NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

This interview originally appeared in the Shell Foundation’s October Newsletter.

The Shell Foundationhas conducted an enlightening interview with former World Bankeconomist and respected academic William Easterly. As the author of abestselling book and numerous articles about the effectiveness ofdevelopment, Mr. Easterly offers a fascinating insight into theworkings of the aid industry and why the application of businessprinciples could offer a route to improved performance.

At July’s G8 summit world leaders pledged to double aid spending by2010, and barely a month later agreed to cancel $40 billion of poorcountry debts. We asked former World Bank economist and aid industrycritic, William Easterly, whether he thought this was good news for thepoor?

?Securing pledges for more aid is not going to makepoverty history. What we should be examining is the aid industry?splans to spend this new money because it has a track record of failuredating back to the 1940s and 50s. There’s been numerous and diverseattempts to buy the poor out of poverty but none of them have beenparticularly successful. So in 2005 we found ourselves ostensiblythrowing more good money after bad. Above all, this is tragic for thepoor.?

These are strong words from someone whospent 16 years working as Research Economist at the World Bank. Inrecent years, Easterly has carved out a respected niche as a leadingcritic of the aid industry, writing numerous articles, comment piecesand a bestselling book entitled The Elusive Quest for Growth.

He?salso supportive of the Shell Foundation attempt to engage the aidindustry with the private sector to make development more accountableto the poor people its trying to serve.

?The ShellFoundation is asking the important questions in a year when billionsmore in aid has been pledged,? Easterly says. ?Delivering theMillennium Development Goals (MDGs), for example, will hinge on the aidindustry being willing and able to think and act more like a businessif it is serious about meeting the needs of the poor across health,education and safe water.”

However, Easterly’s starting pointis why the aid industry is allowed to function in the manner it does.This is something which he claims makes it unique even among publicsector bodies.

?There might be one billion people living ona dollar day but they are not a political constituency – they have novoice. They are effectively customers of this multi-billion dollar aidindustry but lack the ability to give feedback and influence the typeof aid they receive.

?At the same time, aid industry investors ?rich country tax payers and the politicians writing the cheques–areill-informed and far removed from the lives and daily challenges of theworld’s poor. Therefore the disconnect that resides at either end ofthe development supply chain mitigates against change and reform todeliver the type of development the poor so desperately want and need,?he adds.

Therefore instead of targeted interventionsresponding to customer needs fused with pressure from investors todeliver, Easterly argues the history of development is one of grandioseand broken promises right up to the present day with the MillenniumDevelopment Goals.

?No one is accountable for failure,? hesays. ?Development professionals don?t think like business people. Theyare typically well-meaning, hard-working and idealistic, but they haveto respond to a hierarchy of managers who themselves are captured bythe political whims of those writing the cheques.?

Afundamental and little discussed aspect of international development isthat the tax-paying public is far more concerned with everyday domesticissues than the plight of the distant poor.

?Imagine if thegovernment suddenly stopped paying pensions on time or messed up incometax. There would be outcry, heads would roll and things would be putright. That’s not the case with international development.

?Instead,the public consumes poverty according to the way it is presented by aidagencies and the mainstream media. NGOs focus on sensational causessuch as famine and disease and the media laps it up. Not surprisingly,we dig into our pockets, the governments ups the aid budget but then insix months time poverty is back on our TV screens. It never seems to goaway,? he adds.

So are we rewarding the aid industry for past failures with the latest round of pledges to increase spending?

?Yes,in a sense,? admits Easterly. ?We?re allowing politicians and the aidagencies to distract our attention from failure. It is, after all, inthe interest of the aid industry to suppress past failures. There’s nohistorical memory and there’s a reason for that. It?ll be a PR disasterto confess to a track record of poor performance when pitching todouble your budget. As such, there’s no systematic learning going on ?the aid industry is not wired up to correct itself in the same way asan enterprise, for example.?

On this premise Easterly drawson the approach of the Shell Foundation to introduce businessprinciples and business thinking to the working of the aid industry.

?Theaid industry must be held to account. This means a whole new incentivestructure running the length of the development supply chain. Aboveall, the customer–the poor–should be its focus. The aid industryneeds a new business plan and the private sector can help write it.

?Untilsuch time the MDGs will remain empty rhetoric. We have to breakdownthese grandiose goals into specific programmes country by country. Wehave to get rid of top-down, one-size fits all solutions and focus onmeeting the needs of local people wherever they may live. Enterprisethinking has much to offer in achieving this.?