Friday, 25 May 2012

Professional Services, Markets and the Poor 1: What if the world’s poorest obtain most development services from the ‘market’?




Much energy is spent on debating whether services such as health, education and veterinary medicine, should be provided by the public or private sectors. But the answer to this question turns out to be irrelevant for most of the globe’s poorest.

Who pays for services in Low and Middle Income Countries?
Most of the severely disadvantaged people in the world live in poorly governed states in South Asia, China and Africa. In these and many other Low and Middle Income Countries (LMICs) formal and informal user-fees are pervasive in the public as well as the private sectors.  

True, much of Latin America, Taiwan, Malaysia, Thailand, Sri Lanka and Botswana have established effective government-run systems for health and other services that are not reliant on market relations, but these are not the places where most of the ‘poorest of the poor’ live.
           
Generally, someone who needs curative medical treatment, education, or veterinary care in most other LMICs will have to pay someone for it. For example:

  • In India less than 25% of rural health services are provided by government (and even with the latter usually involves informal payments). Likewise the non-state sector provides the overwhelming majority of curative services in Bangladesh.

  • Animal health services in tropical Africa moved from overwhelmingly free government provision before 1980 to almost universally compensated services by 1990, as is also true in India. Even when ‘free’ primary education is found in these countries, most often it involves payments for uniforms, supplies, and instructor tutoring.
           
So the distinction between ‘public’ and ‘private’ is more one of ownership and supervision, not of whether money is being exchanged. A market is present in both the ‘government’ and ‘private’ service sectors in these countries. It is more useful to look at variations in the market than in the formal attributes of the providers.

Are the poor getting what they are trying to pay for?
None of this is to say, that the poor don’t deserve subsidised services; they do. But sometimes subsidies benefit civil servants, rather than the poor. For example, government veterinary staff in India actually charge informally the same prices as private practitioners. 

And even when the subsidies do reduce the costs to the poor, almost always payments by the recipients are not eliminated. Given this continuing reality, it is important to ask if the poor are getting what they are trying to pay for.

The poor living in poorly governed LMICs can and do invest modestly in the purchase of needed services and can be seen buying from higher cost providers. This is particularly true in the face of catastrophic events, especially if they have land or some other collateral asset. Nonetheless the quality of services offered to the poor in poorly governed LMICs is frequently seriously deficient.

Tackling inequality of information on quality of services
The poor have more knowledge about the quality of the services on which they rely than is generally recognised. But in the purchase of professional services, those who are selling their expertise know more than their customers. When institutions are available to help overcome this information inequality, people are able to get better value from their purchases and are willing to buy more. This is called solving the problem of ‘information asymmetry.

In poorly governed societies a development priority is to build a set of institutions that enable quality in competence, effort and accountability to be rewarded in providers and signalled to consumers. In societies with high levels of governance, the state usually plays a central role in providing institutional solutions to the problems of information asymmetry.

In most countries with low levels of governance and poorly developed paths for public sector improvement it is unrealistic and counter-productive to expect government to be the sole provider of individualisable (‘private’) health and development services for the poor.

Granted, even in these settings the state will often want to play a role in planning institutional solutions by non-governmental actors to ensure the provision of services that have important ‘externalities’ (such as disease prevention, surveillance and control) with collective benefits.

But what might those solutions to the ‘information asymmetry’ problem in the delivery of essential individualisable services be? In a subsequent blog post I will scan the development literature for the lessons that emerge. 

For now, I stress that the world’s poorest are having to buy key development services from markets in both the public and private sectors and that those markets are unlikely to disappear any time soon. We therefore need to make those markets work to improve the quality and utility of what the poor are going to purchase. 


This blog draws on a paper currently under consideration with WORLD DEVELOPMENT -- Institutional Solutions to the Asymmetric Information Problem in Services for the Poor by David Leonard, Gerald Bloom, Kara Hanson, Juan O’Farrell, and Neil Spicer.


Tuesday, 22 May 2012

Tax Inspectors Without Borders: A Seriously Good Idea

By Mick Moore

In the struggle between developing countries’ tax systems and multinational companies, there are calls for an elite task force of international tax experts to assist the side of national tax agencies. Here is why I believe a new proposal by the OECD to create ‘Tax Collectors Without Borders’ is a good idea.

