the ones who have them are difficult to sack and have a disproportionate voice in Government, and they can also be used to reproduce power in the sense that they can be used almost like patronage goods, to attract followers and build up a personal sphere of influence. Influence within Government increases the scope for both legal and illegal rent-seeking.

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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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Motivation, Leadership and Ideology

‘Motivation, Lea-der-ship, I-de-ol-ogy – these are a few of my favourite things’

‘Motivation, Lea-der-ship, I-de-ol-ogy – these are a few of my favourite things’

A lot of modern economic theory aims to provide a theoretical platform from which we can start to understand complex phenomena. Most economists recognise that a platform is still only that, and that there is a lot more to the world than it provides. This is a method that has crept into other social sciences, like sociology and political science, too; with the same caveats.

The approach has merit: it is useful for us to look for patterns in how things work, even if differences between experiences outweigh similarities. However, it can also bias the choice of the factors we analyse towards those with the most uniform properties, suitable for this kind of theorisation (the obvious counterpoint, that all research methods have biases, is true: this is why it is important to draw on research from multiple disciplines). I saw an example of this in a very interesting book I’m reading at the moment: When Things Fell Apart, by Robert H. Bates, a political scientist.

Bates is looking at state failure and conflict in late-20th Century Africa, noting an increase in incidence of civil war and predatory state behaviour. He puts forward a basic resource-based theory: essentially, state predation emerges when the discounted returns from predation on the society and seizing or stealing resource are higher than the discounted returns from taxation revenue. The theory predicts that as the time horizon of the political leaders reduces, so their tendency to predate on society should increase; similarly, if possible tax revenues fall, they will again tend towards becoming predatory.

Obviously, Bates would recognise that this is not the whole story, but his argument is that this is the basic starting point for understanding civil war. His approach is useful: resources are crucial to understand in conflict, though their role can be different in different circumstances. Yet the method can obscure understanding of other issues. To give a minor example, he writes:

I argue that ethnic diversity does not cause violence; rather, ethnicity and violence are joint products of state failure.

This kind of statement bothers me; it betrays far too rigid a conception of the world. Ethnicity is not ‘caused’ by state failure. Ethnic identities exist everywhere. Hong Kong has a dominant ethnic identity of Han Chinese, and many minority ethnic identities. I would be extremely dubious of anyone who claimed Hong Kong was a failed state. Further, in the African context, we could argue that the statement is turned upside down. It may well be far more useful to say ‘unified identity is the product of state success’. The history of African state-formation suggests that examples like Tanzania where national identity supersedes ethnic identity in many contexts are rare, because pre-existing ethnic identities were welded into states, and these identities have continued to evolve over time. On this particular point, this is just nitpicking. His analysis of ethnicity does not undermine his central argument. But I would argue that ethnicity (and identity more generally) is one of the concepts that model-based analyses struggle with, which is not to say that no models using ethnicity are worthwhile. Some other concepts I’d group in this ‘troublesome’ category for economics are leadership, ideology and motivation.

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Drop Haiti’s debt? Why lend in the first place?

My friend Dan has written a really interesting piece for the HuffPo on the incentives for lending to poor countries.

From the donor perspective, he points out that a loan spread out over a long period allows donors to provide more in nominal terms than a one-off or shorter term donation in the form of a grant. What’s more:

Governments in rich countries liked this arrangement [lending], too, as it seemed to suggest that the poor countries could become responsible citizens in the global economy, receiving credit rather than just handouts.

From the point of view of the borrowing Government, the incentives are relatively clear:

… the chances may be pretty low that 1) the same government will be around when the loan needs to be repaid and/or 2) the government will actually be able to repay it. So, for the current government, there is much more incentive to take the loan — it’s another $17 million [in the example he cites] to play with, with almost no strings attached.

Dan makes the very important point that while debt relief or cancellation is a one-off benefit, it does nothing to change the underlying incentives that make lending an attractive option to so many development actors.

I was in Malawi when the Government reached the HIPC Completion Point, which qualified them for major debt relief and cancellation. In addition to the reduced burden of interest payments, the other major benefit that allowed the Government was increased flexibility in borrowing – the IMF would allow them to borrow more per year, on slightly worse terms. While the technocrats in Government were committed to maintaining prudence in its borrowing practices by setting internal ceilings on borrowing and undertaking stringent Debt Sustainability Analyses regularly as in much of Sub-Saharan Africa, what the President or Minister says, goes. And that may mean compromising these principles.

In the first post-HIPC years, initial indications seem to be that developing country Governments are sliding slowly back into unsustainable debt. I’ve spoken about incentives before, and I continue to hold that until we address the incentives at work in the development system, many of the worst problems we encounter will prove resilient to our attempts to change them.

Taxing Times

Benjamin Franklin very famously wrote that ‘in this world nothing can be said to be certain, except death and taxes’.

I love a pithy turn of phrase but Franklin clearly wasn’t talking about Africa. Matt’s recent post about using revenue distribution and taxation to avoid the natural resource curse in Ghana turned me to think about taxation systems.

