'The Donors’ Dilemma' - From ODA to a Global Development Policy
This column by Jose Antonio Alonso is part of Global Policy’s e-book, ‘The Donors’ Dilemma: Emergence, Convergence and the Future of Aid’, edited by Andy Sumner. Contributions from academics and practitioners will be serialised on Global Policy until the e-book’s release in the first quarter of 2014. Find out more here or join the debate on Twitter #GPfutureofaid.
In the last 15 years, donor countries have made a serious effort to reform the development aid system. They have established a shared agenda of minimum social standards (the Millennium Development Goals, MDGs); they have revised their practices in order to improve the effectiveness of aid (the Paris Agenda) and they have innovated in the governance architecture of the system (the Global Partnership and the Development Cooperation Forum). The problem is that international reality has changed more deeply and faster than development aid has.
Conceived as an exclusive policy to rich countries, aid was born as a response to a world that was characterised by a deep North-South divide in which international financing (mainly through official channels) was considered essential to enable poor countries to climb out of their poverty traps and catch up with rich countries. Aid was mainly conceived as a bilateral policy in accordance with the understanding that development process could be basically defined within national borders. Finally, although its rationale has changed over time, fighting extreme poverty became the main justification for aid, especially after the approval of the MDGs.
A major part of those assumptions have been shaken by the changes that have taken place internationally. Firstly, the level of heterogeneity in the developing world has grown significantly. The North-South divide has given way to a more diverse and heterogeneous world where international differences remain but where there is a much wider and graduated spectrum of levels of development between countries. As a result, it is no longer possible to talk about a single development agenda but rather of multiple and diverse agendas, depending on the situation in individual countries.
Secondly, extreme poverty has been significantly reduced globally; and its location has also changed, with the bulk of the world’s groups of poor (people living under the US$ 1.25 or US$2 a day) found in middle-income countries. As a result, poverty has progressively become an increasingly national responsibility since some (not all) of those countries could have sufficient policy space and taxation power to redistribute wealth. Simultaneously, domestic inequality has emerged as a worrying problem for future development achievements in an ample range of countries.
Thirdly, the poles of international economic growth have moved as a consequence of the dynamism of new powers coming from the developing world, creating a more complex and multi-polar world. That is a challenge for the existing global governance structures; and also involves reinterpreting the principle of “common but differentiated responsibilities” which international cooperation should be based on: instead of a dual division of responsibilities between the North and the South, there should be a continuum of degrees of commitment in accordance with the developmental levels of different countries.
Lastly, globalisation has expanded the reach of international public goods, some of which are closely linked to development goals. That makes it obligatory for national development agendas to consider the international collective action necessary to define new global rules that give enough policy space to developing countries while, at the same time, guaranteeing the provision of those public goods.
Of all public goods, perhaps those linked to environmental sustainability are the most challenging because, to a large extent, they call into question the idea of convergence that inspired development theory. The issue is no longer about developing countries catching up with the status of developed countries; instead it is about developing and developed countries taking different (and not well-known) paths towards a kind of progress that is compatible with the biophysical limits of the planet.
The need to respond to these changes involves a significant challenge to the development cooperation system. Limiting cooperation to fighting extreme poverty, focused on a small group of poor countries (or with fragile states, a debatable category), through Official Development Assistance (ODA) and run by the traditional donor countries, does not seem to be a good way to meet the world’s future challenges. Moreover, if that were the model, cooperation would be condemned to become increasingly irrelevant as an international policy. What should we be doing?
To answer that question we should remember that development cooperation originated with a double objective: to promote a certain redistribution of wealth internationally and to introduce incentives to maximise development efforts and achievements. Both goals may be compatible but are clearly distinguishable from one another.
In the past, distinguishing between those two goals was not particularly important. For countries that were caught in a poverty trap, development aid would simultaneously meet both functions: it would transfer income and improve efficiency and stimulate progress. The problem is that there will be fewer economies in the future whose obstacles to development lie in the need to finance the basic needs of their populations. In 2030, a growing proportion of developing countries will belong to the category now understood to be a middle-income country. In their case, aid will be a small component of their international financing: the role of aid to redistribute wealth will lose ground and aid’s role to generate right stimulus for change will become more significant. Development cooperation will remain relevant nevertheless as long as we are prepared to revise some of its basic assumptions.
Firstly, there needs to be a change in its focus. With the exception of the group of poorest countries, the impact of aid would not be measured in what it could directly finance, but in the kinds of incentives to social and economic change that it might promote. In other words, it should be more selective and meet one (or a combination) of the following four functions: i) it should be capable of mobilising (or levering) additional resources and capabilities that otherwise (without the aid) would be difficult to mobilise; ii) it should help relieve some of the bottlenecks that prevent or hinder the processes of change in developing countries; iii) it should operate as a mechanism of insurance against unexpected shocks in order to reduce uncertainty and risk; and iv) it should act as an incentive, increasing the potential benefits associated with a positive development change.
Secondly, cooperation should be able to manage the developing world’s increasing diversity. In other words, it should operate with differentiated agendas and with a mixture of instruments in accordance with the conditions in each country. That tailored approach should be compatible with the establishment of minimum universal social standards that all countries should be committed to guarantee.
Thirdly, there should be a change in the perimeter of development cooperation. ODA will probably be a small, and probably minor, part of the total mechanisms of development financing (some of which will come from private sources); and financing will also be a smaller part of the available mechanisms used to stimulate development. Key to this new concept of cooperation will be policy coherence and the change in rules at international level.
Finally, it is necessary to assume a change in those who make up the system. As well as new donors from the South, we need to make room for new participants, partly linked to the private sector, who were on the margins of the cooperation system until recently. To implement these changes, new methods of working will be essential. Alliances between very diverse players and work in networks have become fundamental. In short, we would need to move from ODA to a more complex and comprehensive global development policy.
Jose Antonio Alonso is Professor of Applied Economics at Universidad Complutense de Madrid. He is member of the Committee for Development Policy (ECOSOC, UN) and of the European Advisory Group of the Bill and Melinda Gates Foundation. His last two books are: (edited with J.A. Ocampo), Development Cooperation in Times of Crisis, Columbia University Press, 2012; and (edited with G.A. Cornia and R. Vos), Alternative Development Strategies for the post-2015 Era, Bloomsbury Academy, 2013.