The Development Dance

How Donors and Recipients Negotiate the Delivery of Foreign Aid

Haley J. Swedlund

• Publisher: Cornell University Press
• Year: 2017
• Print ISBN: 9781501712876
• eBook ISBN: 9781501712425
• Topic: Volkswirtschaftslehre
• Subtopic: Volkswirtschaft

In a book full of directly applicable lessons for policymakers, Haley J. Swedlund explores why foreign aid is delivered in different ways at different times, and why various approaches prove to be politically unsustainable. She finds that no aid-delivery mechanism has yet resolved commitment problems in the donor-recipient relationship; bargaining compromises break down and have to be renegotiated; frustration grows; new ways of delivering aid gain traction over existing practices; and the dance resumes.

Swedlund draws on hundreds of interviews with key decision makers representing both donor agencies and recipient governments, policy and archival documents in Ghana, Rwanda, Tanzania, and Uganda, and an original survey of top-level donor officials working across twenty countries in Sub-Saharan Africa. This wealth of data informs Swedlund's analysis of fads and fashions in the delivery of foreign aid and the interaction between effectiveness and aid delivery. The central message of The Development Dance is that if we want to know whether an aid delivery mechanism is likely to be sustained over the long term, we need to look at whether it induces credible commitments from both donor agencies and recipient governments over the long term.

1

THE DEVELOPMENT DANCE

The besetting sin of development policy throughout its life has been vulnerability to fashion.

—Mosley, Harrigan, and Toye (1995, 308)

As country director for the United States Agency for International Development (USAID) in Uganda, it is your job to oversee the disbursement of roughly $300 million in foreign aid every year.1 This money is given on behalf of the American people with the expectation that it will help raise thousands of people out of poverty, increase life expectancies and levels of education, and limit the spread of HIV/AIDS in Uganda. How do you make sure foreign aid dollars are well spent? How do you make sure that the aid you have been tasked with allocating is not wasted?

To deliver the foreign aid, you will have to navigate a minefield of competing demands. You will need to manage expectations from USAID headquarters, taxpayers, Congress, the State Department, and the White House. You will also need to make sure that there is sufficient buy-in from the Ugandan government. How can you be sure that your counterparts in government are equally committed to putting the aid dollars to good use? If you want to build ten new schools in Uganda, you will want to make sure children can afford to attend those schools and that when they get there they have something to learn. Therefore, in exchange for your aid dollars, you might ask the Ugandan government to commit to staffing the schools and limiting school fees. For government officials to be willing to make these commitments in exchange for American aid dollars, you will need to convince them that your commitment to fund ten new primary schools is credible. The success of the aid project depends on the credibility of both parties’ commitments.

How likely is it, however, that the Ugandan government will keep its commitment to staffing the schools and lowering enrollment fees? Maybe, as in 2011, campaign promises made by the Ugandan president, Yoweri Museveni, will draw money away from the education sector and toward the military. At the same time, how likely is it that you will be able to keep your commitment to the Ugandan government? Perhaps in the midst of the initiative, which is scheduled to last five years, there is a U.S. presidential election, and the new president decides that he wants to invest more money in HIV/AIDS in Africa, decreasing the amount of money available for educational investments in Uganda. As a result, you have only enough funds to build six schools.

This book wrestles with a basic problem: both agencies and governments have trouble making credible commitments. The book is about how donor agencies like USAID and recipient governments like Uganda negotiate the delivery of foreign aid. It is about how the two parties engage in aid policy bargaining, or what I refer to in this book as the “development dance.” More specifically, it is about how donor agencies and recipient governments attempt to demonstrate the credibility of their promises, and how their difficulty doing so affects the sustainability of aid policy compromises over time.

In The Development Dance, I explain that, because aid agencies and recipient governments have a hard time making credible commitments to one another, the policy compromises reached by the two parties frequently break down. This not only causes a great deal of frustration among donor and government officials; it also means that the two parties are continuously searching for new ways of delivering aid that help to limit this problem.

In developing countries, there is a virtual “aid bazaar” with lots of good ideas, lots of projects, and lots of wasted money (Pomerantz 2004). Needs are vast, and donor agencies have many different options for how they can deliver foreign aid. Imagine that as part of your new position at USAID you have $2 million specifically earmarked to invest in increasing school enrollment for girls ages ten to fourteen. You could disburse the aid to the Ugandan Ministry of Education to help offset school fees for girls, or you could set up a stand-alone project implementation unit to administer programs that educate parents on the value of a formal education for girls and distribute sanitary pads to help keep girls from missing school. To increase the total amount of aid available for the initiative, you could also form a joint “basket fund” with other donor agencies,2 or you could partner with a local or international NGO already doing this kind of work. You could even simply transfer the money into the treasury of the Ugandan government, allowing them to use it as they see fit but making clear that, in exchange for the money, you would like to see them place more emphasis on girls’ education.

