Examination of Witnesses (Questions 60-74)
MR SIMON
MAXWELL, MR
JOHN ROBERTS
AND PROFESSOR
PAUL MOSLEY
TUESDAY 30 APRIL 2002
Chairman.
60. Professor Mosley, can I just follow up something
you just said about defence sales? I heard you correctly then,
did I not?
(Professor Mosley) You did.
61. There are a couple of things which have been
causing me concern, and I suspect other members of the Committee.
The UK's largest bilateral aid programme is with India. India
is a member of the Commonwealth and one downloads the country's
strategy paper off the web site. It says that one of the reasons
why DFID gives so much to India is that a third of the world's
poor live in India, so over the next ten years we are due to give
by way of bilateral aid something like a billion pounds in donor
aid to India. At the same time we are about to sell Hawk jets
to India, surprise, surprise, at a cost to India of about a billion
pounds. That is one development. Secondly, Andrew Robathan, who
is on the Committee, was recently in the Sudan and one of the
things of course we know about an area such as the Sudan and other
areas of Africa is that DFID do not give money to those areas
because they are in conflict, but you have quite a lot of people
who are extraordinarily poor, through no fault of their own, caught
up in the conflict but receiving little or no development aid,
and then you get some humanitarian development aid. Can I have
your thoughts on those two conundrums about a billion pounds'
worth of arms sales to India, the equivalent of a decade's worth
of bilateral aid, but no development aid to large chunks of Africa
which are in conflict?
(Professor Mosley) On the second question
of countries like Sudan, like Angola, like the democratic Congo
and all those countries where there is no effective government,
in part because of conflict, the logical way to disburse aid is
through the NGOs and in all those countries that is the way it
is happening, not because it is ideal but because that is the
only way to make aid effective and to enable it to reach people
who are poor. On the question of arms budgets, any particular
arms contract may or may not be a reasonable one in terms of its
necessity for national defence. The finding I was quoting was
not remotely suggesting that developing countries do not sustain
national defence, law and order, which indeed have become more
in the spotlight as a consequence of the increased emphasis on
security as a prerequisite of development. Rather what the research
seems to suggest is that where you have countries which spend
above a normal proportion of their budget on defence, that takes
that country beyond the mere requirements of national defence
into a level of expenditure which crowds out other categories
of developmental expenditure.
John Barrett
62. You mentioned conditionality earlier on.
Obviously all the countries want their aid to be effective. They
do not want to see aid going to buying a new Mercedes for whoever.
There is obviously a different perspective as to what makes a
good donor from the donor's perspective and from the recipient's
perspective. Is there any consensus in concrete terms of what
makes a good donor?
(Professor Mosley) A donor which has
a clear perspective of what kinds of policies will be effective
within a particular recipient country and is willing to work sympathetically
with that country to bring those policies and expenditure patterns
about.
(Mr Maxwell) I carried out an exercise on just this
with civil servants and aid people in Ethiopia. I asked the question,
"What is a good donor?", and produced a chart on how
to be a good donor which I would be happy to submit as a supplementary
memorandum[6].
The answer is, first of all, engagement on the overall strategy,
and flexibility in the use of resources in order to deliver that
strategy, so they have got not just food aid, for example, but
also money. Recipient countries want accountability. If a donor
says they are going to do something they want the donor to deliver
on it. That is a big topic in, for example, the New Partnership
for African Development: how do you hold donors accountable? It
is also a little bit in the Cotonou Convention. Countries want
serious technical partners. They want people who know the country
and know the issues, that they can talk to for the policy dialogue
that John was talking about. They want aid delivered on time and
efficiently and with decent procurement procedures. It is not
a very complicated list and it is astonishing how badly most donors
do on it. DFID is well above average.
63. How does that chart, where donors are also
the good donors, compare to the charts that we have all seen as
to what percentage of GNP a country is giving? The natural assumption
is that the more generous donors are in percentage terms the better
donors they are, but are there good donors but in other terms?