The dilemma faced by national tax authorities in developing countries: A tale

Imagine you are the boss of the national tax authority in any small, poor country. A handful of transnational companies have subsidiaries that operate in your country. One of them provides most of the mobile telecoms services. Another dominates the cigarette industry. A third brews much of the nation's (legal) beer.

All these companies submit their tax returns to you on time, and in good order. But their profits are strangely low. They never seem to pay very much in taxes. You suspect that they are manipulating their accounts to relocate most of their profits in tax havens overseas.

It is not too difficult for you to find out that each of the parent companies has a large number of subsidiaries in places like the British Virgin Islands, the Cayman Islands, and Switzerland. You know that the companies have several ways of shifting their accounting profits across national borders from subsidiary to subsidiary. The local telecoms firm buys its equipment at very inflated prices from a sister company registered in Bermuda. The cigarette company “borrows" a great deal of money every month from a related company formally headquartered in Jersey. And it repays those loans equally fast at rather high rates of interest.

The right to use that world famous brand name on locally brewed beer has to be purchased through large annual payments to a group affiliate in Luxemburg. An affiliate that seems to have no other purpose.

You, as a tax official, would like to do a serious audit of the accounts of the telecoms company, Callaphon*. You think you have a good case. If you can produce the evidence to back even 50% of your suspicions, your Finance Minister will be very pleased. Callaphon will pay more tax this year and in future. The other companies will read the signal and begin to declare in your country more of the profits that they actually make in your country.

Will you act like Her Majesty's Revenue and Customs (HMRC) (the tax authority in Britain) and notify Callaphon that it has been selected for a serious audit, and that a six person audit team will arrive to spend three months checking the books?

No, you won’t act this way. Because experience tells you that your chances of pleasing your Finance Minister are poor even if you are sure of the facts of your case. Here’s why:

Why national tax officials can’t audit multi-national corporations, even with good evidence

You know that Callaphon will import highly paid accountants and lawyers to engage with your team of six auditors without sufficient training, equipment or pay. The company may also hire a couple of your best auditors to come and work for it, on very generous terms. The company doesn’t need their skills. It hires them so they no longer work for the tax authority.

If you decide to go ahead with the audit anyway, you might also upset your best auditors, because they fear being professionally humiliated by the company’s high-powered staff. If the audit fails to generate new revenue, not only will you and your organisation lose face and morale, you will also lose revenue. The audit of Callaphon will occupy your best auditors for several months with this one task, preventing them from going after other cases. The Finance Minister will not be pleased!

Donor organisations and the importance of domestic resource mobilisation

But these days all the aid donors and international development organisations seem to be talking about the importance of “domestic resource mobilisation" in developing countries. Will the donors come to rescue you, the tax official, at the vital moment? The IMF gives extensive advice and support to tax agencies in poor countries. So too does the German aid organisation GIZ (formerly GTZ), HMRC, and quite a few other organisations. Surely they can help?

The answer is yes and no. The donors are already in your tax offices, giving all kinds of support to improve your IT system, establish an effective risk analysis procedure, train staff and try to improve human resources. All of this is all good work. But it does not serve your immediate needs.

You feel like the commander of a small anti-narcotics squad being attached by a large and heavily armed drug militia. What you need is an attack helicopter, not advanced training in battlefield logistics.

Tax Collectors Without Borders as an international ‘attack helicopter force’ to support tax agencies

As some NGO have long argued, there is a need for some kind of international tax helicopter force to come to the aid of outgunned tax agencies at critical moments. Today, there is a real prospect that such a force will be in place within a few years. The OECD Centre for Tax Policy and Administration, backed by the Task Force on Taxation and Development, have just announced a commitment to try to establish 'Tax Collectors Without Borders'.

The aim of this initiative is to level the playing field a little, by making international tax experts available to support the tax agencies of poor countries in the kinds of circumstances sketched out above.

A great deal of work remains to be done, especially as the OECD very sensibly wants to avoid the easy and “obvious" funding mechanism, which would be to ask a donors to pay the full cost. If it were funded in this way, the complex politics and bureaucratics of the aid business would make it more difficult for “Tax Collectors Without Borders" to survive and thrive. Some aid donors are under contradictory pressures in respect of international taxation. Some donor country governments, and some transnational companies, oppose the changes that the OECD is encouraging.

