Political Economy and the Aid Industry in Asia

J. Hutchison, W. Hout, C. Hughes, R. Robison

• Publisher: Palgrave Macmillan
• Year: 2015
• Print ISBN: 9781137303608
• eBook ISBN: 9781137303615
• Topic: Social Sciences
• Subtopic: International Relations
• Index: Social Sciences

Adopting a distinctive structural political economy approach, this book uniquely explains the blind spots of alternative political economy approaches to international aid, and presents an original framework for evaluating likely reformers' strength of commitment and potential alliances with donors.

1

Introduction

Our argument

This book examines attempts made by policy-makers in development agencies and banks to understand how political economy shapes the way development programmes take root in developing countries and how it has defined their outcomes. It also seeks to explain why it had proven difficult to establish more recent ideas about political economy, such as the Drivers of Change approach and its outliers and successors, as the basis for new models of development practice and strategies for development effectiveness. Finally, the book proposes a different way of applying political economy approaches – on the basis of what we are calling ‘structural political economy’ – to development policies and aid programming.

It is central to our thesis that development approaches are not divided between those that reject the importance of political economy and those who accept it. Rather, we propose, development agendas have always embraced a concrete idea of political economy and recognised how its dynamics present particular challenges for policy-makers. An important difference is how some traditions of development theory believe political obstacles can be overcome by technical and policy fixes, including market reforms and the transplant of certain institutions and forms of governance, while others believe that development strategies require direct engagement within the political process to mobilise or neutralise contending political and social interests.

The primary aim of the book is to explain the nature of different ideas and ideologies of political economy and how these have shaped particular models of development thinking and more practical strategies and approaches. More specifically, we intend to focus on the way many of the unintended outcomes and counter-productive consequences of development efforts over the years have their roots in particular (and misconceived) understandings of political economy.

Approaches to political economy

At a broad level, we have identified two main approaches to political economy that have dominated the development industry since the rise of the market models of social and economic change took root in the World Bank in the 1980s (see Toye, 1987). One can be more generally categorised as rational choice or public choice political economy and has been ascendant in the World Bank, and most development agencies and the financial ministries of most Western developed economies, particularly the US, Britain and Australia. It is a model that normatively aims at establishing market values and principles, as the basis not only for economic behaviour but for the way political authority and social life more broadly, including the practices of governance and citizenship, are constructed.

Yet, we propose that the central political problem embedded within this political economy approach is why developing economies (in this case) nowhere seem to replicate a world defined by the voluntary exchanges of rational, utility-maximising individuals. In the view of public choice theorists this is because individuals can form coalitions to make predatory raids on the public interest to secure their vested interests rather than to solve collective action dilemmas (see Bates, 1981; Olson, 1982). The task, therefore, has been understood as one that seeks to impose the public welfare, understood in the terms of market rationality, over these self-seeking interests. There are numerous recipes for achieving this goal.

Perhaps the predominant approach has been that championed by the World Bank, aimed at insulating markets from the contending rationality of politics and constructing a technocratic form of authority that could rise above vested interests. Subsequently, we have seen more populist strategies aimed at bypassing the predatory interests that form within and around the governments of developing economies and which seek to directly mobilise civil society behind the market agenda. These approaches attempt to strengthen ‘social capital’ and, thus, the capacity of grass-roots organisations to support the market agenda (see Harriss, 2001). This has been the political strategy that underpins the World Bank’s Poverty Reduction Strategies (PRSs).

Other attempts have been to move beyond the understanding of political economy as a contest between rationality and vested interest towards a more complex appreciation of the configurations of power and interest within which development agendas are contested. More than this, it is proposed that development policy and practice must engage directly in the political process to improve aid effectiveness, supporting progressive elements that can be champions of development in addressing collective action problems.¹

Political economy and development policy

In this book we explain how these understandings of political economy have become embedded in specific development outcomes that can not only deepen problems of poverty and inequity but also contradict many of the very normative objectives of market-based ideas of governance and social order. We necessarily start out from a very different, structural idea of political economy and how it shapes the dynamics of developing economies. A central feature of this idea is that political economy is defined within the terms of certain relationships of power that bind society together and by the asymmetries of economic and political resources that are embedded in these relationships.

In this view, it is difficult to propose technocratic forms of governance that are abstracted from the real struggles between different interests. And it is difficult to simply neutralise so-called ‘predatory’ interests or to mobilise perceived progressive forces and ‘champions of development’ behind specific policy agendas. These cannot be easily detached from the broader set of power relationships that define society and from their dependence upon the structures within which wealth, jobs and security are organised and allocated. In other words, they are anchored within the existing social order. A second point is that, by definition, the most powerful forces tend to be content with the status quo, including the reality of poverty and the pervasiveness of ‘bad governance’, while progressives or discontents are invariably politically weaker and less able to influence the course of events.

