Missing the big picture on corruption?

Reading recent headlines, you might be forgiven for thinking that Australia’s aid program is failing: Foreign aid program stifled by corruption‎; Millions lost in foreign aid programs due to corruption‎; Australian aid agency answers corruption claims‎; Fraud claims in Australian overseas aid program‎. But are these stories missing the big picture on corruption and aid effectivenss?

Corruption is a major problem for poor countries, but the real victims are poor people in developing countries, not taxpayers in Australia. The latest batch of stories of ‘corruption’ in Australia’s aid program potentially divert attention away from the bigger issues: how to tackle corruption in developing countries and how to improve the impact of Australian aid on poverty.

Zeroing in a tiny rates of aid fraud misses this bigger picture. As Peter Baxter has pointed out, the amount of aid in question is a miniscule proportion of total aid–$3.4m out of $20bn over the last seven years, or just 0.017%.

Much more important, in terms of value for money for Australian taxpayers and the impact on poverty, is the effectiveness of the other $19.9966 billion. Here it is important to look reports such as the Annual Reviews of Development Effectiveness, AusAID’s own assessment of its performance, program evaluations, and the ANAO’s assessment of AusAID–these provide a more complete picture of how the aid program is performing and are a better basis for discussion and debate.

These reports do point to some notable successes, including robust systems for controlling corruption in Australian aid, but they also highlight areas that AusAID could improve on: greater selectivity in programs, a more strategic use of partner country systems, more rigorous evaluation, and greater use of multilateral agencies. These are the issues that need genuine debate and that will ultimately drive better results for poor people and greater value for money for Australian taxpayers.

Turning to the issue of corruption in developing countries, which is also a key issue for aid effectiveness. Evidence suggests that the effectiveness of aid is related to the quality of governance in the recipient country, so improvements in governance should also improve the quality of aid.

There are several strategies donors can use to improve aid effectiveness in weak governance contexts–for more see Stephen Howes’ recent paper.

The first is to target aid at countries that have relatively good governance. The World Bank, for example, does this by allocating aid to countries that score well on assessments of the quality of their policies and governance. DFID allocates more aid to countries that it thinks will be able to deliver better development outcomes. But there is a limit to how far this strategy can be pursued.

Many countries are poor and corrupt and require external assistance. Paul Collier’s book ‘The Bottom Billion’ describes how many countries become ‘trapped’ by weak governance, and once trapped it is difficult for countries to turnaround without external assistance. Simply reallocating aid to better performing countries isn’t the answer, so what is?

Another strategy is to use aid to improve governance. This typically involves using aid for capacity building and technical assistance, but it can also include using conditions on aid to push for reforms. While this strategy has intuitive appeal, the evidence on the overall impact on better governance in inconclusive at best–for more see chapters 12 and 14 in Roger Riddell’s ‘Does Foreign Aid Really Work?‘.

That is not to say that some technical assistance doesn’t work, and we shouldn’t try, just that overall there is little evidence of impact. And there are lots of things donors can do to make TA work better–such as making it more selective and reduce costs–as we have seen with AusAID’s recent review of advisers.

All of this might sound a bit gloomy, but there are also some new ideas that deserve discussion.

One is to create new institutions. Paul Collier has proposed independent service delivery authorities as a model for delivering services in governance-weak countries. The idea is that in countries where the delivery of education and health services is utterly failing, the government, civil society and donors could build an alternative delivery system–see The Bottom Billion p 118 and 120. Paul Romer goes further and proposes setting up charter cities with new sets of governance arrangements and external guarantees, which allows governance innovations to be adopted quickly.

Another approach is to link payments to outcomes. The Center for Global Development is proposing Cash on Delivery Aid that  link aid payments to progress on agreed outcomes–for example $100 for each extra child passing a standardised school test. It’s an appealing idea because it potentially removes some of the distortions in aid and helps donor taxpayers to see more clearly what impact aid is having. It’s still early days, but DFID is piloting this kind of approach in Ethiopia and there may be lessons for the Australian aid program.

And finally, there are things, beyond aid, that rich countries can do to help tackle corruption in poor countries. The Extractive Industries Transparency Initiative requires companies to report payments to governments and helps auditing the receipt of those fund. The US has passed legislation to tighten up controls on bribery by US-based firms in extractive industries. Anti-money laundering legislation could also be used to better track ill-gotten gains from corrupt leaders, and better links between anti-corruption watchdogs can increase the chance of evidence gained this way leading to successful prosecutions.

There is much more that could and needs to be said about the nature and causes of corruption in many poor countries; it’s impacts on poverty; and responses from donors and developing countries. These are critical issues that deserve more discussion.

Matt Morris is a research fellow at the Crawford School and Deputy Director of the Development Policy Centre.

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Matthew Morris

Matthew Morris helped to establish the Development Policy Centre and served as the Centre’s first Deputy Director. Matt is a development economist with 25 years’ experience. He is currently an independent consultant.

