Why development aid is a really exciting field

By MathiasKB🔸 @ 2022-12-07T14:58 (+186)

Each year, wealthy countries collectively spend around 178 billion dollars^[1] (!!) on Development aid.

Development aid has funded some of the most cost-effective lifesaving programs that have ever been run. Such examples include PEPFAR, the US emergency aids relief programme rolled out at the height of the African aids pandemic, which estimates suggest saved 25 million lives^[2] at a cost of some 85 billion^[3] ($3400 per life saved, competitive with Givewell’s very best). EAs working with global poverty will know just how difficult it is to achieve high cost effectiveness at these scales.

Development aid has also funded some of the very worst development projects conceived, in some instances causing outright harm to the recipients.

Development aid is spent with a large variety of goals in mind. Climate mitigation projects, gender equality campaigns, and free-trade agreements are all funded by wealthy governments under a single illusory budgetary item: ‘development assistance’.

In short, the scope of aid is enormous and so is the impact that can be had by positively influencing how it is spent. I'm not the only one who thinks so! In January of 2022 Open Philanthropy announced Global Aid Policy as a priority area within its global health and wellbeing portfolio.

In this post I will:

• Demystify the processes that decide how aid is allocated.
• Argue that aid policy is neglected (by EAs especially), high in scale, and maybe tractable.
• Sneakily attempt to make you excited about aid, in preparation for the announcement of a non-profit I’m co-founding.

Who decides how aid is allocated?

When I first dug into development aid, I found the field very opaque and difficult to get an overview of. This made everything seem much more static and difficult to influence, than I now think it is.

Come with me, and I’ll show you how the aid-sausage is made. The explanation tries to capture the grand picture, but each country is different and the explanation is overfit to western democracies.

The aid pipeline:

It all begins with a government decision to spend money on aid. For many countries this decision was formalized in 1970 after a UN resolution was signed between members to spend 0.7% of GNI on official development assistance.^[4]

Politicians decide on a national aid strategy

Each country that gives aid will have an official strategy for its aid spending. The strategy lists a number of priorities the government wants to focus on. It is typically re-negotiated and updated once every few years or when a new government takes seat. The agreed upon aid strategy sets a broad direction for the civil service and relevant parliamentary committees in projects they choose to carry out.

The recently released UK aid strategy is a good example of what typical priorities look like:

1. deliver honest, reliable investment through British Investment Partnerships, building on the UK’s financial expertise and the strengths of the City of London, in line with the Prime Minister’s vision for the Clean Green Initiative
2. provide women and girls with the freedom they need to succeed, unlocking their future potential, educating girls, supporting their empowerment and protecting them against violence
3. step up the UK’s life-saving humanitarian work to prevent the worst forms of human suffering around the world. The UK will lead globally for a more effective international response to humanitarian crises
4. take forward UK leadership on climate change, nature and global health. The strategy will put the UK commitments made during the UK’s Presidency of G7 and COP26, UK global leadership in science and technology, and the UK’s COVID-19 response, at the core of its international development work

The Government passes a national budget

Most elected governments pass a national budget each year, determining how much money should be spent on each category of expense from healthcare to military. One of these categories will typically be ‘official development assistance’.

This category will often be broken into subcategories, which earmark various percentages towards various causes, countries, and organizations. A common budgetary target for many countries is to spend 0.7% of GNI on aid, with some countries giving slightly more and others giving slightly less.

The importance of the national budget varies significantly based on the extent to which it earmarks the aid spending. The 2023 Danish national budget, for example, sets aside 25% of its aid to climate related interventions and 3.6% towards helping Ukraine. Once the yearly budget is approved, it is difficult to change.

Typically the civil service will make a recommendation for how the budget should be allocated, in line with past commitments, ongoing projects and the government’s aid priorities. The government uses this proposal as a starting point, making amendments in line with their political objectives.

The country’s aid agency decides on projects

After the national budget is passed, the parliament passes on the torch to a government aid agency responsible for carrying out the strategy with the available resources.

Multilateral projects

Countries give anywhere from 0 to 70% of their total development budgets to multilateral organizations such as the UN and WHO, who carry out development projects that align with the governments’ strategies.

Depending on the number of strings attached, the multilateral organization largely decides how the money is spent from there.

Bilateral projects

Donor countries also carry out a number of projects that directly attempt to achieve some objective in a recipient country. These projects are referred to as ‘bilateral’ because they only involve the donor and recipient country, and are overseen by the national aid agency itself.

The structure of these projects varies significantly, but often they are carried out in collaboration with either the recipient government or an NGO that is responsible for the day-to-day operations. In order to achieve the objectives set out in the donor country's aid strategy, its national agency will regularly consult the budget and decide on new bilateral projects.

Most governments have a number of developing countries whose governments they have established especially good relations with. Aid and other investments are a way to uphold those relations, but high trust also makes it easier to carry out impactful projects. Countries tend to carry out especially many bilateral projects in countries they work well with, or want to build better relations to.

