Opinion

Felix Salmon

Cash on Delivery Aid

By Felix Salmon
February 18, 2010

I like Nancy Birdsall’s idea of “Cash on Delivery Aid” a lot. Instead of spending money on building schools or hiring teachers or any other means towards an educational end, just pay for outputs instead:

We propose that donors offer to pay recipient governments a fixed amount for each additional unit of progress toward a commonly agreed goal, e.g. US$200 for each additional child who takes a standardized test at the end of primary school. That is, the donors pay “cash” only upon “delivery” of the agreed outcome. The key features of this proposal are: (1) the donor pays only for outcomes, not for inputs, (2) the recipient has full responsibility for and discretion in using funds, (3) the outcome measure is verified by an independent agent, (4) the contract, outcomes and other information must be disseminated publicly to assure transparency, and (5) this approach is complementary to other aid programs.

If a prize-based approach is a good idea for things like vaccines, why can’t it work with education, and other areas with clearly-definable and measurable outputs?

To spur government action and allow for civil society to participate in bringing about change, each COD Aid contract (as designed) would rely on a single, measurable goal; e.g. children completing primary school or households with access to clean water. Choosing an indicator that is simple, central to people’s lives, and easily auditable, Nancy says, is critical to the success of a COD Aid model.

The problem with this model is I think at the donor end: the government can spend the money on anything it likes, from kickbacks to Kalashnikovs, and people — and even governments — donating money for early-childhood education or clean water don’t like risking their money being spent elsewhere. But Nancy has a 100-page book coming out on the subject; maybe that might help to change some minds.

Comments
9 comments so far | RSS Comments RSS

Isn’t the other problem that it forces governments to look to the finance sector for the money to start these projects? Part of the COD goes to pay the banks, which means to pay the finance sector’s monopoly rents. And it puts the banks in the position of deciding what projects get funded — but do banks have a better idea of what works in education than donors or governments?

Posted by Wismar | Report as abusive
 

There’s a rather obvious problem with it, namely that it rewards the haves and punishes the have-nots. In other words, the only people who get the aid are those who succeed in meeting the targets without it. Almost by definition, the people who need the aid the most are those who can’t meet the targets without it. Now, obviously there are in theory snowball effects once you start meeting targets, but getting off the ground is the hard part.

Also, the comparison with vaccine develpment makes no sense. It (more or less) doesn’t matter who invents a vaccine. What matters is that it is invented. So, ceteris paribus, it doesn’t matter to the recipients of the vaccine if it’s a huge pharma company which doesn’t need the prize who invents it, so long as someone does. If you want to make comparisons with vaccines, why not look at how the Global Alliance for Vaccines and Immunisation disburses its aid. It’s not without flaws, but it’s saved millions of lives.

Posted by GingerYellow | Report as abusive
 

Ginger,

I don’t think this is a generic prize – I think its a prize limited to a specific government. So long as this aid is complementary, the downside you mention wouldn’t be very big, but there would also be an upside – governments would be incentivized to do things that yield results.

To me, the problem is the idea that these outputs will be clear, measurable and meaningful.

Even leaving aside the question of how meaningful standardized tests are, take a look what happened with No Child Left Behind. The federal government set a very strict guideline for continuous improvement of the schools. The states panicked and simply made the standardized tests easier.

Posted by AnonymousChef | Report as abusive
 

Man, Felix, you really love some complicated solutions to vexing problems: COD donations, Vehicle Mileage Tax, high-cost/low-yield bank capital.

Posted by Sensei | Report as abusive
 

Without critical examination and correction of what happens with Foreign Aid at present, starting at the causation point of crisis situations necessitating “aid”-like intervention, the root problems are unlikely to be resolved. Major, and justifiable, resentment on the recipient side is the predictable outcome of further patronizing First-World retroactive band-aid intervention without major top-down changes having taken place at the point of origination.

The majority of problems facing the Third World are more manifestly man-made than Global Warming, which is man-made but subject to dispute by various craven lunatics. Meanwhile patchwork solutions have seldom worked well, not even in America after The Abolition. How, then, is a COD aid model supposed to work internationally as well as inter-culturally? Probably, not.

What use is foreign aid to a famine region if the blank check they are given can only be redeemed for Hostess Twinkies? That’s more or less how too much of money changing hands in the aid chain is presently earmarked…

Want famine relief? Buy our tractors and sign here for a nuclear reactor you don’t really need but that will keep you in debt for centuries to come. Want us to dig a well for your village? Sign here for a lifetime supply of Tylenol, for all your kids’ ailments especially ones they don’t have. Want food? Here, buy our GE seeds and weed-killer. Yes it’s that, or no food. Oh, by the way we’re taking all your cotton for the next twenty years and yes, no matter what you do you’ll still owe us money by end of contract. That’s literally how these deals are cut but the TBTFs of pharma and agribusiness, taking a pound of flesh out of the victims for every ounce of help they purportedly supply.