2 Comments

  • There is a wider discussion here about how these complex issues of fraud and corruption get communicated to the Australian public, as it can lead to an impression that the entire enterprise is not valid. For what it is worth – here is a letter to the editor from ACFID that did not get a run in either the Herald Sun or Daily Telegraph, nor did our interview with Steve Lewis get quoted.

    LETTER TO THE EDITOR
    Friday 25 March, 2011

    If you read Steve Lewis’ article ‘Millions lost in AusAID foreign aid scam’ (24/03) you would be forgiven for asking if any of the money the Australian Government gives to poor nations is actually reaching its intended destination.

    Contrary to the claim that Australia’s aid program is ‘plagued’ by ‘widespread’ fraud, over the past five years, cases of fraud represented less than two cents in every $100 of the AusAID program.

    Of course, no level of fraud is acceptable and AusAID has a zero tolerance of fraud. The fact that cases are being discovered and pursued shows there are safeguards in place and that these are working.

    But we should never be complacent. We need to always work hard to ensure that our aid, like all other government programs, is spent as effectively as possible. But to imply that aid isn’t making a difference to those in need ignores the facts such as UN research which has found that the incremental increases in aid over the past 20 years account for an extra 14,000 lives saved per day, or that polio has been eradicated in the Pacific.

    Australia’s investment in foreign aid, whether it be funded through the Australian Government’s aid program, or public donations, is vital. It saves lives and helps some of the poorest people in the world.

    Co-signed by:
    Marc Purcell
    Executive Director, ACFID

    Julia Newton-Howes
    CEO, CARE Australia

    Jack de Groot
    CEO, Caritas Australia

    Andrew Hewitt
    Executive Director, Oxfam Australia

    Ian Wishart
    CEO, Plan Australia

    Tim Costello
    CEO, World Vision Australia

  • ‘Missing the Big Picture on Corruption?’ is an excellent title for the really good analysis that Matt has written, above. I want to suggest, however, that we urgently need to ask questions in a rather different way to highlight the answers we need on aid policy, good practice in aid and aid effectiveness.

    A major obstacle to understanding aid effectiveness is that much of the discussion, analysis and reporting is, indeed, ‘big picture’. I suggest the picture is both too big and uses only one lens.

    We urgently need to narrow our focus and ask ‘smaller picture’ questions that look at specific sectors, in specific countries, and at a particular time and stage in their development. To put this proposition another way in the form of two questions: ‘1. Can we really generalise from the experience of (say, for example) agricultural development in Kenya, to security in Pakistan, to health in Laos, law reform or education in Indonesia? 2. Who is doing the generalising?’

    In answer to 1, I think some ‘big picture’ approaches can be helpful in broad strategic issues, as some of the references cited above by Matt demonstrate. The important works by former World Bank economists Steve Berkman in ‘The World Bank and the Gods of Lending’ (Kumarian Press, 2008) and William Easterly in ‘The White Man’s Burden’ (Penguin, 2006), clearly demonstrate this big picture approach as well.

    To answer 2, these big picture approaches are often, possibly usually, written by development professionals with a major background in economics. Because of this, they can miss the important conceptual and technical details that underpin aid outcomes in different disciplines and in different contexts.

    The debates around aid need more balance and more inputs from discipline-based professionals such as agriculturalists, security specialists, doctors, nurses and health professionals, and so on. What we hear, I believe, is ‘the sound of one hand clapping’. And that is the hand of the development specialists with expertise in economics. These specialists undeniably bring their own unique and important sets of skills and approaches. But we need more of ‘the other hand’, the discipline-based development specialists in agriculture, health and education, with specific country experience, if we are to hear a fuller message.

    I suggest that we also need to add the important contributions that anthropologists can bring. A significant contribution from this discipline in Indonesian education was a study by Christopher Bjork, ‘Indonesian Education: Teachers, Schools and Central Bureaucracy. New York: Routledge, 2005. What Bjork discovered was very significant for educational development, and it was this: Teachers’ conception of their responsibility, at the time of the study in the late 1990’s was to the state: to the process of nation building and establishing government authority rather than to parents or to students for educational and learning outcomes. Duty as a civil servant to develop a culture of obedience was considered to be of far greater importance than responsibility as an educator. In other words, schools were seen by teachers mainly as institutions to develop patriotic citizens rather than educated citizens. The study also picks up an issue I identified above about particular times and stages in development. Since the late 1990’s, Indonesia has changed fundamentally from an authoritarian dictatorship to a robust democracy. Has this changed teachers’ conceptions? I do not believe we have clear empirical evidence to answer this question although field experience suggests that much has changed and especially among younger teachers.

    In a subsequent blog, I intend to address some of the educational development issues in Indonesian education.

    Robert Cannon is an education development specialist who has worked in this field in universities and in the aid sector, particularly in Indonesia, since 1974.

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