Broad-based growth, defined as the process that raises median income, is far and away the most important source of poverty reduction. There is no instance of a country achieving a headcount poverty rate below 1/3 of its population (at moderate poverty line of $5.50) without achieving the median consumption of that of Mexico. This is not to say that there do not exist anti-poverty programs that are cost-effective and hence should be expanded, or, conversely, that there are anti-poverty programs that are not cost-effective (or even have zero impact on poverty) and should be cut back or eliminated. Analyses of these types of programs would enable a more efficient use of resources devoted to poverty reduction. But large and sustained improvements in global poverty will almost certainly have to focus on how to raise the productivity of the typical person in a poor country, which is a key source of national income growth.
Perhaps the best that Becky’s world can do for Desta’s is to offer financial and technical assistance so as to promote and support local enterprises — including those involving education and primary health care — that people there are all too keen to create even as they see from a distance how people elsewhere have been able to improve their conditions of living. And perhaps the best that Desta’s world can do for Becky’s is to alert it to the enormous stresses economic growth there has put on Nature. There is, alas, no magic potion for bringing about economic progress in either world.
If one looks at international development landscape and examine where the vast majority of thinking and attention is focussed, it is clear that poverty alleviation dominates economic growth.
It can appear pretty asinine to find fault with such apparently universal of ideas. Who would not want to focus on outcomes or base decision on evidence? That's a different story. I have critiqued the prevailing discourse on the former here, here, here, and here, and the latter here, here, here, and here with illustrative examples.
Back to external financing of development. What can be the main arguments against?
Externally advocated ideas like universal basic income, conditional cash transfers, a particular model of remedial instruction in schools, nudges, performance payments, community health workers, development impact bonds, technology solutions etc can have adverse unintended consequences in the long-run.
For sure, the practitioners and opinion makers in developing countries should become exposed to these ideas. They should be discussed and debated in the public domain. But they should make choices using their own resources. External funding, however well intentioned, cannot avoid unwittingly forcing choices on resource strapped countries.
An idea like a Development Impact Bond to realise learning outcomes in education or change behaviours among prisoners in developing countries is mind-boggling in its ignorance. It is a seriously damaging digression from taking on real challenges. Like the PPPs, it peddles the irresistible illusion that governments need not bother about implementation challenges and can straight contract for outcomes, thereby generating value for money from public expenditures. In the context of concessions and Special Economic Zones (SEZs), Paul Romer famously postulated the test that a concession which cannot be gradually expanded beyond the SEZ to cover the entire country is inherently unsustainable.
1. The main problem with external engagement in social development is that it distorts with ideas and money. The ideas are most often motivated by values, world-views, and concerns of those offering them, which are very different from those of the locals. External resources invariably prioritise interventions around these ideas. For all professions of high-sounding phrases like evidence-based policy making, outcomes-based financing, and systems thinking, the inherent biases and limitations of outsiders cannot be circumvented.
2. Such entrenched inclinations effectively displaces all the struggles that the citizens of these countries have to undertake to diagnose their problems, internalise it, prioritise solutions and resources, and implement them. And by struggles, I mean everything from the public debates to political discussion, and focusing bureaucratic effort to prioritising financial resource utilisation. Countries need to go through the hard and long-drawn struggles and iteratively figure out what works best for them for a problem at this point in time.
3. Another problem is that external engagements view social development as a self-enclosed and planned intervention to be implemented in finite time to realise definite end-state outcome. The objective invariably is to "solve" the problem. Unfortunately most social development "problems" defy this approach. These problems have no definitive "end" or "solution". Engagement with them is at best a long-drawn journey with uncertain paths and no definite destination, and involves work in multiple dimensions.
None of these are comments on the substantive merits of external ideas. In fact, many of them may actually be very promising. But the point is whether for this country at this point time (with all its problems and limited capabilities to address them), is prioritising this idea over others a good thing to be doing? The aim of this post is only to highlight the distortions that creep in when an appealing external idea gets introduced.