Let’s start from a simple premise. My vision of aid for development is not that it should ultimately provide the basics of a good life to all the world’s poor. Rather, it should help their Governments, private sectors, civil societies and private individuals develop their own capacity to provide, sustain and improve these basics.

For the institutions mentioned above to perform functions themselves they must have a revenue source with an inherent logic and sustainability. For private individuals this means a wage or ownership of resources that generate a rent. For private industry and business, this means revenues and profit from the undertaking of business.

For a Government it means tax revenue. And taxes are a very good thing, not just because they give the Government room to spend:

  • Eventually, everything aid currently does for or with Governments should be undertaken through domestically generated revenue, largely tax; this revenue gives full flexibility for locally constructed and executed policies
  • It stimulates accountability. Accountability in a Government powered by aid runs to donors. In a country run through taxation it goes from Government to the taxed: i.e. the general population – hence, ‘no taxation without representation’.
  • Taking this argument further, others suggest taxation is an essential component of state building
  • A bad taxation system, one that depends disproportionately on taxes that are easy to collect, is often regressive. This means the poor suffer more, and it is inefficient at raising revenue. Taxation systems in Africa typically depend heavily on Value Added Tax – a regressive tax.
  • A good tax system can be a tool in incorporating into the legal framework the vast ‘informal’ economic activities that characterize developing countries: activities that have assets but no capital because they are not part of a formal property system. De Soto marks this as the greatest problem in development.

Unfortunately, many African countries have poor or ineffective taxation systems, which are so partly because of their structure, partly because much of the economy is hidden (in a legal sense) from the state, and partly because the structures that do exist have a fair few holes through which revenue slips. Aid is also culpable. Governments rely less on tax than they should because aid fulfills the most important functions of tax from a Government (but not civil society) perspective, weakening the incentives for creating a strong tax structure.

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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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Dirty Words in Development: Incentives

“Whatever you do, don’t mention incentives. I did it once, but I think I got away with it.”

“Whatever you do, don’t mention incentives. I did once, but I think I got away with it.”

Matt’s excellent recent post on aid coordination should make uncomfortable reading for many donors. He argued that one reason for poor coordination is that all donors are trying to impress distinct electorates that perceive the same problems in development due to insufficiently varied global advocacy. This is actually a bundle of important issues that Matt has expressed succinctly, and I want to address just one aspect in a more depth.

Why is it that donors are all trying to impress their own electorate? Well, quite simply, that’s what they have to do to continue their existence. Their primary incentive is to do so.

Incentives. It’s a word much used in economics, one I like a lot. Economists love to talk about an agent’s incentives. It’s essentially economics’ counterpart to history’s interest in motivation. ‘Incentives’ is a little sharper though. It’s not just about why we did something, it’s about why we will always attempt to do so; until our incentives change at least. Yet, despite the dominance of economics in academic thinking about development, it is one concept that hasn’t really filtered down to the practitioners in a meaningful way. The closest we get is our discussion of ‘accountability’ and, in its comedy form, ‘mutual accountability’ (I will justify my cynicism about these concepts in a future blog). Our wish to impose accountability and create mutual accountability are really attempts to change the incentives in aid on both sides of the relationship by introducing a new set of sticks and carrots we hope all stakeholders will follow after or run away from; in other words, new incentives that should motivate actions. Unfortunately, we’re trying to change incentives without first being explicit and honest about what they currently are, and how strong they are, and that is a recipe for failure. What’s more, what little analysis we do make of incentives is almost entirely focused on recipient Governments and not on donor agencies, for which the ways in which incentives affect behaviour are far less well understood.

Incentives work on multiple levels, but the most important for us are probably the individual level and the institutional/organisational level. At each level, agents face multiple incentives of different strengths, and how they balance their pursuit of these incentives is a key determinant of how they behave. Complicating matters, the same incentive can cause different kinds of behaviour in different circumstances.

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Let’s keep it strictly C.O.D.

The UK’s Conservative Party has just released a policy paper on international development. This ‘green paper’ is basically a discussion of the party’s agenda for international development – the sort of reforms they would enact if they took control of the government. Since the Conservatives are widely expected to take power sometime next year, the green paper has received a large amount of scrutiny.

One of the policies embraced in the green paper is the new(ish) aid modality Cash on Delivery, which was thought up by the folks at the Centre for Global Development a few years ago. The basic description of COD aid (yes, it already has its own acronym) can be found on their website:

Under “cash on delivery” aid, donors would commit ex ante to pay a specific amount for a specific measure of progress. In education, for example, donors could promise to pay $100 for each additional child who completes primary school and takes a standardized competency test.

A credible baseline survey would be conducted, the country would publish completion numbers and test scores, and then the donor would pay for an independent audit to verify the numbers. The payment would be made upon a successful audit. Payments would be “cash on delivery” – made only after measurable progress, only for as much as is verifiably achieved, and without prescribing the policy or means to achieve progress.

