Guest post by Charles C. Johnson
Unveiled in 2000 by the United Nations, the Millennium Development goals have consistently unmet despite pledges from much of the industrialized world.
On his blog, Bill Easterly of NYU explains why, "Each aid organization tries to meet all MDGs and each fails to specialize. Therefore some aid agencies are forced to supply things they are bad at ... for which there is no demand."
Easterly explains in further detail:
UNICEF is working on swine flu, the traditional province of WHO, who is distracted by trying to do development research, which is the traditional specialty of the World Bank, who is in turn distracted by a new emphasis on children, which is the strength of – just to complete the circle – UNICEF.
Even very small aid agencies fail to specialize – Luxembourg’s $141 million aid budget was divided among 30 different sectors (out of a possible 37). The tiny Luxembourg budget also went to 87 different countries.
With high overhead costs for each separate activity for each country, the ratio of overhead costs to funds for the activity gets extremely high, sometimes over 100 percent. UNDP has one of the very LEAST specialized aid budgets by country and by sector, and it actually does have a ratio of overhead costs to aid disbursed of 129%.
One suspects overhead costs devoured even more of program costs for the $20,000 Greece spent on worldwide post-secondary education, the $30,000 the Netherlands spent on promoting worldwide tourism to developing countries, the $5,000 Denmark spent on worldwide emergency food aid, or the $30,000 Luxembourg spent on conflict, peace, and security. (Remember, these small sums may have been split even further among country recipients.)
One could think of many political economy reasons why aid agencies resist specialization. From my casual experience in a large bureaucracy (the World Bank), the primeval bureaucratic instinct is to give a tiny piece of the pie to every possible lobby group (internal or external). But what’s most clear is that it shows aid agencies lack of accountability, because it is such a wasteful practice that also drives the aid recipients crazy with duplication of efforts by every aid agency in every sector in every country.
I suspect that this problem is even more pronounced than Easterly recognizes. Part of the reason groups specialize, in accordance with Adam Smith, is that they receive a market signal such as a price rise to specialize and thereby innovate, but what evidence is there that there is any such signal in aid agencies? Remember, nobody loses his job for failing to stop poverty.