Projects are implemented

Now that the government has decided on projects to fund, we finally arrive at the stage of actual implementation. This is the step that EA historically has been the most engaged with. Here we can measure the impact of projects, rank them against each other, and say which are more impactful.

What’s important to keep in mind are all of the political decisions that went into deciding on an exact project. If effective altruists identify a different project that would save more lives, but does worse on all the other criteria the government used to decide, we shouldn’t expect the government to change its decision.

Ensuring that each step in the decision-making process becomes better aligned with indiscriminately saving and improving lives is of increasing importance, especially as evidence establishes which interventions do so most effectively.

Scale, Tractability, Neglectednes

Scale

“The scale speaks for itself” - Hans Niemann

178 Billion dollars is a ridiculously high number. There is a broad consensus among experts, think tanks, and implementing partners alike that the cost-effectiveness of aid can be vastly improved.

I expect a lot of people to be reasonably worried that this is a textbook case of getting mugged by scale. “If we capture just 1% of the market, we’ll be rich” is a common sentence to hear from startups doomed to fail. Let’s assume that for some reason you are skeptical of somebody’s chance of influencing the entire world’s aid spending, and focus on just the aid spending of a single small country.

Denmark, with a population of just under six million, alone spends ~$2.7 billion on development aid each year, which is more than enough money to yield a massive impact if spent more cost-effectively.

Tractability

Is influencing the spending of a small country tractable? Hopefully the overview of how aid allocation is decided, should have given you a sense of the many avenues there are to influence aid priorities for the better.

If you’re still not convinced that it’s tractable, let’s look at some case-studies cherry-picked by me to prove that it’s at the very least possible.

The directors of the Norwegian aid agency were recently featured in an article stating their intent to add cash-transfers to Norway’s aid portfolio. This decision was no doubt influenced by the excellent research on cash-transfers done by organizations such as the Center for Global Development, Berkeley’s Center for Effective Global Action, and others.

A grassroots campaign organized by EAs in Switzerland, increased the spending of Zurich on aid from €3m to €8m. That said, another grassroots campaign organized in part by EAs to campaign against UK’s cuts to aid spending, did not succeed. That still yields a 50% success-rate and the UK campaign was argued to have been cost-effective as well despite failing to prevent the cuts.

In 2019 the US aid agency ran a cash-benchmarking experiment in collaboration with GiveDirectly. While one experiment is not going to change much, it shows the world’s largest giver of aid is open to ideas that can increase impact.

The base rate for the success of advocacy is surprisingly high, and important decision-makers are (sometimes) listening to the evidence. Moreover, if government’s weren’t influenced by advocacy, why on earth is every parliament surrounded by lobbyists arguing for why exactly their industry should be free of competition?

Neglectednes

Is affecting aid policy neglected? Most definitely. While there are a few dozen organizations focused on research and advocacy for more cost-effective aid spending, it is a tiny amount in light of the total scope of aid. Similar to how a few dozen AI safety orgs is not nearly enough in light of how fast AI is progressing.

And similar to how many AI safety projects couldn’t exist without EA funding, so are there many aid policy projects that haven’t been possible to do due to a historic lack of funding. The list of projects within aid policy that I think are likely to be cost-effective and fundable is much larger than the number of EAs willing to facilitate them.

A call to action

Development aid is a big deal. It represents one fourth of all giving worldwide^[5] and is responsible for saving and improving millions of lives each year. As effective altruists are becoming increasingly ambitious in the scope of interventions we consider, development aid should be making its way onto our radar.

If you’re currently thinking: “someone should fund an org that works with aid policy or something”, then I have good news! That is exactly what my co-founder Jacob and I are doing, and we’re looking forward to announcing the organization along with our pilot project soon.

In the meantime, if you are somebody interested in global development and policy, there has never been a better time to turn that interest into an impactful career. If you’re unsure where to begin, don’t hesitate to send a message, we would love to meet you!

1. ^{^}

   https://www.oecd.org/dac/financing-sustainable-development/development-finance-standards/official-development-assistance.htm

2. ^{^}

   https://forum.effectivealtruism.org/posts/f2xEp9RAyA2kSZ2qm/how-many-lives-has-the-u-s-president-s-emergency-plan-for?commentId=JNuZbj2tnHAigPoCX

3. ^{^}

    https://www.state.gov/wp-content/uploads/2021/02/PEPFAR2021AnnualReporttoCongress.pdf

4. ^{^}

   https://www.oecd.org/dac/financing-sustainable-development/development-finance-standards/the07odagnitarget-ahistory.htm

5. ^{^}

    $178b in ODA in 2021 compared to $550b in private philanthropy in 2021 according to https://www.privatebank.citibank.com/newcpb-media/media/documents/insights/Philanthropy-and-global-economy.pdf