Where has the social protection debate got to? What’s still missing?

I always find debates around social protection strangely slippery. The language is fuzzy, the boundaries vague (what’s the difference between social protection and social policy? Depends who you ask). So a couple of weeks ago, I was secretly appalled when asked to give a 5 minute blogger’s input to a big IDS conference on ‘Social Protection for Social Justice’. Luckily I’m an early riser, so to avoid embarrassment I got up early to find out where this bit of the SP debate is heading, by reading all 57 abstracts. These academics are seriously productive, but they do tend to confuse outputs (papers) with outcomes (protecting anyone). Some impressions (with the caveat that it’s sometimes hard to judge a paper from the abstract – note to authors, please include your conclusions in the abstract as it may well be the only bit of your paper that gets read):

SP advocates (SPistas?) are all scrambling out of their siloes and developing ideas and programming around ‘SP plus’ – SP and climate change adaptation; SP and inequality; SP and gender empowerment; ‘transformative’ SP (me neither). The motive behind this is laudable – recognizing both that seeing SP simply as a technical exercise (eg cash transfers) misses out on its potential to change social relations for the better (or worse – see below), and that even supposedly apolitical SP systems have complex and important social and political repercussions – who gets the money? What do the neighbours think? How humiliating is the process?

So far so good, but it feels like SP still has a way to go:

1. Very little consideration of the politics: when do/don’t governments listen and take up all these excellent ideas and why? How politically sustainable are they – can you ensure that the next government doesn’t scrap its predecessor’s scheme? Does enshrining it in law or the constitution make it politically stickier? Or will a social pact/cross party agreement do the trick? All too often, advocates fall back on exhortation and an implicit notion that ‘we know what’s needed, and if you don’t agree you are either stupid, corrupt or both’. Not the best advocacy strategy.

2. SP remains an overwhelmingly state-led project. SPistas sometimes behave as if nothing else is going on – poor people are just sitting there waiting for the cash transfer person to knock on the door. But our research on the impact of the global economic crisis and studies like Portfolios of the Poor reveal a rich ecosystem of what could be termed ‘informal social protection’ – savings groups, churches, burial societies, microfinance groups, families and friends. It seems almost inevitable that the introduction of a state SP system is going to have a significant effect on this ecosystem, and that it could be positive (more to share around) or negative (targeting creates jealousy and erodes trust). One example of how this changes conventional wisdom – research in Zimbabwe found that recipients were much more likely to share food parcels with their neighbours (building social capital), whereas they tended to hang on to cash transfers, potentially causing division. A few papers started to explore this fascinating topic (e.g. this 3 country study by Ian MacAuslan and Nils Riemenschneider) but it’s clearly a crucial and neglected topic.

3. I’m all for creative ambiguity, fuzzwords etc, but the boundaries on SP are too blurred even for me. Does it comprise all social policy? Or go even wider – after all, the tax system is a vital tool of redistribution, so should that be included? For once, I would actually advocate a narrower definition so we all know that we are discussing roughly the same thing.

4. Out of the 57 papers there were remarkably few straightforward case studies, recording in plain English the views of poor people about the impacts (both good and bad) of different SP programmes on their lives. What case studies there were were either much more conceptual and less participatory than that, or demonstrated some spectacular researcher herding from Brazil’s Bolsa Escola (so last decade) to SP’s new poster child, India’s MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act). Please can we hear more from ‘beneficiaries’, especially in low income countries?

Finally a nice cautionary note from the LSE’s Prof Thandika Mkandawire, warning against the deceptive simplicity of SP: ‘SP encourages the view that you can intervene in Africa and skip the elites to reach poor people directly – we have enough trouble doing it from our capitals, how can you hope to do it from London?!’ I’m sure the Africa Power and Politics Programme would approve.

The Chinese in Africa – is there a backlash?

The debate in aid circles on China’s expanding role in Africa is often pretty crass – the demonisers v the rose-tinted spectacles. What has always struck me most in the past is how many Africans, both in government and elsewhere, prefer the businesslike approach of China to the finger-wagging of the ex-colonial powers. But China’s African honeymoon may be coming to an end, according to this week’s Economist, which has a thought-provoking 3 page briefing on signs of a backlash against ‘the Chinese in Africa’. Some highlights from the Economist article:

“Once feted as saviours in much of Africa, Chinese have come to be viewed with mixed feelings—especially in smaller countries where China’s weight is felt all the more. To blame, in part, are poor business practices imported alongside goods and services. Chinese construction work can be slapdash and buildings erected by mainland firms have on occasion fallen apart. A hospital in Luanda, the capital of Angola, was opened with great fanfare but cracks appeared in the walls within a few months and it soon closed. [Deborah Brautigam investigated the Luanda hospital story on her excellent China in Africa blog] The Chinese-built road from Lusaka, Zambia’s capital, to Chirundu, 130km (81 miles) to the south-east, was quickly swept away by rains.

Chinese expatriates in Africa come from a rough-and-tumble, anything-goes business culture that cares little about rules and regulations. Local sensitivities are routinely ignored at home, and so abroad. Sinopec, an oil firm, has explored in a Gabonese national park. Another state oil company has created lakes of spilled crude in Sudan. Zimbabwe’s environment minister said Chinese multinationals were “operating like makorokoza miners”, a scornful term for illegal gold-panners.

Employees at times fare little better than the environment. At Chinese-run mines in Zambia’s copper belt they must work for two years before they get safety helmets. Ventilation below ground is poor and deadly accidents occur almost daily. To avoid censure, Chinese managers bribe union bosses and take them on “study tours” to massage parlours in China. Obstructionist shop stewards are sacked and workers who assemble in groups are violently dispersed. When cases end up in court, witnesses are intimidated.

Tensions came to a head last year when miners in Sinazongwe, a town in southern Zambia, protested against poor conditions. Two Chinese managers fired shotguns at a crowd, injuring at least a dozen. Some still have pellets under healed skin. Patson Mangunje, a local councillor, says, “People are angry like rabid dogs.”

The backlash is perhaps unsurprising. Africans say they feel under siege. Tens of thousands of entrepreneurs from one of the most successful modern economies have fanned out across the continent. Sanou Mbaye, a former senior official at the African Development Bank, says more Chinese have come to Africa in the past ten years than Europeans in the past 400. First came Chinese from state-owned companies, but more and more arrive solo or stay behind after finishing contract work.