(Mr Maxwell) At the time I did this piece
of work I was working on European Aid, which at the time was a
large donor but a poor performer. It is still a large donor and
you have been discussing whether or not it is now a good performer.
There are other large donors who perform well in some aspects
of the chart. Obviously the Scandinavians are generous donors,
although not necessarily very large donors. They do not always
have a very good range of technical skills because they are smaller.
The big question is the World Bank, I suppose. The World Bank
certainly has the technical expertise, it has the in-country presence,
especially these days, and it has a pretty good reputation for
procurement. It is greatly handicapped by the fact that most of
the money is loan money and recipients clearly prefer grants,
and it has genuine issues of governance because the rich countries
basically own the Bank, voting is proportional to GDP more or
less, and there is this big question of accountability. If the
Bank does not deliver, or delivers a bad loan, who holds the Bank
to account? I would like to say something later on perhaps about
the role of parliamentary scrutiny in that process and about how
we can empower parliaments in developing countries to hold donor
agencies to account. There are some interesting institutional
possibilities that this Committee could encourage.
Mr Battle
64. You mentioned in passing the recipients.
I attended a very encouraging seminar in northern Ghana where
they said, "Do not just send good DFID officials talking
about participation, but when will DFID be accountable to us here
in Ghana?" Accountability: what do you think that will mean
in practice and will it improve the effectiveness of aid?
(Mr Maxwell) Let me answer that first
and then perhaps the other two would like to come in as well because,
as I say, it is a big question. The first DFID White Paper talks
a lot about partnership, quite rightly, and a number of us have
asked ourselves the question, "What does partnership mean?"
We looked at all sorts of models—tennis partners, bridge
partners, business partners, aid partners, political partners.
What characterises the most successful partnerships is first of
all a good degree of trust, shared objectives, shared perceptions,
all that kind of thing; beyond that, some clarity about what is
expected of both parties, not just the recipient, if you like,
in this case, but also the donor; some way of identifying whether
or not those commitments have been met, preferably independently;
and then some recourse if one partner has failed. For example,
if you are a couple of plumbers working together and one of you
lets the other down, there is a contract. You have a partnership
agreement and, if the worst comes to the worst, you go to court.
If an OECD donor lets Ghana down there is absolutely nothing Ghana
can do about it except to feel cross. That makes the whole partnership
relationship very difficult. Partnership, when one partner is
very rich and powerful and the other is not, is really difficult.
I call that asymmetrical partnership. What we need to move towards
is some sort of symmetrical partnership, and that is where the
donor countries have to give something. NEPAD is interesting from
this perspective because for the first time there is talk about
using a kind of peer review mechanism, Amongst the OECD donors
there is a peer review system whereby two or three countries will
review another one, so you will get the report on French aid written
by the Portugese, the Greeks and the Swedes. What the Africans
are proposing is that a group of African countries should review
the donors. I think that is a great idea; a really interesting
idea. It is not as good as having legal recourse but at least
it gets into the public domain on the kinds of "how to be
a good donor" issues that I listed earlier on. We could go
further into a more contractual relationship and, as I said in
one of the pieces that was submitted in evidence, there is the
hint of how that might work in the Cotonou Agreement, which is
to use parliamentary assemblies and arbitrators if necessary.
But if a donor fails to deliver the aid it has promised it should
be held accountable.
Chairman
65. I do not know whether the other two want
to add anything?
(Mr Roberts) It seems from the point
of view of an aid recipient country, an individual country, receiving
assistance from different sources, as Simon has said, that delivery
is the most important thing. Will the aid be delivered on time
as expected, or will it be caught up in red tape and delay and
thus not fit neatly in with the country's own expenditure and
programme plans? Delivery is extremely important- with timely,
predictable delivery with transparent, simple procedures. However,
there are some perhaps not so desirable aspirations by some people
in developing countries with respect to donors. There are, for
example, line ministers who want to have some extra money over
and above that which is allocated to them by the ministry of finance
in the normal budgetary process. Donors' positions have been abused
in this way and donors have given encouragement to this abuse
by in a sense going outside normal budgetary processes and ingratiating
themselves here and there both with officials and with non-official
partners by saying, "Here we will give you something in addition
to what you will have anyway". That of course upsets priorities.
