Easterly replies with a positive nod but doubts political leadership and soul searching on accountability on donor's part:
I agree with Professor Wood that heavy aid dependence is a problem in Africa, including for the exact reason he says of making African governments more accountable to donors than to their own people. But the real problem is the one he doesn’t mention - who are the donor agencies accountable to? The short answer is - nobody. The long answer is that at most they are accountable to their own politicians for spending their budgets, after which everyone seems to lose interest what happens to the money or what effect it has. So the donors will continue to follow practices like “aid pushing” because of their own organizational incentives, and Professor Wood’s sage advice will be added to the large pile of unimplemented benevolent ideas to which everyone will pay lip service and then get on with business as usual.
Wood has a different perspective on "reform from within":
As Bill says, the answer depends on donor agency motives and accountability. The behaviour of donors, particularly bilateral ones, is heavily influenced by what tax-paying voters want: no minister could make a change in aid policy that might risk losing an election; and a better-informed public could be a force for improvement. In addition, within political limits, the behaviour of aid agencies is influenced, for good or ill, by those who work in them.
It is on this last point, I think, that Bill and I mainly disagree: my experience has led me to a less pessimistic view than him. I too have met damaging organisational incentives, mindless money-pushing and selfish careerism. But I have also met a lot of dedicated, altruistic, hard-working, self-critical and smart aid agency employees, and I continue to believe that reform from within is possible. Not easy, for sure, but easier than bringing about a helpful upheaval in public opinion of the sort which Bill sees as a necessary condition for change in aid agency behaviour.
Jeff Sachs disagrees:
What a time to be arguing for capping aid based on some new and arbitrary limits, when the donors are flagrantly violating every promise that they've made to increase aid. And targets like 10 percent of GNP are simply meaningless when we're dealing with countries at $200 per capita, disease pandemics, no electricity, roads, ports, safe water. That's a $20 ceiling. Great. There are practical things that can be done to save lives, build infrastructure, develop agriculture, adapt to climate change, put children in school, and more. Aid levels should be based on rigorously assessed needs to achieve given objectives, most importantly the Millennium Development Goals, and should be delivered in a systematic manner, based on milestones, audits, monitoring, and evaluation.
First, donors do need to tie their hands with simple and clear rules -- to overcome their own coordination and so-called "alignment" (with recipient country programs) pathologies. They have been trying for at least a decade, but so far without any notable progress -- as is clear from their own reports to themselves and their recipient country "partners" (see the new OECD-DAC report prepared for the High-Level Forum on Aid Effectiveness just held in Accra).
So it is hard to argue with the simplicity and clarity of the proposal. (Two weeks ago we suggested six ideas donors might have embraced to lock themselves into better behavior at Accra. Only on transparency did something clear emerge however -- and six ideas may be too many!) But the real problem is that Adrian Wood's simple rule won't work because a proposal to be applied to the collective of donors doesn't make any one donor accountable to anyone. Oops: another accountability problem. How ironic.
Second, Wood's proposal might well create a perverse incentive for aid-dependent governments to resort even more to trade and other indirect taxes than they already do. For why that's bad for the incipient middle class, for small business, and for governance itself, see my working paper Do No Harm: Aid, Weak Institutions, and the Missing Middle in Africa especially p. 16.
Third, some recurrent costs are in fact "investment," including the salaries of teachers who build the human capital of the next generation. The problem is not that donors might reasonably cover some of the costs of salaries in very poor countries. The problem is that under the existing aid system they cannot do so in ways that are stable and predictable and they cannot manage to get out of the way with their own ideas about the key inputs. They cannot, as a group, really cede ownership so they constantly risk undermining local institutions.
I agree with Jeff Sachs that more money could be spent well. And I agree with those who fear that there can be too much of a good thing. What's needed is an approach to aid that helps, indeed forces donors, to shift accountability of recipient governments away from donors and back to citizens -- allowing for the feedback governments need from their own taxpayers. We suggest one way to try that -- called Cash on Delivery Aid. You can read about that here, and, soon, in our forthcoming publication: Cash on Delivery: Paying for Progress with Foreign Aid.