Many dream of a new life. Miners and builders see business opportunities in Africa, and greater freedom (to be their own bosses and speak their minds, but also to pollute). A Chinese government survey of 1,600 companies shows the growing use of Africa as an industrial base. Manufacturing’s share of total Chinese investment (22%) is catching up fast with mining (29%).

[on the plus side]
China has boosted employment in Africa and made basic goods like shoes and radios more affordable. Trade surpassed $120 billion last year (see chart 1). In the past two years China has given more loans to poor countries, mainly in Africa, than the World Bank.

Quite a bit of criticism of China is disguised protectionism. Established businesses try to maintain privileged positions—at the expense of consumers.

China’s interest in Africa is not limited to resources. It is building railways and bridges far from mines and oilfields, because it pays. China is not a conventional aid donor, but nor is it a colonialist interested only in looting the land. The government in Beijing is encouraging all sorts of activity in Africa. Construction is a favourite, accounting for three-quarters of recent private Chinese investment in Africa. The commerce ministry says Chinese companies are signing infrastructure deals worth more than $50 billion a year. For investment in African farming, China has earmarked $5 billion [hmmm, some of that definitely comes under ‘land grabs’]. Perhaps the most significant Chinese push has been in finance.

Most loans and payments are “tied”—ie, the recipient must spend the money with Chinese companies. (Japan, Spain and others followed a similar model until fairly recently.) But tied aid leads to shoddy work. With no competition, favoured firms get away with delivering bad roads and overpriced hospitals. Creditors and donors often set the wrong priorities. Worse, the Chinese government is anything but transparent about its money. Aid figures are treated as state secrets [although ].

[and how about the politics?]
For years China has been chummy with African despots who seem to be reliable partners. Publicly, China presents its support for odious incumbents as “non-interference” and tries to make a virtue of it. Africans are less and less convinced. Relations get especially tricky for the Chinese when strongmen fail to maintain stability.”

China is not standing still on this – the State Council has just released its first White Paper on China’s Aid to Foreign Countries, and it is making increasing efforts to rein in bad business practices. What all this seems to point to is that as the relationship between China and Africa (and our understanding of it) matures, we can move from simplistic questions of ‘is it good or bad?’ to trying to understand the detail as well as the overall tenor and impact (for good and ill) of China’s role as a consolidated and important actor in the region and how it is evolving. About time.

Test your jargon, Rodrik’s parable, bamboo is grass, Google future, an Asian Norway, 6 theories of policy change, the history of the universe in 18 minutes: links I liked

Test your knowledge of development jargon (and yes, ashamed to say I got 100%, but it is pretty easy).

A nice parable for the world economy, from Dani Rodrik and an accompanying explanation of its underlying economics.

‘This single move can rid economies of the growth-without-jobs syndrome. This is the new green growth model the world is desperately seeking—creating opportunities to build economic wealth from regeneration of forests, and more importantly, creating inclusive and equitable wealth and wellbeing.’ What is this magical step? Reclassifying India’s bamboo as grass [h/t Triple Crisis].

The future, according to Google search results (allegedly).

’Nair is describing a kind of Asian Norway, with the benefits of natural resources controlled and socialised to a high degree, rural communities subsidised to keep people on the land, fisheries protected, a high commitment to energy efficiency and high taxation to support high levels of social welfare.’ The FT reviews ‘Consumptionomics’, by Chandran Nair. Madeleine Bunting discusses here.

‘Understanding different theories about policy change can help organizations more effectively choose advocacy strategies, focus evaluation efforts on the right outcomes, and avoid the “kitchen sink” syndrome of doing a little bit of everything and unrealistically expecting change in all areas.’ Ben Ramalingam reviews a useful-looking paper on theories of policy change.

Another Ted Talk for when you’ve had a couple of drinks. David Christian does the entire ‘big history’ of the universe in 18 minutes (and that includes a four minute intro).

Africa Power and Politics – David Booth responds

ODI’s David Booth responds to my post on the ODI’s Africa Power and Politics Programme

“The APPP could hardly have hoped for a more encouraging reception for its first policy brief than the one provided by Duncan’s blog of 15 April. Encouraging and suitably challenging!

The point of a policy brief is to be, well, brief, and focused on implications. So it’s not surprising if Duncan finds some of our formulations a bit too pithy and in need of substantiation.

Duncan quotes us generously, but there is much more where that came from, freely downloadable from the APPP website. It’s also worth saying that the evidence base we are drawing on is not just APPP research but a large body of other work, including stuff to which Duncan refers us.

Let me pick up just a couple of points of apparent disagreement.

Citizen pressure and public goods

Obviously, one of them has to be our proposition that citizen pressure and bottom-up demand for accountability is a weak factor in improving the governance of public services. This poses a rather direct challenge to the way most international NGOs view their mission, so Duncan’s ‘alarm’ is understandable.

We are aware of walking into a lion’s den in posing this issue so bluntly. But we are doing so with good reason. There is a real conflict here between the conventional ‘progressive’ viewpoint and what virtually all documented experience shows.

In elaborating, we said: ‘… client “voice” is a weak source of results-based accountability unless accompanied by strong top-down pressures of some kind’’. The qualification is important. It is meant to capture two things.

One is the almost universal finding that public service improvement comes when there is successful action to improve provider motivations. And this doesn’t come mainly from the bottom-up (even in the UK, where service users are much more empowered, providers respond poorly to having ‘demands’ placed on them). The other is the fact that the documented successes in so-called ‘social accountability’ almost always involve political forces (new parties, new leaders or something of the kind); rarely are they just movements of ‘citizens’.

This is actually what the IDS research and related ODI and IDS evaluations tell us. None of them provide a blanket endorsement of civil society action on accountability. If this seems surprising, it’s because there has been a huge amount of over-selling of ‘demand side’ interventions on the basis of partial reading of the evidence.

So I hope Duncan’s alarm will soon give way to agreement. The challenge to conventional thinking about ‘good governance’ applies to all of us, not just to the soft target provided by official donor governance work.

The politics of aid

There are many other points I might pick up, but I will leave democracy, Amartya Sen and universal rights for another occasion. And on the important question of how to avoid sliding back into ‘decent chap-ism’, I will defer to my APPP colleague Tim Kelsall.

