Amoral hazards

In the last post we saw that humanitarian aid agencies are not gathering data on the outcomes of their work (such as years of life saved, average weight increases etc).  Not doing so has some dangerous ramifications, but before looking at these I want to characterize the interplay of motivations that leads to this situation.

Lord Ashdown is clear: donors are as allergic to measuring outcomes as the aid agencies themselves.  In fact, once a contract is determined there is no reason to distinguish between the two tiers; agencies are putting DFID priorities into action.  The distinction between the two tiers should be important when DFID or AusAID or USAID are choosing which agency to fund during a particular crisis.  How do they choose?  They use the process evaluations that the agencies are using to monitor themselves.  For example, who can shift the most food? Who can buy the most tents?

Donors like these types of ‘outcome’ because they are easy to interpret and sell to the public.  They don’t offer budgets for proper monitoring and evaluation and so the agency doesn’t have a choice but to continue with the status quo.  Maybe that’s all, but these agencies have clout (Oxfam, Save the Children) and the British public rarely scrutinize DFID reports to see how that money is being spent.  And yet the agencies don’t say anything, and they don’t put sufficient pressure on DFID to think differently. It is a closed loop: agency and donor benefit when costs are not compared to returns.  The risk of a poor strategy, like wasted food or worse, is borne by the recipients of aid.

This is a moral hazard.  A moral hazard is an economics term for when an agent (person or company etc) behaves differently because they do not bear the consequence of risk taking.

The situation is a bit like the banking crisis.  Aid agencies are ‘too big to fail’, inasmuch as we need them for when the next crisis comes along.  In the banking crisis, it was tax-payers’ money that went via the government to the banks.  With aid agencies, the aid recipients do not themselves contribute money (they’re normally too poor after all) but money is spent on their behalf by governments so that that aid can be given to them (the ‘process’ output often measured).  In both cases there is very little thought to whether or not the bearer of the ultimate risk (tax-payer in the UK, aid recipient in Somalia) is getting a good deal, that couldn’t be better supplied by someone else.  The life-blood of these agencies is recipients in their camps, they need them, but all of the risk is pushed onto the  same recipients.  For example, Oxfam won’t be outcompeted by Save the Children even if Save the Children could actually help 3 times as many people per pound spent in a crisis; we wouldn’t know.  All we know is what they are spending: how many tents? How much food? How many aid workers?  It is the people in Oxfam’s camps (who else!?) will bear the brunt of this inefficiency, alone.

So, no-one in the system need care about the quality/efficiency of services because the risk is passed on to the recipients of aid.  And, like the banks, they probably are too big to fail, indicating the need for tight, independent regulation.  Otherwise there is a run-away feedback of motivation: DFID spend more and the agencies spend more.  Perhaps the ‘good-will’ of the agency members is expected to stop this but, as Lord Ashdown says, the not insubstantial costs of doing so are not covered by DFID grants.  We cannot blame the aid workers themselves because the system has closed in.  However, if they felt the true risk of bad aid delivery then perhaps they’d be complaining with a louder voice.



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3 responses to “Amoral hazards

  1. shari

    It is like throwing money into a black hole – as money is used by NGOs, more is provided by funding agencies because that is the system that keeps the business of development going; it is, after all, a business. Many people in development might say that their ultimate goal is to work themselves out of a job, to provide assistance in such a way that they enable impoverished communities to become independent so that they no longer need aid, but this is a sentiment that is not at the forefront of aid delivery.

    In Debating Development by Eade and Ligteringen, the argument is made that the sole purpose of aid should be to enable people to not need it. This should be the goal of humanitarian and development assistance even though external factors outside the realm of humanitarian aid are what cause people to be ‘needy.’ The development community needs to collectively work itself out of a job – provide assistance in small, effective increments which, when coupled with fundamental global changes to structures that perpetuate extreme poverty, can create outcomes in which aid is no longer needed. Long-term aid programs that are based on this system of providing the most money to the organizations that can spend it the fastest are often damaging because they cause people to become reliant without allowing them to realize their own ability and capacity to ensure their own survival and welfare. No need for aid recipients to spend too much time trying to figure out how to increase their own capacity to achieve effective health care because every time there is a crisis, Save the Children is there to help.

    Much of development is grounded in the belief that external agencies are needed to build capacity and provide HELP to people that cannot help themselves. I wonder if we are doing more harm than good by failing to recognize the existing capacities and abilities of those who receive aid, thus hindering them to build upon what they already have and forcing them to rely on aid agencies and to bear the brunt of this inefficiency.

    • samsondaily

      Shari, I completely agree with what you are saying. However, I think that relying on or hoping for a culture of ‘working oneself out of a job’ will not work in reality because people don’t want to do that and they are not put under pressure to lose their job once the outcomes are reached. Unless we engage the recipients of aid and let their actions or their conditions (i.e. health) dictate which agency is rewarded for their work then there is no motivation for an agency – or someone working within an agency – to see those outcomes fulfilled. And you’re right about local capacity but we’re miles away from a system where increased local capacity is itself a measured and rewarded outcome. If Save the Children said that they were going to cut back on food deliveries to increase local capacity then they would receive less, not more, as a result, even though it is the ‘best thing’. Because the outcome we measure is expenditure (in the form of rice or whatever) instead of revenue (years of life lived, weight gained) this will be the case forever. The only way out is to change the motivation towards profit – revenue/expenditure.

  2. Lavanya

    sorry for commenting so much Calum, hope you don’t mind. this is just a topic that i’m really interested in, and it really bothers me that things are this way. Shari, what you say is so true, that many NGOs are creating a dependence on the communities they are trying to help instead of empowering them to be self-sufficient, with the end goal being that the NGO itself need not exist. The development community has built itself up so much – do you think it is realistic for them to “work themselves out of a job”? I would be curious to hear your thoughts. I believe that the measures of success/effectiveness of development should be based on community (when I say community, I mean the recipients of aid, or the target population of interventions) opinion – for example – do they feel that their quality of life has improved? do they feel more self sufficient? Similarly, I think the interventions themselves need to be dictated by the community’s priorities, not those of donors, or any other external agency. I think that the community is being ignored at all levels of development – identifying need, planning, implementation, monitoring and evaluation – so it’s no wonder that the whole system is in disarray.

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