Look at Haiti – all these weeks later, America’s still too busy bivouaking its own Marines to actually feed let alone house more than a few of the starving there. Was this predictable, like the aftermath of Katrina? Sorry, but yes it was.

The Third World is a gigantic playground for so-called aid providers who cause more destruction than they could ever possibly rectify. Totally wrong decisions in forestation and irrigation render thousands of square miles of the Asia Minor barren, in exchange for which the people give up their oil and ultimately, their sovereignty. But on paper, this all looks like a serious act of tremendous generosity to the minds of many poor deluded U.S. taxpayers.

And, when some say aid is foremost an act of serial re-enslavement by the First World of the Third, you know, they might just be onto something.

It would be wonderful if widespread corruption in the aid business could be totally eliminated, which is precisely what ought to happen as a gesture of good faith before demanding altruistic performance from those in need at the front line. I don’t think you can have one without the other, and still take yourself as an aid-giver all too seriously.

To my mind, this COD proposal appears to disparage the intended recipients of aid, as though they should be made to jump through hoops, criteria of the oft-vaunted donor’s making in order to “earn” some sort of leg-up from the misery having been – in many demonstrable instances – directly created and sustained by people in the “donor” country. I don’t see it producing better results in the short run. In the long run, it presupposes cultural superiority on the donor side which is manifestly not proven by any current example.

The best form of aid would be holding those who cause its necessity to full and, if necessary, merciless account. From then on, the world will be a better place – whether on COD or on terms TBA.

Posted by HBC | Report as abusive
 

My first impression is that COD aid would be a good idea, but only for a narrow selection of results. Completion of a building would be ok (as long as it’s a house, a barn, or a school type building, not a church or other interest-based building), as long as it’s preceded by freer aid that can support the construction.

COD aid for things like food, water, or basic shelter, though, reminds me of the missionaries who trade food for conversion with starving people.

Posted by drewbie | Report as abusive
 

Thanks for recognizing COD Aid as an innovation worth considering. I’m Nancy’s co-author on the book (Bill Savedoff) and I’d be happy to answer some of these comments in detail at a later time. For now, I’d like to respond to just two common points:
1. Several comments assume that COD Aid would force recipients to “jump through more hoops” or impose onerous conditions. But COD Aid is “hands off” compared to current aid approaches. Once the two countries agree on the desired outcome (e.g. universal primary school completion which is already a policy goal of most developing countries), the people in the recipient country have full autonomy, authority and responsibility to do what THEY think is best. They don’t need to get approval on their plans or strategies as is the current practice in most development programs. If they get lots of kids through school, they get more funding. If they are less successful, they don’t get as much. But at the end of the day, the taxpayers in the donating country know that they’ve only paid out money when kids have gotten educated and the people in the developing country know whether their government is doing what it said it would.
2. Several comments noted the difficulty of measuring the outcome. This is an issue that we think we’ve solved for education (the book contains a detailed proposal) and we’re looking at water and health. COD Aid is not the solution for everything that’s wrong in foreign aid but we think it could be extremely useful in quite a few important areas.

As a post-script, I agree with HBC on the point that foreign aid is not the key thing that is going to help low-income countries reduce poverty – the rich countries do lots of things that have an impact (often negative) much greater than their foreign aid budgets. The Center for Global Development publishes an index that is trying to hold rich countries accountable for all the ways they affect the developing world, including immigration, trade, security, and environmental policies.

Posted by bi11sav | Report as abusive
 

I agree with Birdsall’s idea and would also like to suggest including some sort of cash transfers to haitians as part of the process. Mothers know what is best for their children, so you better give them cash to buy food, medicines and education.
Doing that, you will not only help rebuilding roads and schools, but also an economy… with supply responding to demand. You are welcome to my post at http://laserna.wordpress.com/2010/01/18/ ayudar-en-haiti/

Posted by roblaser | Report as abusive
 

1. Suppose over 5 years there are many other donors who also contribute aid (up front) for the same purpose – a highly likely scenario. Will COD still be paid?
2. Suppose the Government meets the target by starving other important programs of funds – so as to get the cash – is that acceptable? Will COD be paid?
3. Suppose after a time all donors start using COD. Cannot a Government after a time simply juggle payments so that it is in effect being paid up front and benfiting from a COD flow
4. A single Indicator?. Very difficult to find a single indicator that refkects results.
5. What is the incentive for either a politician or a civil servant or even say a school headmaster to sign on to perform tricks for the donors in return for cash in five years time? Time consistency problem.
6. Hands off? No monitoring? COD program is to be audited annually by an independent auditor – what the difference?
7. Unintended consequence – COD could well be regarded as an expression of donor distrust – holding recipients accountable for years without payment or with uncertain payment
8. COD in the end does not seem to do anything about the accountability issue that is different from any other performance based funding.

Posted by wordsmith1 | Report as abusive
 

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