For now, let me just comment on Duncan’ scepticism about uptake of APPP findings by official aid. Of course, yes, the obstacles are pretty daunting. Backing off and concentrating on the ‘do no harm’ agenda at home, as suggested by Mick Moore and Sue Unsworth, has much to be said for it. But it is too easy to take the existing aid set-up as a given, and see the function of research as limited to feeding its appetite for ‘take-aways’.

As we said in the brief, aid needs to fit the needs of development, not the other way round. For sure, this is not a simple matter. It is about public attitudes and the long-term shaping of opinion in the North, and not just about the civil servants or the ministers who are currently in charge of things – which is why, as Duncan notes, drivers of change and political economy analysis don’t change behaviour all that much. But public attitudes to development have been substantially remoulded in recent years by NGO campaigns, not always for the good but significantly nonetheless – and with Oxfam often in the lead.

Given this success, it seems a bit soon to give up on the possibility of shaping a more mature general consensus on what matters and what doesn’t in governance for development. I think we should talk about how we can work together on this.”

Duncan: Thanks David, and I really hope you’re right about getting aid donors to think more about politics and context. But using blogger’s prerogative to have the last word, I’d just like to say that there’s at least one straw man in here – the idea that NGOs like Oxfam see change coming about purely by bottom-up civil society organization. In fact, both our theory of change, and the practice of our advocacy usually involves cross sectoral alliances with business, allies within government, churches as well as community organizations, peasant associations and the like. I’d go further, often, NGOs’ most important role is to act as catalysts and convenors, bringing groups together who would not normally talk to each other. So where I differ with you is not that change comes about from a combination of top down and bottom up, but in the APPP Policy Brief’s far too dismissive line that ‘citizen pressure is at best a weak factor and at worst a distraction’. I think events in North Africa are just the latest reason (on top of all that work by the IDS Citizenship team) to say that that statement is simply wrong. US civil rights movement, anyone? The struggle against apartheid? I notice you don’t repeat it in your post – perhaps it wasn’t quite what you meant to say?

The case for Microfinance: responses to Milford Bateman from Malcolm Harper and Thankom Arun (and your chance to vote)

Yesterday Milford Bateman tried to pop the microfinance bubble. Today Malcolm Harper and Thankom Arun urge us not to throw out the baby with the bathwater (please excuse mixed bubblebath metaphors). After reading this, I urge you to vote in the highly unscientific opinion poll to the right – time to see where the blog-reading public stand on this.

First up, Malcolm Harper:

“Bateman, like many advocates and critics of microfinance, exaggerates its impact, for ill (in his case) or for good (as does ACCION, and far too many others). The growth of microfinance in recent years has perhaps been exceeded only by the even more rapid growth of the parasitic ‘industry’ which surrounds it. And of course I include myself. Commentators, bloggers, researchers, trainers, raters, investors, conference organisers, capacity builders, we are all guilty of grossly exaggerating what it can do, for ourselves, and to, or for, the poor.
 
Even the best designed randomised control trials cannot ‘accurately’ assess the impact of so modest an intervention in the complex reality of people’s lives, but my own impression is that microfinance does not  make a great deal of difference to the majority of its customers, and that it probably does a bit more good than harm. And, that it is certainly not ‘the end of poverty’.
 
The flood of stories and pictures of happy ladies (often from Bolivia, with bowler hats) and their smiling children, whose lives have been transformed by microfinance, is now being matched by sad tales of indebtedness and even suicides.  Case studies, even very short and selective ones, are useful to add ‘flesh’ to statistics, but they should not in themselves persuade anyone that the whole endeavour is a magnificent triumph to end poverty, or a ghastly conspiracy to perpetuate it.
 
Organisations such as Oxfam are often, and rightly, suspicious of for-profit businesses, but it is odd that we do not usually question whether it is right that essentials such as food or clothing, which the poor need as much as the rest of us, should be provided to them by businesses, rather than by NGOs, or government, or even by ’social enterprises’ (whatever they are). 
 
We should surely accept that microfinance, whatever its origins, is now a business, it has been effectively main-streamed, or ‘Walmartised’. This does not mean that we should ignore bad practices, or monopolies, but we should surely accept that its providers will make profits, and that some individuals will make very big profits indeed, as they do from other businesses. If we don’t like that, as many of us don’t, we should try to change the whole capitalist system, not merely the tiny and not terribly important part of it called microfinance.
 
But the current debate has brought microfinance to the attention of many people who had never heard of it before, some I know had never heard of Andhra Pradesh before either, and there is a good opportunity to try to redirect it. My own perhaps unrealistic views as to how this might be done include the following:
 
• Some MFIs should be allowed to go bankrupt. Unlike sub-prime borrowers who are losing their homes, this would not hurt borrowers much, since they have no savings with the MFIs. Indeed they might get away without repaying their current loans ! It would teach investors and lenders a salutary lesson, and would frighten them away from microfinance, which (see below) might not be a bad thing.
 
• National regulators, and donors, should certainly not support (and perhaps should not allow) MFIs to operate unless they are also licensed to offer savings, to take demand deposits, that is, they are licensed banks. This does not mean that the requirements for licensing should be less stringent; it means that existing and perhaps some new banks should become directly involved in microfinance, perhaps in some cases starting by buying heavily discounted loan portfolios from bankrupt or troubled MFIs. Governments and donors should push banks in this direction.
 
• The ideal, perhaps unrealisable, is for microfinance to be community-financed, owned and managed. Cooperatives, credit unions, raiffeisen, Rabobank, call it what you will.  This is hard, politicians and local crooks (often the same people) exploit them, incompetent managers mismanage them, eager self-serving NGOs cosset them for ever, but it is surely the best solution, and governments and donors should surely do what they can to move that agenda forward.
 
Quite an agenda for change, and maybe the juggernaut cannot be that easily moved, but it’s worth a try. And, mobile phones and the like are rapidly making much of the institutional infrastructure redundant, so the ‘legacy’ of today’s MFIs may be limited.
 
In the meantime, it would be better if much of the intellectual energy, the time and the money which is being poured into microfinance, and into blogging and so on about it, were to be directed towards much more important things, such as primary education and primary health care.”
 
