There has been a lot of chatter in the last few weeks about social development bonds. Basically, they are financial investments that are spent on social-welfare development which pay-out at a fixed point only if there is good evidence that the social-welfare efforts were successful, and not at all if not. They are currently being pioneered in England by the group Social Finance.
There are two queries that I have about these bonds. First is that since they are linked to a cost-benefit measurement before paying out they are really a cross between a bond and a share. The bond holder will be expected to take great interest in the service delivery etc to ensure a return, but that is hardly current bond holder practice. Second, can the impact of an intervention be determined reliably and even if it could be how would we determine what is a ‘successful’ project? There is more mileage in the ‘share’ analogy here since there will be a price-over-earnings consideration that is not normally considered by bond holders.
Which brings me to the question of risk. If these complex bonds, which have share-like dependency on performance, are to be commercially traded, who is going to take on the additional risk? To make the bond attractive the interest rate will have to be high, and that additional risk will be paid for by the government when it pays out. The externalities are positive (successful project) but the whole thing rests on the idea that the benefit from private sector involvement is greater than the additional cost to the government in borrowing. I am not so sure that this argument is sound.
Interesting debate here at LSHTM last night: “Does development assistance help or hinder?” with Rifat Atun, Imperial College London, Andy Haines, LSHTM and Nuria Molina, Save the Children.
Everyone agreed that there was a need for greater accountability in the aid industry. Which led to the inevitable calls for more governing bodies, and impartial seers.
But what, then, of the idea that poverty is a lack of choice? All of this planning is just another imposition on poorer (less powerful) people. The aid industry has huge power – through NGOs or governments – and is not inclined to give it away to the people. A selfish bureaucracy reigns.
Would it be so terrible to side-step the bureaucrats and give the money directly to the people who need it? Not top down, literally a monthly or yearly living allowance in their pockets. Without all that schmoozing to do and wasting time fighting at summits, aid agencies could focus on attracting people’s custom by offering the best services. Investors might invest in promising start-ups who could show innovation in the field of helping people. The people who are supposed to be gratefully receiving the benevolence of the aid industry would have, for the first time, a position of power and a position to choose. The aid agencies would answer to them.
Radical? Right wing? Not really. This is about shifting power from the richest to the poorest people in the world. While we’re falling over ourselves to please donors, do we ever stop to think about how we’re pleasing the people we claim to want to help?
Happy helping people is not enough when the factors that determine resource allocation are improper.
The the previous posts we have seen that resource allocation is based on a number of things – proximity, emotions, timing – but that efforts to define and measure actual outcomes are lacking. The result is that resources are likely misdirected such that sizable opportunity costs can be measured in actual children killed (not saved) because of the action of badly determined criteria.
Let me explain. An NGO is spending $100m on children in a crisis in Africa. We don’t know exactly what effect this will have (because it is not measured) but the NGO hopes to save $4m children. That’s $25 per child, which sounds pretty good. But is it? First of all, $25 might not be all that cheap, despite huge healthcare costs in the West it might be possible to help a child for much less in a different context and for a different ailment. Second, we haven’t really defined ‘life saved’ (see previous post), although we could just do that. Let’s say it is that the child lives beyond childhood and reaches 16. That doesn’t solve the problem since, third, we haven’t measured what actually happens and the ‘confidence interval’ on our 4m saved estimate is very wide, wide enough that resource allocation goes from cheap and effective to extremely expensive, even wasteful. So a number of things have to come together for the $100m for 4m claim to hold up and without it there is a good chance that our $100m is not helping as many children reach 16 as it would do if it were spent elsewhere. What seems like a rational basis for action – maximum number of children reaching 16 per dollar spent – is not the basis at all.
As a result, children needlessly fail to reach 16 – are saved – when we have the funds to help them.