It’s Not How Much You Give, It's How You Give It

What's the best way to give aid in the developing world?

To break it down very simply, there are three ways donors agencies can give aid — differences that basically come down to trade-offs between user-friendliness and riskiness.

Let's start with one end of the scale: Project support. Such an approach ensures that money is spent only on finely specified activities in support of a particular goal (e.g., spreading bednets). Accordingly, it's the hardest to siphon funds away from. On the other hand, aid recipients don't like project funds much, mainly because they don't respond to changing priorities, and often wind up being difficult to use. After all, the controls that prevent them from misuse also often make it difficult to access the money even legitimately — which means that funds can end up getting too rigidly locked up.

For a middle way approach, there's the use of ‘basket funds,' in which donors pool their money, while the recipient government uses money from such a 'basket' to support a pre-agreed set of activities. Basket funds are slightly more vulnerable to misappropriation than project support, but the approach also makes the legitimate use of funds much easier. That's because people on the ground can decide what needs to be done when, and can access funds without jumping through too many complicated hoops (though restrictions on spending still do limit the flexibility governments have in responding to emerging issues).

Then there's general budget support (GBS), a practice that's the most flexible for governments, but also the riskiest for donors. Under a GBS arrangement, donors basically write a check to a recipient government and tell them to do as they please — just so long as there's a decent audit to show that the money wasn't stolen outright. As ever, it's more complicated than what I'm portraying, but the general sentiment behind the approach is the desire to give governments the authority to lead their own development process. (Cash on Delivery aid, which we've written about here, is basically a form of budget support that's conditional on achieving certain targets.)

Most donors are gradually moving down this spectrum towards general budget support, and away from projects. Why should we take these extra risks with our cash? Surely as long we have good people managing projects, we can promote good development activity without any of the risk, right? If we retain control of how funds are spent, then we never have to worry about or rely on the ability of others to effect change. This is, after all, basically the approach that the U.S. Agency for International Development takes.

And sure, if you think the point of aid is to achieve specific improvements in peoples' lives — by any means possible — then project support actually makes a lot of sense. It's normally the fastest way of achieving specific aims.

But it's also a pretty restrictive way to think about fighting global poverty. If donors try and do everything themselves, even if they manage to succeed, all they have done is created a lasting dependency.

What donors need to do is support local systems that can achieve the same ends. Directly supporting local institutions and letting them direct their own development is the only way to build a system that will be sustained — even after the donors leave.

Such a strategy, of course, might take longer — in fact, it probably will. Ultimately, though, that has to be our end goal: a local system that meets its own needs without donors. So when critics honk about the lack of results in the World Bank's basket-funded approach toward health outcomes in Africa (as William Easterly recently did on Aid Watch), such critiques are ultimately short-sighted. Yes, criticism plays a crucial role in improving aid. But we need to be very clear about the goals we're seeking before we start criticizing the search.

Photo Credit: Pink Sherbet