Malcolm Harper is chair of M-Cril, the India-based international credit and social ratings institution, and author (with Kim Harper and Matthew Griffith) of Microfinance from Below: The Power of Savings Groups in Action

And now over to Thankom Arun

Microfinance – is the pessimism being oversold?
The continued existence of poverty in ‘microfinance-dominated Bangladesh’ is held up as proof of the failure of an entire paradigm, but that is like dismissing aid because countries are still poor.

In reality, the growth of microfinance had always been ‘challenged’ over its skewed presence, higher interest rates; sustainability etc. and all these challenges have been useful in shaping the contemporary structure of microfinance. However, the impact of microfinance depends on many other factors, such as the quality of institutions, fabric of governance, nature of regulation and most crucially the commitment of the people involved, as in the case of many other social interventions. Without considering these external environments, bluntly suggesting microfinance is just another ‘poverty trap’ are too unkind and too soon. At the very least, we should acknowledge the contribution of microfinance to “democratising global financial markets through new contacts, organisations and technology” (Conning and Morduch, 2011). The entry of commercial banks into the microfinance sector is another example of growing recognition and viability of the concept. That said, there is no sympathy or justification for the unethical practices followed by microfinance institutions in loan recovery and attitudes towards clients, as we have seen recently in Andhra Pradesh and elsewhere.

Over the last 30 years, microfinance institutions have become a magnet for impact evaluations. However, the empirical verdict on the impact of microfinance on poverty is still inconclusive, and policy suggestions are too often based on a selected reading of that evidence. Since MFIs are hybrid organisations (Battilana and Dorado, 2010) that combine the two different logics of development (mission to help poor) and banking (profits to support operations), such evaluations are always likely to be more complex and divergent in terms of their methodologies and findings.

Amusingly, some of these evaluations have generated completely different (and contradictory) findings using the same data. For instance, based on the same data, Pitt and Khandker found a positive association between borrowing and household spending, while Roodman and Morduch (2009) found a negative one. See here for Roodman’s take on the ensuing debate.

In addition to the methodological facets, the impact studies on microfinance need to look beyond the income-based poverty reduction and more into children’s education, improving health benefits for women and children, and the empowerment of women. A recent study (Imai, Arun and Annim, 2010)  captured the multidimensional aspect of poverty (basic needs, wealth, type of housing, job security, sanitation and food security), based on a national-level household survey in India, and found positive effects of MFI access on multidimensional welfare, a result which suggests that MFIs play a significant role in poverty reduction.

Finally, alternative models such as cash transfers are extremely positive advances, particularly if they can provide services to the extreme poor. I prefer to see microfinance as complementary to other interventions in the field, which provides access to diverse types of resources. Even in microfinance, there are various models of service delivery and these models have varied impacts on the poor, such as BRAC’s programme on ‘Challenging the Frontiers of Poverty Reduction: Targeting the Ultra Poor’ programme.  The main aim of this initiative is to generate opportunities for ultra-poor and then to graduate them to a mainstream microfinance program, through a broad-based and multidimensional approach which involves enterprise development training, asset transfer, social development, and essential health care. In Kerala, India, the well-known Kudumbashree programme, working closely with local institutions in planning and implementing anti-poverty programmes, contributes to building second generation assets  (see Moser, 2008 for a detailed discussion on second generation assets), which strengthens and consolidates accumulated assets by shifting away from redistribution and welfare policies (Arun et.al, 2011). This experience suggests that with appropriate types of governance and accountability mechanisms, microfinance institutions can support second-generation asset based policies.

These experiences, among many others, reconfirm that microfinance institutions could still have a greater role in helping the poor, if we understand the needs of the poor better and respond with appropriate instruments and delivery mechanisms. Reflecting on the varied experiences of one of the great social experiments of the last century, one can fairly conclude that the “one size fits all” strategy does not work in relation to microfinance, yet it would be a folly to throw out the baby with the bath water. Therefore, the challenge lies with microfinance practitioners and commentators in understanding the diverse needs of the poor and developing appropriate variations within the mainframe of the concept.

Professor Thankom Arun is Director of the Institute of Global Finance and Development at the University of Central Lancashire. He is also a Honorary Senior Fellow at the Brooks World Poverty Institute of the University of Manchester and a Research Fellow at IZA, Bonn.

 And with that, over to you to cast your votes……..

 

 

Has the microfinance bubble really burst? Guest blog by Milford Bateman

Microfinance used to be untouchable - the developmental equivalent of motherhood, apple pie or Mother Teresa. Now it is increasingly coming under fire. Today guest blogger Milford Bateman lays out the case for the prosecution. Responses by Malcolm Harper and Thankom Arun to follow. Or you could just listen to this Guardian podcast with Ha-Joon Chang, David Roodman and Ajaz Khan.

“The development industry has recently been transfixed by the battle being fought by Dr Muhammad Yunus to remain in charge of the institution he founded in 1983, the Grameen Bank. Yunus was relieved of his position as head of Grameen Bank last month, though yet another appeal has been mooted. Given Yunus’s iconic status as Nobel Peace Prize-winning global anti-poverty campaigner, this story not surprisingly generated headlines around the world. But of far more long-term importance is the accompanying critical scrutiny of the previously unchallenged ‘success’ of microfinance itself.

This is something new. Mainstream media everywhere these past few years have begun asking awkward questions about microfinance (more accurately ‘microcredit’), among them: How come microfinance-dominated Bangladesh remains in deep poverty compared to the rest of rapidly growing East Asia? Why is it that Jobra village in Bangladesh, where Muhammad Yunus effectively started the entire microfinance movement more than thirty years ago, is not only still mired in deep poverty and deprivation, but also has a new social problem in the shape of serious individual over-indebtedness? With so many countries having achieved microfinance ‘saturation’ this last decade or so (notably Bolivia, Bosnia, Mexico, Peru, Cambodia and others), why is it that in none of these countries can we see obvious substantive poverty reduction and ‘bottom-up’ development gains? And, more recently, how could the microfinance industry in the Indian state of Andhra Pradesh precipitate such an explosively damaging wave of individual over-indebtedness, social distress and economic disruption?

I look at the evidence in a just-released Background Note published by the Overseas Development Institute (ODI) and conclude that microfinance is certainly not all that it is cracked up to be.