It may be very satisfying for all concerned in immediate terms
but in the longer term it is subversive of the poverty reduction
strategy or the economic development strategy being pursued. We
want to get into a position where that does not take place and
so the country takes a holistic view of what donors are up to
and not a sectional one. Perhaps I could mention one experience,
which was the experience of the OECD's Development Assistance
Committee, which looked experimentally at Mali in West Africa.
They went there with a view to seeing how the donors performed
in that country collectively. This was OECD and the Club du Sahel;
the two were working in conjunction. What they found was really
rather unsatisfactory. As already indicated, there were a variety
of different procurement procedures, numerous different project
disbursement accountabilities and monitoring requirements. The
members of the Development Assistance Committee are at the moment
looking at their donor practices with a view to trying to learn
some of these lessons and with a view therefore to making themselves
more accountable and more acceptable to their partners in development
in the developing world. I think it is not a bad idea now that
the World Bank, for example, has moved consultative groups away
from Paris or Washington and now holds them in-country. Consultative
groups are occasions when every two or three years donors meet
with the partner country which gives a prospectus and indicates
what it requires in terms of assistance, and when donors make
their pledges and indications of what they are prepared to do.
Now that that process is in-country it could possibly be enlarged
to a review of donor performance in parallel with and to match
the review of partner performance which is usually provided on
these occasions by the World Bank.
Tony Worthington
66. Can I switch to this idea of global public
goods which is mentioned in the Zedillo Report? You might want
to elaborate on the idea to start with. I have jotted down here
about peace-keeping, agricultural research, prevention of contagious
diseases, things which are not country specific, where there is
a danger that they will be heavily under-funded, which is implying
that existing funding mechanisms do not work in some quite important
areas. Could you say a bit more about that concept, whether you
see it as a value concept to be differentiated from other kinds
of aid, and whether we need different kinds of funding for that
concept of global public goods?
(Mr Maxwell) I will say a couple of things
and then ask a real economist to say something. "Public goods"
is a technical term in economics. The technical definition is
that it should be non-rival and non-excludable, which means that
one person using some of it does not block other people from using
it, and one person using some of it does not mean there is any
less of it afterwards. The classic example is a lighthouse. That
is a perfectly legitimate concept and the reason why they are
under-funded is precisely because it is non-rival and non-excludable,
there is no reason for you to pay for it, or at least you will
not pay as much for it as you would if it was private. We spend
lots of money in countries on public goods. In Britain education
has some public good characteristics, as do lighthouses and lots
of other things. It is perfectly legitimate to talk about global
public goods also, and some of the things you listed—knowledge,
health, security—are all global public goods. What that
does not tell you is how much you should spend on global public
goods. Part of the reason that the concept has become so popular
is that a number of agencies have picked it up as a vehicle for
getting bigger budgets. It is a catchy phrase, it is attractive
to donors. One of the points that we have made is that you can
fund public goods but at the expense of other things. Given that
the amount of money available is limited, you are not going to
spend infinite resources on agricultural research and nothing
on other things. That, it seems to me, is where the big argument
has to come. Yes, we should have global public goods. They do
exist and yes, we should fund them. It makes sense to fund them
multilaterally and to have shared ownership of them, and the international
agricultural research system is a good example - but that does
not tell you how much to spend. That still has to be argued out
in the context of budget-setting.
(Professor Mosley) In some cases there is fairly clear
evidence that the fact that things are difficult has caused them
to be under-funded, and agriculture, as Simon has just mentioned,
is a good example. Aid flows, bilateral and multilateral, to agriculture
have decreased by around 20 per cent over the last 10 years. There
is some evidence that, particularly in Africa, the fact that poverty
is not falling very fast at all in most countries may be due to
the poverty of agricultural performance and that in turn may be
due to the deficiency of aid flows, and that in turn may be due
to the fact that each individual donor is not putting its share
into agriculture because the benefits accrue to the continents
of the world as a whole. Certainly in the case of research on
crops such as maize or rice, which are consumed almost universally
in the Third World, there seems to be a pretty strong case for
a global increase in funding on the grounds that this is a global
public good which individual country allocations are not properly
funding.