The OECD hopes to establish Tax Collectors Without Borders as an independent organisation, possibly answerable to international associations of tax professionals, which will be funded at least in part from the charges that it levies for its services.

This is a very sensible initiative, and is considerably overdue. It is well worth the try. No harm can come from providing firepower to tax agencies, and introducing more competition to existing suppliers of technical assistance in the tax field. I wish the OECD the very best.


*The name given to the telecom company, Callaphon, is purely fictitious. Any resemblance to a real person or entity is purely coincidental and unintended.

Monday, 14 May 2012

Plateaus not Summits: Reforming Public Financial Management in Africa


What Africa needs in public financial management are plateaus, not summits. For the most part, however, nations on the continent don't gain these plateaus.

Public financial management (PFM) in Africa has been much about seeking out summits of advanced techniques of financial management borrowed largely from the private sector (accrual accounting, performance budgeting, enterprise resource planning information systems) and not building stable plateaus of the basic techniques unique to the public sector (the traditional line item budget). PFM and its reform in Africa have lost its way. Getting the basics right has been given much lip service but little practice.
           
The virtues of getting the basics right by building a plateau of financial management in a developing country is elaborated in greater detail by my recent publication. The argument for plateaus is illustrated by the 12-year PFM reform in Ethiopia where I directed the technical assistance project that supported this government reform.


Four pathways to reform public financial management: Recognize, improve, change and sustain.

Why are summits sought in PFM rather than first establishing solid plateaus (the basics) of PFM? One reason is the approach to public sector reform and its subset PFM reform as principally being about change.

A reform has potentially four activities — recognize, improve, change and sustain. Most reform is viewed principally as the activity of change, which in the developing world environment with relatively weak organizations and institutions, more often than not exceeds the capability of governments to absorb reforms based on change.

In contrast and as demonstrated in Ethiopia, a reform strategy that first recognizes what exists and improves it, is faster, cheaper, less risky and most importantly promotes government ownership and management from the start. By fully involving the user (the government) all along the way, the recognize / improve strategy of reform promotes the fourth reform activity: sustain.

One can argue that the principal problem with public sector reform in general and PFM reform in Africa in particular is defining reform as change, often perpetual, and ignoring the other tasks of reform. 
  • Reform as Recognize. Recognizing meaning understanding and respecting what exists, is the first and often most neglected step in reform. All too often, governments in developing countries do not understand the strengths of their systems and are too quick to change them, often on the advice of outsiders. The recognition task of reform is significant for it focuses one on the definition of the problem rather than the leap to the solution. Unfortunately, PFM reform is much about technique and sequence and little about hard questions—why change and how does it improve outcomes (sustainability and quality of expenditure)?
  • Reform as Improve. Improving fits with the reality found in most African governments of systems being robust but not adequately executed. Toning up what exists and focusing on strengthening execution (i.e. in-service training, schemes of service, organization of finance functions) can have significant payoffs at modest cost. Reforms that focus on improving rather than changing, are faster, cheaper, less risky, and are less disruptive of daily operations. Most important, reform as improvement ensures that government remains in the driver’s seat of management and operation of PFM. 
  • Reform as Change. Change should be done judiciously and justified in terms of improving the quality of PFM outputs (e.g. sectoral allocation, composition of expenditure). As with mountaineering, the significantly higher risk of changing rather than improving PFM requires clear rules to manage risk and avoid failure. While recognizing the risk of changing financial systems, two striking lessons emerge from the Ethiopian reform. 
First, if proper preparations are made for the introduction of a new system, capacity is not as serious a constraint as expected. Capacity building often becomes blue sky — some is good, more is better, and even more is even better. Blaming the lack of capacity is often a far too easy explanation for failure and excuse for not doing the due diligence of understanding what exists and working with it. 

A second lesson from the reform was that change worked if driven by a clear not derived need (e.g. the need to have an equitable intra-regional transfer formula with the advent of second stage decentralization to districts).

  • Reform as Sustain. Sustaining is the orphan of reform it lacks constituencies. Sustaining a reform, however, is the key to effective execution of systems, and that is the weak link in PFM reform in Africa. Sustaining is the ‘operating and maintenance (o&m)’ of reform. Governments the world over underfunds o&m and gives priority to new expenditure (capital) rather than the required expenditure (recurrent wage and recurrent statutory). O&M is discretionary.