The first place to start looking is among the very many impact evaluations undertaken by the microfinance industry and its supporters. Most of the early impact evaluations were undertaken or sponsored by the very same microfinance institutions and microfinance promotional institutions (notably the US-based Grameen Foundation, ACCION and Opportunity) that were trying to convince the world of the magic bullet virtues of microfinance. Since then, however, most independent and rigorous evaluations have been unable to show any concrete evidence that microfinance has had a meaningful positive impact. After decades of huge funding and policy attention, for economic policy-makers and poverty specialists everywhere this is naturally a very worrying outcome. 

The first specific issue I raise in my Background Note is one that is typically over-looked, but which seriously undermines the original argument for microfinance, namely that it promotes poverty reduction and development through income-generating activities. In fact, major microfinance figures, notably FINCA’s John Hatch, have openly admitted that up to 90% of microfinance is actually used for consumption rather than income generation. If we then factor in the high interest rates that typically prevail in most microfinance programs (because of high transactions costs and, increasingly, because of profiteering by those owning and/or in control of a microfinance institution) it becomes clear why many now refer to microfinance as ‘loan sharking-lite’. In response, microfinance supporters have shifted their argument, stressing its ability to smooth consumption, (notably the authors of the book ‘Portfolios of the Poor’). But such arguments largely ignore the growing percentage of poor households’ weekly budget that is being allocated to a new budget category – ‘microloan interest payments’.

We find more bad news when we look at that small amount of microfinance that, as per the original Grameen Bank model, actually does go into supporting income-generating activities through microenterprise development. Previously identifiable positive impacts are, in fact, swamped by two largely ignored factors operating at the local level.

First, local economies in developing countries don’t just elastically expand in order to automatically accommodate the legions of new microfinance-induced arrivals and expansions. With no additional local demand, pre-existing microenterprises will suffer by losing their existing customers (and these individuals are often just as poor as those requiring microfinance).  What we are seeing here is the ‘fallacy of composition’ – the microfinance industry is wrongly assuming that the marginal benefit registered by one supported unit (by one microenterprise making, say, baskets) will remain true for the whole community of microenterprises (everyone making baskets).   

Second, negative impacts also arise from microenterprise failure. Just as in the developed economies, many microenterprises quickly fail after just a short period of operation. The importance of this event is not just that any possible poverty and development impetus is lost, but that it all too often plunges the poor clients into irretrievable poverty and deprivation through the loss of other assets. Importantly, as one book famously noted in its title ‘The Poor Always Pay Back’ (Dowla and Barua, 2006) – many poor clients feel honour-bound to repay their microloan, even though they now have no income flow with which to do so. That typically means that they have to liquidate a whole range of other assets, such as savings accounts, buildings and land, and divert remittance incomes flows into loan repayments. The microloan is eventually repaid, but the poor become poorer. As we have seen in Andhra Pradesh state in India, others simply continue taking out microloans from other microfinance institutions in order to repay their earlier microloans, leading to spiralling individual debts and an even greater personal/family crisis when they can repay no more. 

Finally, the microfinance industry makes a fatal mistake in believing that sustainable poverty reduction and ‘bottom-up’ development actually lies within the gift of the informal microenterprise sector in the first place. Much of the impetus for this thinking has come from Peruvian economist Hernando de Soto (The Other Path; The Mystery of Capital), and more recently from the late CK Prahalad (The Fortune at the Bottom of the Pyramid). However, as with the earlier ideas promoted by Yunus, both de Soto and Prahalad appear to have misunderstood the nature of the growth and poverty reduction processes in the typical local economy. In Latin America, for instance, rising poverty and the expansion of the informal sector pretty much went hand in hand from the 1970s through to the early 2000s, a juxtaposition that clearly undermined De Soto’s very well received predictions made in the late 1980s that if microenterprises could massively proliferate (say, through liberalisation and getting rid of rules and regulations), then poverty would soon become a thing of the past. As Mike Davis notes, the displacement issue raised above meant that in Latin America average incomes in poor communities typically fell as more and more informal microenterprises were encouraged into competition with each other.

The Inter-American Development Bank (IDB) provided high-level confirmation of this seriously debilitating trend in its 2010 flagship report ‘The Age of Productivity’, arguing that Latin America’s high levels of poverty arose because far too much of its scarce financial resources were channelled into microenterprises and self-employment, and so not into small and medium businesses that are far more productive. De Soto’s ideas on microenterprises would now appear to be dead in the water. Similarly, Karnani found that hardly any of Prahalad’s signature ideas (actually, case studies) held up in practise.

Dambisa Moyo’s best-selling book ‘Dead Aid’ provides possibly the most vivid example of flawed logic linking microfinance, microenterprises and sustainable development. Referring to her native Zambia, Moyo argues (page 129) that the flow of microfinance in Zambia urgently needs to be increased in order to help out what she calls ‘the real entrepreneurs, the backbone of Zambia’s economic future’. What she actually means by this ‘backbone of Zambia’s economic future’, however, is made clear when she says you need to ’Think of a women selling tomatoes on a side street’. Her argument, in a nutshell, is that rapidly increasing the supply of female tomato sellers and similar petty activities will somehow underpin a sustainable development and poverty reduction trajectory. This is a staggering misunderstanding of what lies behind development and growth.

Ha-Joon Chang in his most recent book ’23 Things they don’t tell you about Capitalism’, argues that the problem in developing countries is not a shortage of micro-entrepreneurs at all: Africa, for example, has proportionally far more entrepreneurs than the developed countries. The development problem here is actually that the vast majority of existing entrepreneurs are forced to operate outside of the institutional and organizational structures required to raise the productivity of their efforts and upgrade their businesses. The western economies in their past climb to economic power, as well as the East Asian ‘miracle’ economies more recently, were able to build collective structures and sophisticated organisational options (large business and industrial organisations, local supply chains, subcontracting networks, industrial clusters, etc). Without these mainly state interventions, including a ‘developmental state’ operating at all levels (national, regional, local/village), the massive proliferation of individual entrepreneurship in developing countries actually becomes part of the problem, according to Chang, and not the solution. 

In short, then, a carefully balanced reading of the evidence shows the microfinance model to be a much less positive intervention than has been widely claimed. It might even constitute a new form of ‘poverty trap’. Recently, a number of alternative interventions using the same resources and targeted at the same people have quietly begun to take the place of microfinance. Indeed, the recent proliferation of these alternatives – from cash grants to micro-savings to public employment programs and to a renewed interest in the ‘missing middle’ of SMEs which must now be filled more pro-actively – indicates that the international development community has finally begun to appreciate the serious problems surrounding the microfinance model.