At the same time we have been drawn into the related question of why some ideas about political economy are more enthusiastically embraced by development organisations than others. This is the political economy of development organisations. Development agencies understandably operate within larger geo-political and economic priorities of donor countries. Policies designed to favour perceived ‘progressive’ interests, or that propose to enhance the power of poor people, bring both political risks and administrative difficulties for donors.

And development agencies must demonstrate to their funders, usually governments, that they are efficient and responsible in the use of public money. Hence, there is pressure to favour ways of doing things that are able to be reported in quantifiable terms. The effective disbursements of funds can fit more easily into the technocratic model of development policy. There is an established literature explaining why political economy approaches embodied in the Drivers of Change thesis have not been taken up in a systematic way within agencies such as Department for International Development (DFID) and why the technocratic model continues to prevail (e.g., Unsworth, 2009).

Our own discussions with senior officials in the Australian Agency for International Development (AusAID) substantiate these points. Officials have made it clear that policy is constrained by risk conceived within larger national economic and political priorities set by the Australian government. They stressed the career and institutional importance given to proper project design, implementation and reporting in relation to the allocation and spending of very large aid budgets. It is the latter task of reporting that occupies officials on the ground. Also, the sensitivities of talking in more political terms to project and programme counterparts are stressed. These are understandable objectives and concerns. Nevertheless, they inhibit the incorporation of political economy insights where these threaten to disturb particular political or social orders that may be useful to donor governments or international investors, or where they require programmes that involve longer term and more intense presence on the ground and there is less capacity to move large budgets quickly.

If such difficulties apply to strategies aimed at enhancing ‘drivers of change’ then they apply in greater measure to the prospects for an approach based on a political economy defined by conflicts over power and its distribution. How can such a study shape ideas about development and development policy if it raises questions about the very ideas of political economy and public management that define development organisations? This is a dilemma at the heart of relationships between the intellectual analysis of the development process and the way development policy is constructed.

We see it as less of a problem than is often imagined if we accept that there are two levels of study and research about development problems within research bodies and universities. It is a fact that the bulk of such studies are highly instrumental in their nature. They are aimed at enhancing the efficiency of policies or solving their dilemmas within the existing intellectual paradigms and political economies of development organisations. In other words, they operate as an extension of the development bureaucracies themselves and facilitate their operations: they are concerned with such questions as how to better measure ‘good governance’ or to report more efficiently the allocation of funds, even to grass-roots organisations and non-governmental organisations (NGOs).

Another sort of study is aimed at stretching the existing intellectual boundaries and the political economies of development organisations themselves and of the policy-makers within these bureaucracies. Like the Drivers of Change thesis they have little prospect of broad integration into policy, at least in existing circumstances. But does this mean that such studies should not be undertaken? Here, we make the following points. One is that the study of development and development policy should not be limited by the extent to which it is immediately translatable into existing policy frameworks or acceptable within the political economies of development agencies. Such reservoirs of knowledge can be rapidly made redundant as circumstances change within donor governments and in developing countries themselves.

The second point is that we must assume that at least some officials in donor agencies are not simply process-driven bureaucrats for whom any department is the same as any other. We must assume there is an interest in and knowledge of the substance of the development debate itself, even where the practical constraints on policy-making limit the easy translation of many ideas into action. In other words, that there are people who possess a reservoir of knowledge outside the policy arena that enables strategic engagement with fluid and rapidly changing circumstances.

At the same time, we propose that a sophisticated understanding of political economy can provide better explanations of why some aid programmes go wrong and give policy-makers at least a better capacity to know what not to do and when. For example, the public choice political economy idea proposes that the privatisation of property rights is necessarily and universally productive of increasing economic efficiency, wealth and public welfare. In reality, the dismantling of public and community property rights has often led to concentrations of wealth and power in the hands of narrow oligarchies and the impoverishment of populations. A different sort of political economy, such as that in this study, will enable policy-makers to better understand that the consequences of such policies will not always be the same and to evaluate the likely consequences of allocating private titles and rights over land and property in specific circumstances.

The second immediate policy lesson is that alliances with assumed progressive forces will not necessarily produce progressive policy reforms. Progressive forces will often not possess the power to drive reform. Or they may be easily transformed by cooption. On the contrary it is important that progressive policies may be achieved through tactical alliances, even with conservative interests where they see short-term benefits and where little trust is involved. Of course, engaging in such alliances can be a risky proposition. But the risk can be offset if there is a deep understanding of their political economy.