(Mr Roberts) Perhaps I could add a point on global
public goods as a concept. I think we have to see, in the absence
of global government, that public goods for the most part have
to be delivered by national governments. There is a high degree
of overlap between national public goods and global public goods.
To take the example of communicable diseases, communicable diseases
are treatable. If we can combat them through vaccination campaigns
or some other form of disease control locally, nationally, that
will be of benefit not only to the people who are vaccinated but
to others as well. That is the nature of a public good. It could
also have trans-border ramifications and benefits, so we have
simultaneously a national public good and a global public good.
Much the same can be said about some forms of environmental protection.
Even possibly in the field of education one might be able to see
that sort of thing, particularly amongst countries which have
close contacts with one another, as some African countries might
do, where there is a lot of movement across borders. The distinction
between global public goods and national public goods is not very
clear. Most global public goods, international agricultural research
being an exception but not the rule, and maybe some health research
also may be the exception but again not the rule, have to be delivered
locally, and so it is very important to build local capacity for
delivery of these things. Although the term "global public
goods" has fairly recently come into circulation and common
use, I think as a result of a publication on this subject by the
UNDP economist, Inge Kaul, a few years ago. In fact we have been
producing global public goods for an awfully long time and the
Consultative Group on International Agricultural Research is over
30 years old and has been in the course of its time responsible
for, for example, the green revolution technology which transformed
agriculture in the Indian subcontinent in the 1970s and 1980s.
So we have been in this business a long time already. In terms
of the financing of global public goods, there is probably no
simplistic answer. The CGIAR itself is now asking itself existential
questions because of the global growth of private intellectual
property and the capacity for research in agriculture in the field
which previously was the prerogative essentially of the public
sector.
67. Can I put two reactions to what you said
and ask you whether I am right in this? Is this in a sense saying
that when we set up something like a global health fund, which
we have done recently to tackle three major groups of disease,
that is a reflection of failure in the standard of disbursement
of aid, that it has fallen through the cracks because it has not
been funded? The other is, my impression with agricultural research
is that a lot of it happens but not much of it gets too much done
about it. It is not the funding mechanism there; it is the application
system.
(Mr Maxwell) All the evidence is that
there is a very high rate of return to agricultural research.
The problem in agricultural research is that more and more of
it is now in the private sector and the private sector is not
interested in technologies which help poor people; it is interested
in—
68. I was talking about public research.
(Mr Maxwell) I would not worry too much
about the effectiveness of public sector agricultural research
on average. Africa is slightly more difficult because the institutional
environment is not so good. On the question of health funds, my
own view is largely that these funds are a gimmick, probably a
very successful gimmick. If they raise the profile of a topic
you get more money going into it. There is nothing wrong with
gimmicks in principle, but we have other mechanisms for delivering
aid to the same objects if we want to use them.
Chairman
69. The problem is they are a distraction; they
might be worse if they give the impression that something is being
done which is not actually being done.
(Mr Maxwell) There was something I meant
to say about the United States and I did not but it is relevant
here, which is that one of the features of the US aid system is
that funds are heavily earmarked. Congress has set innumerable
restrictions on the aid programme and earmarked aid for certain
things, which makes the aid administration very difficult in the
United States. The European system has suffered from the same
problem, with far too many budget lines, and they have been trying
to deal with that. If you set up lots and lots of funds you achieve
the objective of raising the profile of a topic and perhaps increasing
the total size of the cake and perhaps getting a bigger share
of the cake for your particular topic, but at the expense, of
enormous complications.
(Mr Roberts) The global fund for TB, malaria and HIV
will in fact be, as I mentioned earlier, supporting national programmes
essentially and so it will be a funding mechanism lying alongside
existing funding mechanisms for support in institutional strengthening
of national health administrations.