Milford Bateman is a Research Fellow at the Overseas Development Institute and, since 2005, Visiting Professor of Economics at the University of Juraj Dobrila Pula, Croatia. He is the author of ‘Why Doesn’t Microfinance Work? The Destructive Rise of Local Neoliberalism’

And here’s Al Jazeera’s take on the Andhra Pradesh story

Robin Hood: the long view from Ha-Joon Chang (and me)

This appeared in today’s Guardian and on its Comment is Free site yesterday. CiF is notable for the number and vehemence of comments, many of them slightly unhinged. 100 comments in the first two hours is about par for the course, evoking images of lots of angry people in bedsits and offices bashing away at their keyboards. Keeps them off the streets, I suppose.

Robin Hood: a tax whose time has come

Ha-Joon Chang and Duncan Green

The benefits of a tax on financial transactions are now so widely accepted that future generations will ask what took us so long

“In 1816, the British parliament repealed the temporary income tax that William Pitt the Younger had introduced in 1789 to finance the Napoleonic war. The MPs hated the tax so much that they even agreed that all documents connected with it should be collected, cut into pieces and pulped.

When the income tax was reintroduced in Britain in 1842 by Robert Peel, everyone considered it a temporary measure to replenish the depleted exchequer. But despite generations of politicians after Peel promising to abolish it, the tax never went away.

It proved impossible to abandon a tax whose time had come.

By the time Benjamin Disraeli and William Gladstone kept breaking their promises to abolish the income tax (one of the few things they agreed on), the homespun capitalism of the 18th century had already given way to a more organised form of capitalism.

With economic development, the social division of labour was becoming more and more sophisticated, increasing the importance of collective inputs such as infrastructure and education. A more effective provision of collective goods required a well-financed state, for which an income tax was seen as a new vital ingredient.

As they too developed, countries such as the US and Sweden followed suit. Today, the income tax is the biggest source of government revenue in most rich countries.

The same destiny may now await the Financial Transactions Tax (FTT) – or Robin Hood tax, as it is widely known. Although the French government, which chaired meetings of the G20 finance ministers and the IMF/World Bank member states last weekend, supports a global FTT, American opposition means that initial progress is more likely within a smaller “coalition of the willing”, including France, Germany, and South Africa. French and German support may ensure that the eurozone is the first international forum that agrees an FTT.

Even a decade ago, when it was doing the rounds under the alias of “Tobin tax” (named after James Tobin, the Nobel laureate economist who first raised the idea), the levy was an absolute taboo in polite society. But after the great financial crash of 2008, the case for it is looking “obvious” to many, as indeed the income tax did in the late 19th century. Its time, too, has come.

This levy on financial transactions, even at the very low level that is currently proposed (0.05%), is expected to slow down the most speculative elements of international capital flows and raise the significant sums needed to provide the newly required global collective goods – especially green technologies and development aid.

Of course, the FTT alone will not achieve much in terms of stabilising our financial system. It needs to be implemented as a part of a comprehensive package.

First, countries that cannot issue “hard currencies” should be allowed to use capital controls. The significant change of position by the IMF in this regard following the 2008 crisis is encouraging, but capital controls should be seen as normal policy tools – rather than a measure of last resort, as the IMF still suggests.

Second, we have to reform the rating agencies. Despite their incompetence and even cynicism, revealed both in the 1997 Asian crisis and in the 2008 crisis, these agencies are still deciding what is a good financial asset and dictating how governments should conduct their policies – not just fiscal policies but also monetary and social welfare policies. They need to be regulated more heavily, and a non-profit public agency should be set up to provide a credible alternative to their ratings.

Third, if we are serious about the revenue implications of our financial policy, tax havens need to be reined in, if not totally abolished. That single act would generate sums on a par with a global FTT.

Last but not least, overly complex financial instruments should simply be banned, unless they can be shown by their inventors to bring significant net benefits in the long run, in a manner similar to the drugs approval procedure. Otherwise our ability to manage the system will be outstripped and we will repeat the crisis of 2008.

What finally emerges from this new round of post-crisis tax invention may differ somewhat from the FTT, but the general principle – taxing international financial flows for the public good – looks here to stay.

Thirty, 50 years on, our children and grandchildren may be wondering how we ever thought to run the world without such tax – just as few of us can imagine how our grandparents and great-grandparents used to manage without the income tax.”

Here’s my review of Ha-Joon’s latest book, 23 Things They Don’t Tell You About Capitalism. Plus Robin Hood supporter Bill Nighy looks at how to spend the money on UK poverty in this video, and more support for Robin Hood in this Observer editorial on Sunday.

Dump Doha; dictators v growth; DFID’s contradictions; BRIC diplomacy; Zambia v Glencore on tax; brain drain v workers’ rights; Gulabi Gang in pink saris: links I liked

First some housekeeping: if you’ve posted a comment on this blog, and find it hasn’t appeared, apologies – it’s nothing personal – the spam filter has been eating a few comments recently. To be on the safe side, just email a copy of the comment to me (dgreen@oxfam.org.uk).

Dani Rodrik and Martin Wolf on why we need to give up on the Doha Round of trade talks

Bill Easterly mulls over the complex links between autocracy and economic performance

“Value for money is not compatible with increasing aid to ‘fragile states’” -  Madeleine Bunting points out that DFID’s two big ideas are contradictory

BRICS slot: Interesting discussion on Global Dashboard – should the BRICS demonstrate their new power by intervening in Libya? And is China having second thoughts about its increasingly muscular diplomacy?

Some good tax campaigning in Zambia – and the target is a subsidiary of the mining-giant-in-the-news, Glencore

Nice counterblast from Michael Clemens against the idea that the US is ‘stealing’ African health workers to work in its hospitals

‘”Not only is it a curse to be a Dalit, but it is just as difficult being a woman”.These are the words of a member of an extraordinary citizens group, the Gulabi Gang, which fights for the rights of the poor, Dalit and non-Dalit alike. “Gulabi” means pink, and the gang’s female members are distinguished by the bright pink saris they wear. The Gulabi Gang was set up by Sampat Pal Devi, an ordinary mother desperate to tackle the discrimination experienced by women around her.’ And even there’s even a support group here [h/t Swati Narayan]

Africa Power and Politics – a great new research programme, with lots to argue with

It’s a while since I’ve been as excited, intrigued and alarmed by a four page briefing as I was by the first policy brief of ODI’s Africa Power and Politics Programme (APPP). If you’re interested in the politics of development, drop everything and read it, and the accompanying (but gated, although the introductory overview is here) IDS Bulletin, entitled Working with the Grain? Rethinking African Governance.  