The payment for the results would then be fully fungible – the recipient government would be allowed to do anything they wanted with it (although the reality is that there will likely be some limits on this). COD aid is initiatlly being targeted at the education sector, likely because the outputs are, relative to most outcomes in this field, easier to measure. The CGD has been working on this concept for several years, writing discussion papers and concept notes – the background information can be found here, and a full-fledged FAQ section.

There are a couple of things about COD aid that I find quite promising:

  • The donors don’t get involved in policymaking; they just pay for the results = no more development training wheels!
  • There would be no attempt to tell the government what they should do with the payout, again another point for
  • It would represent a way of thinking about aid that, for a chance, is impact centered.

However, there are a number of things about the scheme I’m not as confident about – some of my concerns are purely theoretical (and so are likely wrong) – some are observational:

  • The burden of the task – Much of the literature on incentives and the public sector has come to the same conclusion: designing incentive contracts for public institutions is not easy, and most of the time low-powered incentives prevail. Part of the reason is that outputs are usually hard to measure. One would argue that COD, as it’s currently being presented, avoids this problem by very carefully measuring output. However, as Duncan Green pointed out in his recent post on the Green Paper, there are plenty of reasons school results and attendance could worsen (or get better) that are totally out of the control of the education authority. The less control they have, the greater the risk burden they carry (Nancy Birsall responded to that concern here). Agents that are forced to face too much risk might opt to just not play the game – they’ll make little or no effort to affect the outcome. While incentives might be useful in the short-run, a distant, difficult target that requires unprecedented effort might just be too much for the average ministry. For good examples of public incentive schemes falling short of their the desired impact, see Heckman’s work on the JTPA or Burgess on Jobcentre Plus.
  • A numbers game – Development is a tricky business – on one hand, we want to know that our intervention has a measurable impact.  On the other hand, we should always be concerned about turning the business into a stats game (readers familiar with The Wire will know the pitfalls of the pursuit of stats). One always worries if quality is being abandoned for the sake of quality. To be fair, CGD has repeatedly addressed this issue – their hope is also that very strict evaluation will deter attempts to game the numbers.
  • Donors are still playing with sticks and carrots – COD still carries with it that uneasy premise that still makes me wince: it is our job (as donors) to incentivise recipient governments to do the right things for their people – i.e. we know the way to salvation, if only these bloody governments would listen to us. Again, to be fair, this is no worse than the way aid has historically been handled – it’s just a bit patronising. It could be the right way to approach things – I tend to believe that we should be less concerned about getting governments to treat their people properly because we’ll give them money for it and more concerned with getting governments to treat their people properly because they have a natural, endogenous incentive to do so.

All these things said, I’m certain that the Center is just as worried about these same issues. They aren’t blindly pushing this new modality as an instant cure to the woes of ineffective aid – they’re approaching it cautiously, slowly building on the discussion year, and rolling out a pilot programme to see how successful it really can be. That’s the right approach – yet sometimes great-sounding but untested ideas can be quickly adopted and converted into policy. My worry is that the Conservative party, eager to distinguish its new development policy, will take up the idea and run with it before the Center finishes making up its mind whether it’s really a good idea or not!

If only you knew the power of nagging

Give quiche a chance

I’m naturally a bit skeptical of ground-level interventions that don’t involve cash, needles or textbooks. Anything that involves dubiously-titled training or “empowerment”  sets off my very cynical alarm bells. However, I’m beginning to be persuaded by the evidence that targeted information campaigns work.

First there was Pedro Vicente and Paul Collier’s study on a randomised anti-violence campaign staged prior to the 2007 Nigerian elections, showing significant reductions in the treated districts. Then there was the Heckle and Chide’s study of minibuses in Kenya: a random treatment group were given posters advising passengers to speak up if the minibus drivers drove dangerously (which is pretty much what minibus drivers are born to do). The treatment group saw sizable declines in insurance claims, including those for injury and death.

Now there is a soon-to-be-published paper by Martina Björkman and Jakob Svensson, offering a unique randomised intervention:

  1. Assess local health providers and inform the communities on their relative performance using ‘report cards’,
  2. Encourage these communities to form groups to monitor local health performance.
  3. Sit back and see what happens.

A year after the intervention, a repeat study revealed that the treated communities had: harder working health providers, higher rates of immunization and significantly reduced rates of child mortality and underweight children, all with the same levels of funding.

The best part of the study was the lack of investigation into what the communities were doing to make changes – (there is some rough evidence that the communities were more active in electing and dissolving the local provider management committees). My guess is that a fair amount of nagging was involved.

I’ve come to believe that a crucial part of development is strengthening the accountability link between citizens and their government (not to be confused with enforcing accountability externally), especially when the citizens face a trade-off for enforcement (in this situation, that trade-off is time spent hassling health workers).

A few questions remain:  is it persistent (or would health workers become more resistant to this informal accountability over time?) Is this scalable? Which part of the intervention was key: the information transfer allowing for yardstick comparisons between district, or the “empowerment” workshops? My hunch is the former.

(Bonus points to those that got the Red Dwarf reference).