Again, PFM as applied to African governments has largely lost its way and indeed has neglected some of the key findings of the field. Perhaps the key finding of PFM, the durability of the traditional line item budget as elaborated by Aaron Wildavsky speaks directly to the virtue of a plateau rather than summits of performance and program budgeting.

Thursday, 10 May 2012

Can nonviolent direct action work in Africa?

By David Leonard and Benard Lisamadi Agona

In 2007/08 Kenya was swept by serious post-election violence. Similar unrest broke out during elections in 1992 and 1997. But this time violence reached the capital Nairobi and threatened the stability of the state itself. This article looks at examples of nonviolent community responses to abuses of authority.

Kenya's need for political and social accountability

Throughout tropical Africa, electoral violence is often fuelled by inter-ethnic conflict and outrage at malpractices at the polls. In Kenya this is aggravated by land shortages that elite control of large estates exacerbate. But citizens also resort to violent protest because they see no other way to hold government leaders accountable. There is a lesson to be learned. 
One critical way to help people avoid violence is to help them build the skills to hold leaders and public institutions accountable and to promote social change through nonviolent forms of protest and direct action.

Debates about conflict in Africa tend to completely overlook the potential of nonviolent forms of action. Groups in Kenya are demonstrating how communities can become adept in nonviolent direct action, and use it to take on corruption and mismanagement.

The Quakers and their response to the Kenyan crisis

Western Kenya is home to a third of the Quakers in the world. This Christian denomination is known in Europe and the USA for its dogged commitment to peace. Prior to 2008, however, most of the 130,000 Kenyan Quakers had thought of peace as a luxury that deserves attention only after development has been achieved.
But during the violence of 2008, Kenyan Quakers came to realise that peace is a pre-condition of development and asked what their faith had to say about it. They had already been promoting programmes of reconciliation and mediation in the region, but the electoral violence clearly required something different.
In response British Quakers agreed to help Change Agents for Peace International (CAPI), a local Quaker organisation serving the African Great Lakes region, to develop a specifically Kenyan nonviolence programme. A similar Catholic initiative, the inter-denominational Chemchemi ya Ukweli (Wellspring of Truth), was already underway.

Developing nonviolent methods to challenge authorities

CAPI does not have its own social change agenda. It provides training in nonviolent methods to community groups of all faiths working on their own social change priorities. Being told that it promotes nonviolence one might think that direct action in the mould of Gandhi and Martin Luther King, Jr. would result. Instead, the groups receiving training have focused on analysing local power structures, planning campaigns, mounting legal petitions and using non-confrontational styles of communication.
Kenyans, especially the young, are very aware of injustice, and they desire to correct it. But in their experience, there have been only two possible responses to the wrongful use of authority: submission or riot. Those who reject violence are eager to challenge authority respectfully but they are often ignorant of the tools that could allow them to do so.
The activists CAPI has trained have been willing to challenge abuses of authority. And they have achieved remarkable success using nonviolent tools.

Two success stories of nonviolent activism in Western Kenya

Two illustrations come from Western Kenya. The Shinyalu Boda Boda motor-cycle taxi drivers successfully challenged their County Council staff for corruptly issuing false taxi licenses and failing to provide services. The Boda Boda drivers’ peaceful demonstration was covered on TV. In the end, they succeeded in changing the County Council’s practices.
The Boda Boda drivers group is now planning a campaign on absentee teachers. Public school teachers often use government loans to buy motorcycles, and some then work as taxi drivers themselves rather than attending the classes they are paid to teach. 
The Boda Boda drivers group plans to protest to school principals and to the local office of the Ministry of Education in order to ask that the pay of the offending teachers be docked. They will use mobile phones to take photos of the taxi-driving teachers. They expect parents will join them as allies in the campaign.
Another example comes from a Catholic community group in Chekalini that also received support from CAPI. The group challenged corrupt overcharges on small business licenses by posting the correct fees in the district’s markets. For this, they were arrested and charged by the District Revenue Office with interfering with the collection of taxes. The leaders have been found not guilty by the courts but are continuing the struggle to recover their impounded property.  

