Cedric Saldanha and Joseph Grossman from the Austral Foundation have some interesting observations about Australia’s foreign aid commitments. They say that, while the debate has focused on size, the real issue is the effectiveness of the aid package. They say that the fixation on continually increasing aid budgets is counterproductive because increased size removes the incentives for better performance. Handing over a target amount of money becomes more important than insuring that it is spent appropriately.
Aid program contractors are under pressure to meet the disbursement and output goals specified in their contracts. These criteria are measurable, whereas the actual impact of programs (including all direct impacts and unanticipated side-effects) is much more difficult to measure. The incentives to measure actual long-term impact are low, because negative results would adversely affect the supply of funds to future aid programs and because there is limited interest in funding long-term measurement of outcomes.
Saldanha and Grossman say that “there is a strong argument for decreasing the size of the aid budget to facilitate quality and greater focus on the change process that it seeks to facilitate.” I am not sure that this is the logical conclusion to their argument; it seems to me that they should really be arguing for greater efforts and a greater proportion of the budget being allocated to creating an independent feedback system to ensure that aid is being spent effectively.