Andrews, Matt (2014) The Limits of Institutional Development: Changing Rules for Realistic Solutions. Cambridge: Cambridge University Press
This book should be read by all those involved in supporting or promoting good governance in the Global South. It not only demonstrates that the current approach by the donor community is failing, but suggests how a very different approach would lead to much better results.
“The basic story line is that half of 145 countries that have had donor sponsored reforms in place saw declines in indicators of government effectiveness over a recent ten-year period” (page 15). Why is it that after at least a quarter of a century of spending of billions of dollars and the participation of tens of thousands of consultants introducing ‘global best practices’ that so little has been achieved?
At the macro-level, the problem is capital flight from the Global South to the industrial centres of the world. In terms of sub-Saharan Africa, a study by many NGOs last year demonstrated that whilst sub-Saharan Africa receives less than $140 billion each year, mainly as loans, foreign investment and aid; nearly $200 billion leaves, mainly as profits made by foreign companies, tax dodging, and the costs of adapting to climate change. The result is that sub-Saharan Africa suffers a net loss of capital of almost $60 billion a year. So the answer to the question, ‘why has foreign aid not led to economic development in sub-Saharan Africa?’ is that the continent is suffering a significant net loss of capital each year.
This book concentrates on the micro-level and provides extensive evidence that the current approach of using expatriate consultants to introduce ‘best practices’ does not work; even when assessed by the donors themselves, in their own terms. So for example, a study published in 2011 by the World Bank found that fewer “than 40 percent of the eighty countries receiving World Bank support for public sector reform between 2007 and 2009 registered improved CPIA governance scores in that period. A quarter of these countries actually saw such scores decline, whereas more than a third stayed the same” (page 13).
Development agencies are not facilitating development
In my area, public financial management, the donors have a standard set of reforms or techniques (accrual accounting, Medium Term Expenditure Frameworks, Integrated Financial Management Information Systems, programme budgeting, single treasury accounts and risk-based auditing) which are introduced and re-introduced (after earlier failures) over and over again. Whatever the local environment, from Eastern Europe to failed or post-conflict states in sub-Saharan Africa, the technical answers are almost always the same. These appear to be answers in search of a problem and most often are square pegs for round holes. But they do work in the interests of both the donors and the consultants involved. The donors are able to disburse funds against standard outputs and the consultants have an easy life introducing the same reforms from one government to another.
Due to the capital at their disposal and their gate-keeper role, in terms of both the tools and techniques to be used and the consultants employed, the donors are, “increasingly shaping the ideas, opportunities, demand, and supply of public sector institutional reforms in developing countries” (page 7). Not only do, “generic models dominate the reform agenda of development agencies” but, in addition, these have “a strong neoliberal influence on reform content” (page 7).
First, the standard institutional reforms, “aim to foster market-friendly governments through interventions like privatization, deregulation, trade liberalization, and… [the promotion of] competitive markets” (page 8).
“Second, reforms aim to create disciplined governments” (page 9). “Ninety percent of the forty sample countries took steps to discipline their public finances and civil service regimes and to streamline debt in the first four years of World Bank–sponsored institutional reform” (page 9).
Thirdly standard techniques or ‘best practices’ are common, for example, “fiscal rules, medium-term budgeting frameworks, and internal audit regimes” (page 10). As a result, “market-friendly, disciplined, and modernized government… themes dominate more than 70 percent of World Bank-supported [administrative reform] projects” (page 11).
This approach could be acceptable if it achieved consistent success, but this appears to be far from the case. Assessments by the World Bank indicate that, “Public financial management (PFM) scores improved in 62 percent of countries after such reforms but stagnated or fell in nearly 40 percent. Corruption, transparency, and accountability scores improved for 53 percent of the nations with public sector reforms, remaining static or declining in 47 percent” (page 213). Recent evaluations “reference the way many reforms ignore context, for instance, promote demanding best practices, and fail to establish broad country-level ownership” (page 213/4). In many cases governments may introduce institutional reforms in order to impress the donors and so gain further funds in the short-term, but such reforms are necessarily accepted and so may not result in improved governance.
A new approach is needed
Matt Andrews advocates a new approach that he terms Problem Driven Iterative Adaptation (PDIA). This “calls for interventions that address context-specific problems through stepwise processes of purposive muddling by broad groups of mostly local agents” (page 228).
Problem Driven Iterative Adaptation -type reforms have “three key dimensions: (i) They facilitate problem-driven learning; (ii) they involve stepwise interventions that allow processes of purposive muddling and action-based learning, which helps change agents see what works, why, and what next steps they should take; and (iii) they engage broad sets of (mostly local) agents providing different functional contributions that ensure reforms are viable and relevant” (page 216).
First we need to identify the specific problems that the institutions face. This needs a detailed understanding of the current environment and the key challenges, weaknesses and capabilities of the local institutions. In most cases this will involve a key role for local civil servants who have the intimate knowledge of their organisations, systems and processes that can only be gained by working within the organisations for several years. Consultants may have a role to play, but the local experts must lead and really own this process. Their views have to be respected and carefully listened to. But even when using local officials, “it is important to choose those who have not mastered the art of isomorphic mimicry and reforms as signals” (page 231). The current reform approach supports a specific modernisation paradigm which in reality consists of neoliberal economic policies and New Public Management styles reforms which have had questionable success even in their home countries. Problem Driven Iterative Adaptation requires all concerned to concentrate on the local specific problems and not to have been hood-winked by the questionable benefits of the standard reform tool-kit.
Second reforms should build, on and not replace, current techniques, processes and expertise. Major reforms inevitably lead to reduced effectiveness and control, at least in the short-term. We need iterative reform addressing key, specific weaknesses in existing systems. “All manifestations of good, better, or best practice should be subjected to stringent tests” (page 230). “It is extremely difficult to imagine change toward a PDIA-type approach in the presence of processes that incentivize actors to focus on large, pre-programmed, solution-based projects” (page 230).
Problem Driven Iterative Adaptation is about building adaptive capacities to change in developing countries. This is an essential capacity for any institution, but is critical in many of the public sector institutions of the Global South which are still dominated by centralised and hierarchical bureaucracies which face fast changing environments not least because of the demands of climate change.
We need to ask simple questions of reforms. “Are new problems being identified and constructed, using data, to provoke action? Are stepwise reforms being introduced to address problems, or are they building on prior steps? Is there evidence of short-term lessons about what works and why? Are reform communities being developed, combining agents providing the functions necessary to achieve change? The idea is to reward developing country governments for gradually becoming more functional and adaptive” (page 228/229).
The international financial institutions and the bilateral donors have a major role in recognising that the current approaches are not working – they must start to allow and introduce alternatives. “More flexible, problem-driven funding streams could be provided to allow problem identification and stepwise implementation” (page 230). A key step needed to facilitate significant change involves changing the money rules in development. Certain reforms are still implemented as a condition or to comply with donor recommendations.
This book is an important step in re-thinking the rules for institutional reform across the Global South. Another world is possible, but donors have to ensure that, based on a recognition that the current approach is not working, that they change the rules of the game. We need a paradigm shift from the easy introduction of standard ‘best practices’. We need to move to an approach that is based on iterative and incremental reforms, addressing key local challenges which are led by local officials who have not been seduced by the questionable benefits of the currently fashionable standard reform agenda and its neoliberal overtones.
 Health Poverty Action et al (2014) Honest Accounts? - The true story of Africa’s billion dollar losses