Will new training for communities prevent violence in the next elections?

Training in the techniques of community organisation is what is needed now. These techniques open new channels of social change and they reduce the perceived need to resort to violent protest. They are a force both for change and for peace. By helping more communities build the skills and tools to challenge authority with nonviolence, we not only reduce violent conflict, but also help hold governments and leaders accountable to citizens.
Will nonviolent groups like the Boda Boda drivers and Chekalini businessmen be able to prevent violence in Kenya’s upcoming presidential elections in early 2013? Perhaps not yet. But they are on the right path.

Friday, 4 May 2012

Global Crime I: When does organised crime become king?

By Markus Schultze-Kraft

Under what conditions do organised criminal networks acquire the power to install and take down elected presidents, shape socio-political change and determine the distribution of national wealth? When does crime become king?

This question is important not only to academics. Powered by globalisation, organised crime fuels chronic and pervasive violence and war, undermines public authority and transforms “the international system, upending the rules, creating new players, and reconfiguring power in international politics and economics” (Moisés Naím).

Specialised outfits such as UNODC and the International Crisis Group have produced a large number of reports in recent years on the consequences of organised criminal and illegal activities for development, and for various states and societies. There is indeed good reason for concern.

But it is less clear what the actual socio-political and economic mechanisms, structures and processes are that provide organised crime with the power it ostensibly has. Under what conditions are these mechanisms forged? And by whom?

The usual story about the roots and practices of organised crime

Common explanations tend to see the existence and rise of organised crime as being dependent on, for instance, lucrative global black markets (for drugs, weapons, humans, etc.), states' insufficient capacity to protect their citizens, or high youth unemployment in the South's megacities.

At the same time, organised crime is perceived as operating from the shadows, from the fringes of the public sphere. It is also assumed to act against the state. The standard narrative is that upright officials are bribed to allow illegal access to privileged information or public funds; security and justice institutions are infiltrated by rogue criminal elements; the state and the political system are 'co-opted' or 'captured' by greedy and blood-thirsty drug-traffickers.

But what if organised crime is part of the state?

But what if organised crime was considered differently? Charles Tilly’s famous analogy of state and war-making and organised crime offers an alternative viewpoint. What if states are in essence legitimated and regulated forms of organised crime? What if organised crime is therefore part of the processes driving social, political and economic change? Taking this approach, organised crime doesn't attack and undermine the state. It contributes to its creation and works with, for, and from within it.

Empirical evidence from different parts of the globe suggests that organised criminal networks are indeed carrying out essential tasks that, according to national laws and constitutions, should be undertaken by presidential offices, ministries, police forces, mayors and local council officials that we would like to believe can be held accountable.

More to come on organised crime, the state and international peace-building

As I will elaborate in future posts, there are a number of reasons why 'legitimate' institutions are not carrying out these tasks or are delegating them to members and enforcers of the underworld who work hand in glove with civil servants, politicians and business corporations.

A recent article in Colombia's weekly Semana magazine (in Spanish) outlined the linkages and illegal-informal agreements between outlawed paramilitary forces, banana entrepreneurs and public officials in the country's Urabá region. The evidence could not be more telling, or more disconcerting.

There is also evidence that international peace and state-building missions can be elusive and ineffective when it comes to establishing the rule of law and fighting organised crime.

Why, for example, has the major international peace and state-building effort in Kosovo apparently been unable to stop the consolidation of a lawless space and organised crime hub in the Serb-majority north of the country.

Is it all about the essential task of protection, as Tilly would have argued? If so, we need to ask several additional questions: Who is protecting whom, and what are they protecting them against? At what price is this protection achieved? And what is it we have to get ready for?

Keep an eye on the Governance and Development blog for more Global Crime posts

Tuesday, 1 May 2012

Is security and development a shotgun marriage? Why we need to account for security from below

by Robin Luckham

In recent years, security has become increasingly commonplace in development analysis and practice. Now is a good time to revisit the relationship between the two fields. 

Major organisations like the OECD, the UN, the EU and most bilateral aid agencies have given an official stamp to the relationship between security and development. DFID has been influential in bringing it in from the cold and has linked it to stabilisation. It is the centrepiece of the World Bank’s 2011 World Development Report on ‘Conflict, Security and Development’.