First, the APPP reckons (building on the work of lots of others like Mushtaq Khan and Merilee Grindle) that the development industry has gone seriously wrong (what follows are direct quotes from the paper, apart from comments by me in square brackets): 

‘In 20 years of ‘good governance’, millions of dollars have been spent on programmes to make private enterprise work in Africa as it does in the US, elections work as they do in Sweden, audit authorities as in Germany and civil society campaigns as in the Netherlands – with results that have been mixed at best. In its present form, ‘good governance’ is not evidence-based.

From ‘best practice’ to ‘best fit’

The ‘universal best practice’ approach to governance for development is bankrupt. There are no institutional templates that are valid everywhere and for all stages in a country’s development. Best fit implies

a) ‘working with the grain’, meaning building on existing institutional arrange­ments that have recognisable benefits: institutional innovations work when they build constructively on what already exists, borrowing institutional understandings from local society to build ‘practical hybrids’, marrying up modern professional standards or scientific principles (e.g. about what constitutes good health care) with the moral economy and previous practices of the area. [couldn’t agree more]

b) shift from direct support to facilitating local problem-solving: This has a clear implication for donor-financed and NGO-delivered support to self-help at the local level. Direct funding of groups and organisations inevitably means specifying institutional templates, for control and accountability purposes if nothing else. This can have very negative effects on capacities for genuine self-help. More attention should be given to the enabling environment. [such as?]

Adopting a ‘best fit’ approach also implies relying less on the congenial assumption that all good things go together. There is a widespread assumption that the solution to chronic development problems is more political democracy and greater citizen participation so that governments are more often ‘called to account’. This is an attractive idea, but it is more ideological than evidence-based. APPP is adding to the evidence that, in poor developing countries:

• democracy is a desirable long-term goal but not a reliable route to better public policies in the short and medium term

• citizen pressure is at best a weak factor and at worst a distraction from dealing with the main drivers of bad governance. [don’t worry, I’ll respond to this stuff at the end]

Voting and public goods

Democracy is definitely a desirable goal and an effective way of improving public policies in all societies in the long run. However, the formal arrangements of liberal democracy have radically different effects in different kinds of social and economic contexts. Many young democracies are not particularly developmental. In many settings, clientelism (vote-buying in its various forms) is cheaper and more reliable for power-hungry politicians than promises to improve policies and the delivery of public goods. [yep, as set out in back in 2005 in Matthew Lockwood’s great book, The State They’re In]

Refocusing on development leadership

What poor developing countries really need are leaders who, as well as constructing sufficiently inclusive coalitions of support, are able to show that they can ‘get things done’. In Africa, the most relevant dimension of variation among regimes is between more and less developmental forms of neopatrimonialism. [alarm bells – see below]

Implications for aid?

• External actors should base their decisions and their policy dialogue on a thorough understanding of the prevailing institutional arrangements. [definitely, but try doing that when the typical DFID staffer moves on every two years. In any case, as Sue Unsworth pointed out at the APPP launch, DFID and others have been doing this stuff for years, f - or example in the ‘Drivers of Change’ programme, now rechristened the ‘political economy approach’ – the problem is that it doesn’t have much impact on how donors actually behave - the way aid organizations are structured seems to make it very difficult to put this 'political economy approach' into practice.]
• linking ‘ownership’ more explicitly to political leadership, and ‘alignment’ to this concept of ownership
• working with parliaments and the public in the North to create the conditions in which more aid can work in a ‘best fit’ way. [ah yes, getting tabloids to say that corruption isn’t that big a deal really…..]
• Whether development efforts are country-owned or not depends on the orientation of the country’s political leadership. However desirable democratisation and civil society mobilisation may be, they are not relevant criteria of ownership.”

So what do I think of all this (in addition to the comments in square brackets)?

I love the challenge to the hubris and arrogance of the tired old northern-centric good governance discourse on development which basically argues that ‘they’ have to be more like ‘us’ (or at least an idealized version of us): elections are invariably good, all corruption is bad etc. This completely ignores both our own history and the reality of the existing institutions that hold the key to development. I also like the distinction between pro and anti-developmental forms of patrimonialism (personalistic systems of power, often but not always based on the distribution of cash and favours to buy loyalty) – that seems much more useful and historically grounded than the ‘all corruption is bad for development’ mindset. The practical hybrids idea sounds intriguing, but I’d need to see some more examples to be convinced (there are a few in the IDS bulletin, which is a start). Overall, we definitely have to move towards this kind of politically literate, contextual and humble approach to understanding development. Brilliant.

What alarms me?

The APPP is right to stress the importance of leadership, but how to prevent that degenerating in the minds of donors into traditional diplomatic ‘decent chap-ism’ – Kagame’s a decent chap, so let’s bung him lots of aid. As we know, decent chaps don’t always stay that way (the curse of the donor darling). How can a country graduate from an individual decent chap to an institutionalised, effective state? Within Sub-Saharan Africa, only Botswana seems to have managed it so far – at the launch one speaker held up the Ivory Coast of the 1980s as a good example of developmental patrimonialism, hardly reassuring. And the ringing quote at the end of the briefing: ‘it is time to abandon the polite fiction that the politicians in charge of most poor developing countries are really committed to development’ rather seems to undermine their argument (or at least highlights the shortage of decent chaps).

The risk is a slide into ‘Asian values’ type arguments that the non-monetary aspects of development will just have to wait. As Sam Hickey asked at the ODI launch ‘at what point is ‘good enough governance’ selling Africa short?’ The danger of an Asian values type focus on benign but undemocratic leaders is that you may get the autocracy without the developmental payoff at the end - lots of autocrats really mess up their countries.

