Easterly’s utopian solution to the wastage of development aid

Dec 01, 2010

The wastage of  health funding

William Easterly argues that donors should not give more development aid while so much of it is being wasted. The most recent example is the WHO report that tells us that 20-40% of health funding is wasted. Easterly questions the WHO’s calls for more health donations, asking “How do you make an impassioned plea for spending more money when we’re wasting so much?” To be sure this is not just through the sort of corruption that corpulent white businessmen moan about over drinks in Washington, London and Paris. The WHO reports that some countries pay almost double what they should for drugs and that at much of the medical equipment donated to developing countries is useless. But I digress. The point that Easterly and many others make is that donors should not send more money through the system until the leaks are fixed. And it makes good common sense. My Mom or any other non-economist would agree.

It’s the same story with general budget support

Similar debates rage around the issue of general budget support. How can you send unconditional money through governments that are broken in so many ways. One of the key assumptions of general budget support is that domestic accountability institutions are in place to keep recipient governments honest. But who would be so brave as to argue that parliaments in Tanzania and Mali have the means and willingness to hold their executives to account for how they raise and spend money? Or that the national audit institutions in these countries have the staff and clout to report mismanagement? Just have a look at the recent Open Budget Index scores for these two countries if you feel like arguing this point. Yet 11 bilateral donors provide general budget support to Tanzania: Norway, UK, Japan, Sweden, Denmark, Ireland, Canada, Germany, Finland, Netherlands and Switzerland, together with the European Commission, the World Bank and the African Development Bank. And Mali receives budget support from at least the Canadian International Development Agency (CIDA), Swedish International Development Cooperation Agency (SIDA), the Europen Comission and the AFD (Agence Française de Développement).

Yet all of this doesn’t mean that I agree with Easterly and the aid skeptics

He preaches Karl Popper’s pragmatism and crucifies “Planners”, who supposedly impose top-down big plans in favour of “Searchers”, who heroically pursue bottom-up solutions to specific needs. Searchers who are more realistic because they focus on piecemeal interventions. But not on this issue. Don’t spend more money until the leaks are fixed, he tells us. Sounds kind of top down and utopian to me.

The searcher’s solution to wastage

So why should we spend more while 20-40% of health funding is wasted? Any ‘searcher’ will tell you that we need to spend more because 60-80% of this funding is not lost. And this is money that buys ARVs, mosquito nets and other things that searchers care about. The realist, pragmatic approach to this conundrum is to fix the leaks even as we increase aid. But no, Easterly wants a nice utopian solution that cleans up the world before we spend more.

4 comments:

  1. There is an extra dimension to the problem as well, captured by Henry Ford’s famous quote about advertising “Half of all advertising is a waste of money; we just don’t know which half”
    Actually identifying where the “20-40% of health funding is wasted” could be quite a challenge. At least Henry Ford had a more precise estimate…

  2. Leakages are common under any system. Howsoever efficient you become or monitor, audit, regulate leaks will happen. Wikileaks is a classic example of how the great US security wall gets breached. Long ago an Indian Prime Minister Rajiv Gandhi commenting on the development budget of the national government said that only 16% of the budget meant as benefits actually reaches the people. So that is 84% down lining the pockets of politicians and bureaucrats and finding their way to “swiss” banks – it is estimated that an equal amount of India’s GDP of over $1.4 trillion is stashed away in such accounts and most of it should have belonged to the public budget. Well all this happens but we cant stop governance. We can change the government by voting them out but we get in to power a new set of rogues. This happens because as a civil society we are not vigilant, we dont ask questions and we dont participate in governance by demanding transparency and accountability.

    Global experience shows that where healthcare is concerned we need about 5% of GDP from the public exchequer to deliver good quality healthcare. Developed countries are spending 8-9% and US spends 14%, so thats where the big waste lies. Atleast in OECD minus USA the results of such spending have greater equity but they would certainly have scope for reduced spending if they decided for instance to buy drugs from India and Brazil. So this theory of wastage applies equally to the donor countries. And despite the wastage the OECD countries also make they have surplus to give as donation. So let the funds flow they were meant to circulate. There will be leakages but we have to activate civil society to act to help plug the leakages

  3. I’m going to have to defend Easterly here. Easterly’s money quote is: “How do you make an impassioned plea for spending more money when we’re wasting so much?”

    I think that’s a fair criticism to make, in principle: in other words, the WHO ought to consider whether it might devote some of its fundraising resources to ensuring that existing funds are used in the intended manner.

    I also think this point is important to make because misuse of funds adds to the perception that problems are inconquerable (“We spent $X billion and it’s STILL a problem?!?”).

    On our blog, HaitiJustice.wordpress.com, we detailed in a post today one example of the type of gross misuse of international aid delivery mechanisms that ought to be targeted simultaneously to (if not before) asking for more money. Interested readers can check it out here: http://haitijustice.wordpress.com/2010/12/01/causing-cholera/

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