Each of these different approaches to delivering foreign aid—what I refer to in this book as aid delivery mechanisms—has been in vogue at some point or other. From microfinance to results-based aid, from basket funding to general budget support, development aid is continuously reinventing itself, claiming to have finally found the next big idea that is going to make aid more effective. This relentless innovation—what some call aid fads or fashions—leads to rapid paradigm shifts in development cooperation that are difficult, if not impossible, for development practitioners to keep up with.

In this book, I offer an explanation for why foreign aid jumps from one fad to the next and a plan for how we can go about building more sustainable, or longer lasting, ways of delivering foreign aid. I argue that choices in how to deliver aid are influenced by the difficulty each side has ensuring that the other party will uphold its promises. Because donor agencies like USAID or the World Bank desire reform in exchange for aid dollars, they engage in negotiations with recipient governments like Uganda or Mozambique. These negotiations result in an aid policy compromise, in which the donor agency agrees to provide a certain amount of aid in exchange for specific actions by the recipient government. However, changing circumstances are continuously undermining these negotiated compromises. Following the global economic recession in the late 2000s, for example, many donor countries slashed aid budgets, forcing donor agencies to back out of promises already made to recipient governments.

The breakdown of negotiated compromises between donor agencies and recipient governments is so commonplace that most development practitioners consider it an inherent feature of development aid. My argument is that this common feature in the aid system has profound implications on how aid is actually delivered to beneficiaries. Because donor agencies and recipient governments anticipate that the other party might be unable or unwilling to uphold its promises over the long term, there is a relentless search for new ways of delivering foreign aid that are more effective at ensuring credible commitments from both parties. Unless, however, the negotiated compromises reached by donor agencies and recipient governments are measurable and enforceable by both parties, they will not be sustainable past an initial period of enthusiasm, perpetuating a continual search for new and more effective ways of delivering foreign aid.

Accompanying aid fads are what former World Bank country director Phyllis Pomerantz calls “aid mood swings,” or highs and lows in the aid relationship. Likening these mood swings to what happens when a person has manic depression, she notes that “beyond the objective facts are very real feelings of disappointment, failed expectations, and even betrayal among the donor representatives. Perspectives can and do become warped…. The ‘highs’ are high, but the ‘lows’ are really low” (2004, 3). As enthusiasm about a new aid delivery mechanism dies, frustration grows. But because donor agencies and recipient governments are deeply dependent on one another, the two parties have little choice but to pick up the pieces and try again. The result is a never-ending cycle of excitement over new aid delivery mechanisms, followed by deep frustration over failure to produce credible commitments yet again.

In this way, the concept of commitment problems—or the difficulty donor agencies and recipient governments have upholding their promises—assists us in two ways: not only does it help us to understand why there are so many fads in development aid, but we also gain a tool for assessing the sustainability of a proposed aid delivery mechanism. If we want to know whether an aid delivery mechanism, such as budget support or results-based aid, is likely to be sustained, we need to look at whether it induces credible commitments from both donor agencies and recipient governments over the long term. In other words, we need to make sure that the Ugandan government follows through with its commitment to staff the schools built by USAID, and that USAID follows through with its commitment to build ten primary schools in Uganda.

Aid Delivery and Aid Effectiveness

The principal question driving debates on foreign aid is whether or not aid is effective. This is of course an extremely important question. Billions of people around the world depend on foreign aid to receive basic services, such as clean drinking water and safe housing. It therefore makes sense that we would want to know in what cases and circumstances foreign aid is actually working. However, the relentless focus on measuring the effectiveness of aid often causes us to overlook how policies of foreign aid actually come to exist in the first place and how likely it is that such practices will remain in place over the long term. It also means that foreign-aid scholars often assume—either implicitly or explicitly—that aid programs are actually designed to be effective, and evaluate them accordingly.

In my research, I ask a fundamentally different set of questions: Why is foreign aid given in the way it is, and why is it that aid delivery mechanisms seem to change and evolve so rapidly? I do not ask whether the money Uganda receives from USAID to support girls’ education is actually improving access to primary education for Ugandan schoolgirls. Rather, I look at how foreign aid is distributed and how fads in distribution mechanisms have changed over time. I take as a given that a certain amount of foreign aid has been allocated to a recipient country, focusing instead on how donor agencies make decisions about how to disburse that aid. Donor politicians and high-level bureaucrats back in the donor country are largely responsible for decisions regarding how much aid a recipient government receives. Once that aid has been allocated, however, how do donor officials working at the recipient-country level negotiate the delivery of foreign aid with representatives of the recipient government? By starting with aid delivery, I avoid assuming that aid delivery mechanisms are inherently designed to be effective, but am still able to address three important empirical questions related to the effectiveness of foreign aid:

First, what determines the sustainability of an aid delivery mechanism over the long term? A common complaint among development practitioners is that new aid practices and policies are not given enough time to become effective. Why is this? Best practices regarding aid delivery are notoriously fickle. In the eighties, structural adjustment was the norm. In the nineties, project aid and support to NGOs became fashionable. At the turn of the twenty-first century, budget support was all the rage. Now donor agencies are crazy for results-based aid. Yet we know very little about why policies and practices often fall by the wayside (sometimes only to be picked up again twenty, thirty years down the road). Scholars of foreign aid often implicitly assume that changes in aid delivery over time are driven by changing beliefs about how best to deliver aid. I argue that there is a more fundamental logic driving the sustainability of aid delivery mechanisms: fads and fashions in development aid are attempts to overcome particular types of commitment problems that undermine the credibility of policy compromises reached by international donors and recipient governments.