The underlying vision of development seems to focus on structure with little space for agency (apart from decent chaps of course). Not much room for Amartya Sen’s ‘Development as Freedom’ or for universal human rights. An example from my colleague Caroline Sweetman comes to mind – some while ago when she was working as a gender adviser in Ethiopia, a women’s group asked her for ‘education and sharper knives’ to make female genital mutilation less dangerous. Others were urging donors to support such procedures in hospitals, to reduce risks to women. Would these be acceptable examples of ‘practical hybrids’?

And as you’d expect, I was quite upset by the dismissal of the role of civil society. While I have some sympathy with

the idea that donors unloading millions of dollars on unsuspecting CSOs may not be a great idea, writing off the influence of civil society per se does not seem (dare I say it) particularly evidence based. Do they not think the huge output of the Citizenship Development Research Centre on the role of civil society in long term political change (for example the iconic example of South Africa’s Treatment Action Campaign) worthy of consideration? How would they explain what’s happening in North Africa and the Middle East – hardly decent chap-driven processes, surely? Or are they saying that none of this work applies even slightly to the rest of Sub-Saharan Africa because of some unique aspect of its culture or politics?

My conclusion both from the briefing and the discussion at the ODI launch recently, is that the logical (though presumably unintended) conclusion from the APPP’s findings is that there is simply no role (apart from funding more research of course) for donors in governance work – it’s just too complex, too context specific, too likely to go wrong. And what the APPP is suggesting as alternatives are probably just too incompatible with the political and organizational realities of northern donorship. Speakers from aid agencies kept asking for ‘takeaways’ (policies, not Chinese meals) and didn’t get a convincing reply, except for yet more things they shouldn’t be doing. A reasonable answer, based on this paper, might be, ‘forget all that complicated political stuff – it’s beyond you. Go back to funding vaccines and textbooks, and concentrate on a ‘do no harm’ agenda at home – tax havens, climate change etc.’

These are just some initial reflections on a fascinating piece of work. Be prepared for me to do U turns on all sorts of things as I try and get to grips with it….. Next up, some highlights from the IDS bulletin.

Robin Hood, Robin Hood, dum dum dum de dum: financial transaction tax update from Max Lawson

The Robin Hood Tax campaign to fund development and climate change adaptation via a small financial transactions tax (FTT) is potentially one of the campaigning success stories of recent years – an object lesson in how to seize the moment (global financial crisis and fiscal horror story in the rich countries) to promote a good policy (redistributive taxation that can unlock significant new resources for development). Why potentially? Because nothing has yet been agreed, but progress towards real agreement is starting to look increasingly solid. Max Lawson, Oxfam’s man in the green tights (but not the guy to the right – I think that’s Javier from Oxfam Intermon in Spain), has this update for wonks, from the heart of the Robin Hood Tax campaign.

“An agreement on an FTT of some sort at the level of the Eurozone is now the most likely possibility in 2011, under pressure from Germany and France. They would then be joined by a group of nations from the G20, including Brazil and South Africa, which already have some form of FTT.  It is most likely to be a compromise in the shape of a transaction tax on shares (STT) and their derivatives, known as Stamp Duty. An FTT at Eurozone level could raise $10-20 billion annually, depending on the rate and transactions covered. EU-wide progress (i.e. including non Eurozone countries) is possible, but less likely due to objections from the UK, Sweden and others.

Everything depends on the Germans and French reaching an agreed compromise proposal.  The French still prefer a tax on currency transactions or foreign exchange. The Germans currently prefer a broad-based FTT on shares and bonds and their derivatives, but not on currency transactions. The two finance ministries are working very closely together, but have it seems yet to agree a compromise.

The Financial Activities Tax (FAT) tax remains the favoured option of the European Commission and the UK. However no country is actively pursuing the FAT, the French oppose it and the Germans have now turned against it for constitutional reasons.”

[But will the money get spent on development and climate change, or be swallowed up by rich countries’ fiscal deficits?]

“The French actively support the use of revenues for development and climate change.  The German finance minister has said twice publicly that he could see the revenues from their FTT being spent on development and climate change in order to secure a compromise.  Pressure needs to be increased on Germany and other supporters of the FTT like Austria to ensure the revenues are used for poverty and climate. Pressure from G20 nations and leaders of African countries will be critical in this regard.

Outside of the EU, President Sarkozy has put Bill Gates in charge of preparing a report and recommendations on innovative financing mechanisms on behalf of the G20.  Bill Gates is yet to be convinced of the FTT.  The US remains opposed to implementing an FTT themselves, but are not actively against others pursuing it.  Countries in the G20 that already have some form of FTT such as South Africa are likely to be supportive and can be persuaded to publicly call for the revenues of a European FTT to be used for climate change and development.

As in the Eurozone, the most likely compromise is around a tax on share transactions (STT), or Stamp Duty. Eight countries in the EU have such taxes already (including the UK), as do South Africa, Brazil, Korea, Australia and India making a coalition within the G20 around the Stamp Duty the most likely step. Extending these taxes to derivatives, as is done in India and Taiwan, would increase revenue. Whilst not a full FTT, this compromise would still set a major precedent and raise significant revenue.  At 0.5% the UK Stamp Duty is one of the largest in the world and raises $4 billion dollars each year, and this is one form of FTT that the UK could not oppose. 

So what would be the ideal process over the next six months?

· African ministers and key figures call for an FTT for development and climate change at the Spring Meetings this week
· 1000 economists write to the G20 and Bill Gates calling for an FTT at the G20 finance ministers’ meeting on April 15th (we can tick that one off – see here for letter and full list of signatories)
· South Africa, France and Germany announce their support for the FTT for development and climate change in the run up to and margins of the G8 in May
· Eurozone leaders announce they will push ahead with an FTT in June, ahead of the European Council, following the second global day of action on FTT.
· At the Annual Meetings other G20 nations show their support, including Brazil and South Korea.
· This is further built on at the final G20 finance ministers meeting, building on the full report from Bill Gates.
· At the G20 in France heads of state from the coalition of willing nations agrees to the implementation of their FTTs and the use of the revenues to help fight climate change and development and a clear timetable to make this happen. 
· At the UN climate change summit in Durban, South Africa in December, the contribution of the FTT to climate finance helps unlock negotiations.”

In a few months, we can compare this Lawsonian dream to reality …….

Update: some nice media coverage for the 1000 economists’ letter on the front page of The Guardian and the Telegraph