Tony Worthington
70. Could I ask you to carry on, John, on the
Chancellor's International Development Trust Fund which you talk
about in the memorandum, about the strengths and weaknesses of
it, but furthermore is it a goer?
(Mr Roberts) I do not think it is for
us to decide whether it will fly. It is a mechanism which would
generate, if agreed amongst a sufficiently large quorum of countries,
rather rapidly some rather significant increases in aid flows.
That is the virtue of it. The difficulty arises with the fact
that it has to borrow not only to finance ODA flows but also to
pay interest on its previous borrowings for a period of time,
so it clocks up very rapidly very significant quantities of debt
which, according to the projections, would then have to be paid
off over quite a large number of years after 2015, as the intention
is, and probably for a good 15 years thereafter.
71. How do you rank it, if we are all looking
for ways in which to increase the expenditure on development,
as a possible effective way of generating more funds?
(Mr Roberts) I rank it as a quick actor
but possibly not the one to be deployed on a very large scale
because of the tail end problems of how to pay down a potentially
extremely large volume of debt.
(Mr Maxwell) Is not most of the money going to come
from additional aid rather than from borrowing?
(Mr Roberts) If you are talking about the initiative
in its totality, yes, but that is covered in conventional aid
and that would not be formal novel financing.
Chairman
72. You obviously know more about the International
Development Trust Fund than we do. We had some other witnesses
last week who seemed to know very little about it. It is quite
interesting that in the Budget Red Book it refers to shortfall
by Monterrey and the Chancellor's proposal that some of the shortfall
will be made up by the International Development Trust Fund. It
talks about levering in private sector money. We are not quite
clear how it is going to determine this, whether there is going
to be some huge PFI for international development. John, it sounds
to me as if you are on the right examination paper and at least
know what the questions are all about. If you can share all this
at some stage, what you understand the International Development
Trust Fund to be, who is actually funding it, where the money
is coming from, all these various things, we would be very grateful[7].
You are the first person who has shown some understanding of what
it is all about. Simon, do you have any thoughts on the International
Development Trust Fund?
(Mr Maxwell) No collective thoughts.
Just have a look at the governance, I would say, and if this is
simply a device to put a great deal more money into the hands
of the World Bank you can expect developing countries to be very
anxious about who controls disbursements.
73. Do you and your colleagues have any final
thoughts about all this—what makes a good donor, effectiveness?
Is there anything that you have not been asked about that you
would like to have been asked about?
(Mr Maxwell) There is one quick topic
which we have been practising. One of the big debates in development
has been around aid effectiveness and famous World Bank studies
show that aid only works where the policies are right. That has
been very much debated in academic circles and Paul has been practising
a one-sentence summary of the arguments and a seven-sentence summary
of what it means and I think you ought to hear it.
(Professor Mosley) The World Bank's line was that
aid only works where policies are right in the sense of openness,
in the sense of budget deficits being low and in the sense of
inflation being low. This seems to have been based on flawed research
and the best available knowledge suggests that aid actually is
effective across an overwhelming majority of countries whether
policies in the World Bank sense are right or whether they are
wrong, suggesting that, even in places where policies are currently
illiberal and not very effective in poverty reduction, none the
less, by appropriate persuasion along the lines that we have been
describing, aid may become effective. Which I think is a very
encouraging message for donors who have been worried about whether
it is worth increasing aid totals by abiding doubts about whether
it is going to be effective. The evidence suggests that in a huge
majority of countries aid is effective either because it is backing
up policies which are already good or, alternatively, by amending
those which are bad. That really was not known and established
until about a couple of years ago.
Mr Robathan
74. I hate to ask for a paper but could you give
us a brief summary of where the evidence has come from because
this is quite a radical view which you are expressing towards
a lot of things which some of us have thought and heard in the
past? I do not think we can discuss it now but if you could give
us a short summary I would be thrilled. I will even read it.
(Professor Mosley) Glad to.
Chairman: Thank you very much for your
evidence.
6 Ev 61. Back
7
Ev 61. Back
8 Ev 67. Back
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