This marks a significant change from the situation prevailing 20 years ago, when violent conflict and security were ignored by the development community.

However, huge conceptual confusion still surrounds the topic of security. The relationship between security and development remains poorly understood, despite a growing research literature. And the situation has not been improved by the critiques of ‘securitization’ by Duffield (2001) who voices the unease that many feel about the tendency of security priorities to trump development priorities.

The critiques are general and have conceptual and empirical weaknesses that mirror those of security analysis itself.

What’s in a word? Different problems are hidden under security

It would be easy to dismiss security as just another development buzzword. But words matter greatly.

Framing an issue as one of security has profound consequences for both analysis and policy. Yet almost nowhere in the large security and development literature is security properly defined. The 2011 World Development Report skirts around the issue by defining ‘citizen security’ in terms very similar to human development, plus an added dimension of citizenship.

“Security” hides very different kinds of problems under one label, for instance:
  • the wars on terror and drug
  • suppression of dissent in Russia, Singapore, Ethiopia and elsewhere;
  • Sri Lanka’s brutal final campaign against the LTTE or Israel’s military operations in the West Bank and Gaza
  • security assistance provided by Western countries to Egypt, Tunisia and Yemen
  • corporate security in the Niger Delta and other resource-rich regions
  • merging of security and development by Provincial Reconstruction Teams in Afghanistan
  • restoration of functioning security institutions in post-conflict countries such as Liberia, Sierra Leone or Timor Leste
  • efforts by peacekeepers and humanitarian agencies to ensure safety and livelihoods for vulnerable people in Darfur, Eastern DRC and other conflict zones
  • impacts of desertification in the Sahel on the survival strategies of Touaregs and other marginalised groups
As these examples suggest security is not only multi-headed, but also morally ambiguous and politically contested. Everything depends on who speaks in the name of security. Whose security are we talking about? From what are they are secured? And how is their security protected (or neglected)?

These ambiguities might make us want to wash our hands of security altogether and say it should be of no concern to development practitioners. But security is too important to be left in the hands of securocrats and politicians.

Two perspectives on security: Security as order vs. Security as an entitlement

The moral and political confusion around security stems from two different perspectives on the theory and practice of security itself.

On one side, security involves ‘seeing like a state,’ even in a modern world where ‘the state’ comprises global and national power structures as well as nation states. The state based perspective on security sees it as a process of social and political ordering.

This order is achieved through military power, surveillance or the control of new media. Post-conflict ‘stabilisation’ and ‘state-building’ in countries like Sierra Leone or Afghanistan has been premised upon the creation of political order so that development can take place.

But there is another perspective on security, which sees security as an entitlement of citizens. This vision of security in spelt out in the World Development Report’s formulation of citizen security, as well as in the UN’s endorsement of human security and the ‘responsibility to protect’.   

In principle, these frameworks open the way to challenging the state’s power and monopoly of security provision.  But the irony is that they have also helped to shape a new policy consensus around forcible interventions in the affairs of fragile and conflict-torn countries.

We should see these two perspectives on security not as rivals but as mutually interconnected faces of governance. Both address the problems of power and the use of force, but from different directions.

The key questions are: Who controls force? Who holds it accountable? And how do they do so? 

Why do we need to account for security from below?

The moral and political confusion over security persists.  Powerful states and international institutions still dominate despite all the rhetoric about citizen and human security.

How convincing is the talk about the responsibility to protect when those who are supposedly protected have few if any means of redress? This question applies for repressive states like Syria and Zimbabwe; for armed jihadis, militias and criminals; and for external powers, peacekeepers and humanitarian agencies which condone abuses or fail to deliver security.

We lack robust accounts of how security looks ‘from below,’ what weapons are available to the weak and how the powerful can be held accountable. For research on this perspective, see IDS Bulletin March 2009 and June 2009.

Accounting for security from below is a priority for two reasons:
  1. It reveals the agency of people who are insecure, including their survival strategies and their capacity to challenge dominant social orders, as has been seen in the Arab Springs.
  2. It helps us understand the complex local contexts where vulnerable people seek security. In these contexts, state security agencies can easily become oppressors. Ordinary people may well seek protection elsewhere, even from otherwise malign and violent bodies such as paramilitaries and criminal mafias.