Thirdly, this book contributes to policy debates about the aid effectiveness agenda. The focus on ‘managing for results’, introduced in the Paris Declaration on Aid Effectiveness, has clearly cemented donors’ focus on results measurement (High-Level Forum on Aid Effectiveness, 2005). Such focus on impact assessment is not necessarily helpful for more progressive development organisations, which are not content with existing power distributions and would prefer to induce social change in highly unequal developing countries (Eyben et al., 2013). Development policies, as indicated by former US Agency for International Development (USAID)’s Administrator, Andrew Natsios (2010), among others, are inherently risky. Yet, the need to ‘manage for results’ may easily produce risk-averse behaviour on the part of development agencies, as they feel the pressure, for instance from parliaments, to adopt programmes with measurable output, but less transformative value. As aptly phrased by Natsios (2010: 3), the focus on measurement ‘ignores a central principle of development theory – that those development programmes that are most precisely and easily measured are the least transformational, and those programmes that are most transformational are the least measurable’. Structural political economy calls for a less risk-averse attitude among donors and more direct engagement to bringing about social and political change.

Structure of the book

The book is divided into two parts. The first part, including Chapters 2–4, looks more intensively at the problems described above. It explores some of the deep paradoxes that define the relationship between different ideas of political economy and the practice of development. It also examines how the political economy of development agencies themselves, including their ideological and administrative practices, also shapes the boundaries of development practice more broadly. The second part of the book, including Chapters 5–7, develops the structural political economy perspective and takes a closer look at the implementation of political economy analysis in the context of specific case studies from Southeast Asia. Chapter 8 contains the conclusions of the study.

In Chapter 2, we look at development strategies and policies that emerge from rational choice ideas of political economy and the attempts to insulate markets from politics, including by means of technocratic forms of political authority and social organisation. Our main purpose here is to explain the central paradox of this approach. We argue that the very forces identified within the rational choice political economy approach as predatory interlopers on the market society are in reality integral elements in the political establishment of market society. Here, we argue that the introduction of market agendas and new forms of governance often requires the political backing of powerful oligarchies that are both illiberal and corrupt in their nature and reinforces their authority. In other words, the powerful interests that are the essential political allies of the market agenda and so essential in politically pushing aside the opponents of markets, whether these are reactionary populists or various forms of social democracy, are themselves the very forces that produce ‘bad governance’ and obstruct many of the market-based reforms of Western development organisations. We ask how this seemingly contradictory process takes place and whether such predatory interests are the precursors of an inevitable liberal transformation or whether they represent a new model of development outside the assumptions of Western development banks and aid organisations.

Chapter 3 analyses the ‘political economy turn’ experienced by many development agencies over the last decade. On the basis of their awareness of realities behind the façade of formal institutions in developing countries, donor agencies started to develop tools for political economy assessment, which, they hoped, would inform their decision-making on development projects and programmes. The chapter discusses three examples of political economy assessment: the UK’s Drivers of Change, the Dutch Strategic Governance and Corruption Analysis, and the World Bank’s approach to the Political Economy of Policy Reform and its Problem-Driven Governance and Political Economy Analysis. Our analysis of the political economy of donors brings us to an explanation of the limited uptake of political economy assessment in the day-to-day practice of development policy.

The fourth chapter holds a discussion of ideas developed by scholars, consultants and practitioners in the aid industry to advance the implementation of political economy insights by donor agencies. We focus on the political economy community that has developed as a result of the recent attention to political economy analysis, and zero in on their assumption that collective action problems are central to development politics. We analyse the mainstream of the community’s thinking – specifically the liberal pluralist understandings of political agency, and working politically through developmental leaders and coalitions and/or the manipulation of incentives – in order to position our own structural approach. We argue that our understanding of political economy and its application in contexts of developing countries differs substantially from the mainstream: our view being that a rethinking of the role of institutions and the politics surrounding them is necessary to take account of power relations in the prevailing social order. This implies, we argue, seeing development as a public good and the object of collective action entails a misguided conception of what pro-poor development policies actually involve.

The book’s second part utilises structural political economy to analyse the dilemmas of development and aid pro...

Table of contents

• Cover
• Title
• Copyright
• Contents
• List of Tables
• Acknowledgements
• List of Abbreviations
• 1 Introduction
• Part I Development Agencies and the Reality of Politics
• Part II Applying Structural Political Economy
• Notes
• Bibliography
• Index