Second, how will exogenous shocks impact donor–government relations at the recipient-country level? It is widely assumed that shocks to the aid system, such as a financial crisis or a global conflict like the War on Terror, affect the distribution of aid. However, we know very little about how such events affect the relations between donor agencies and recipient governments. Understanding the logic of aid delivery can help to illuminate how exogenous shocks affect the bargaining processes between donor agencies and recipient governments, and thus the types of aid policy bargaining compromises that emerge between the two parties. For example, how did the Netherlands negotiate its aid to Tanzania after a financial crisis in the late 2000s resulted in a shrinking of the Dutch aid budget by more than 25 percent?

Third, and most important, how can we go about inventing better ways of delivering foreign aid? Without understanding the logic of aid policy bargaining and how it affects choices in aid delivery, we are stuck evaluating aid programs and initiatives based on the problematic assumption that they exist in order to be effective. This is, of course, unlikely to be true. In the midst of a brutal civil war, the World Bank, for example, spent more than $45 million in Sierra Leone on building and maintaining roads. Thirty-three percent of the funds went toward compensating contractors for lost time and the destruction of their efforts (Easterly 2003a, 36). There is disagreement about why the World Bank continued to fund road projects in the midst of a civil war, but it is clear that it was not about effectiveness. Once we understand the reasons behind the adoption of certain aid delivery practices and their potential staying power, we can begin the arduous task of designing institutions of foreign aid that are more resilient to external shocks and fluctuation.

The Evolution of Aid Delivery Mechanisms

Foreign aid, which is sometimes called development aid or development assistance, is commonly defined as financial flows, technical assistance, and commodities that are provided as either grants or subsidized loans in order to promote economic development and welfare (Radelet 2006a). While many different actors provide foreign aid, in this book I concentrate on official development assistance (ODA) provided by publicly funded development agencies like the Swedish International Development Cooperation Agency (SIDA) or the European Commission’s Directorate-General for International Cooperation and Development (DG DEVCO).3 I exclude from my analysis foreign aid provided by private foundations like the Bill and Melinda Gates Foundation, as well as aid provided exclusively for short-term humanitarian purposes (for example, after a natural disaster).4

Within development agencies, there has long been a tension between two types of aid: program aid and project aid. Project aid is the financing of specific development projects or initiatives.5 In Burkina Faso, for example, SIDA funds the construction and rehabilitation of rainwater basins, so that Burkinabe farmers can store water during the dry season for cattle and agriculture. Program aid, on the other hand, is not linked to a specific project or initiative. Rather, it is financial contributions that are extended to the recipient country for more general developmental purposes (Arakawa 2006, 432). For example, also in Burkina Faso, between 2013 and 2016, SIDA gave the Ministry of Environment $5.6 million. Instead of funding a particular aid project, the money went toward supporting the ministry and its capacity to implement the country’s forestry-sector plan. While at any given time, donors use both project and program aid, preferences for each have changed over time. As far back as the 1960s, Alan Carlin of the RAND Corporation wrote about the tension between project and program aid as one of the “longest-standing controversies in the administration of foreign aid” (Carlin 1966, 1).

In the post–World War II period, development cooperation as we now know it began to take shape with the passage of the Marshall Plan by the United States in 1948.6 Widely considered a huge success, the Marshall Plan provided support to finance general categories of imports and strengthen the balance of payments in order to rebuild Europe’s crumbling infrastructure after the devastating war period (Arndt, Jones, and Tarp 2014, 20). That is, the initiative offered program aid to European governments, which then used these funds to carry out infrastructure projects and to purchase goods from the United States. While grateful to receive the aid, European partners did not simply open their arms to U.S. aid. Instead, the negotiations that led to the Marshall Plan were long and complex, with each country bringing its own concerns and interests. Need also did not guarantee participation. Finland opted not to participate in order to avoid antagonizing the Soviets, who flat out forbid Poland and Czechoslovakia from joining the negotiations (Schai...

Table of contents

• List of Figures and Tables
• Acknowledgments
• List of Abbreviations
• 1. The Development Dance
• 2. It Takes Two to Tango: Aid Policy Bargaining
• 3. Studying the Dance: Research Design, Methodology, and Historical Context
• 4. May I Have This Dance? Donor–Government Relations in Aid-Dependent Countries
• 5. A Halfhearted Shuffle: Commitment Problems in Aid Policy Bargaining
• 6. Tracking a Craze: The Rise (and Fall) of Budget Support
• 7. The Future of the Development Dance and Why We Should Care
• Appendixes
• Notes
• Works Cited
• Index