Focus-Pocus? Thinking Critically about Whether Aid
Organizations Should Do Fewer Things in Fewer
Countries
Lauchlan T. Munro
ABSTRACT
The OECD Development Assistance Committee and G7 Finance Ministers
have suggested that many bilateral and multilateral aid organizations are too
dispersed, pursuing too many objectives in too many countries and too many
sectors with too many partners. These organizations are accused of lacking
critical mass, failing to follow their comparative advantage, failing to find and
exploit a niche, and having high transactions costs and low effectiveness. Such
aid organizations are being told to ‘focus’, ‘concentrate’, or be more ‘selective’
in order to become more effective. This article analyses the arguments in
favour of greater focus by aid organizations and suggests that, while some
of these arguments are valid, some are not and others need to be more
nuanced. There are many possible dimensions along which an aid organization could focus and the link — if any — between focus and aid effectiveness
is complex along each of those dimensions. The debate so far has also ignored
the possibility that less focus may promote more effective aid. There is no
clear, simple link between focus and aid effectiveness, but this finding should
not be interpreted as carte blanche for spreading aid programmes indiscriminately. Dispersion, like focus, needs careful thought and justification.
INTRODUCTION
‘Some systems are extremely difficult to model because they have so many components; . . . they are mathematically intractable. As the number of components or ‘‘dimensions’’ in the equations goes up, the length of time it takes to solve the equations rises even
faster. [A] feature of complex systems is the dense web of causal connections . . . [T]heir
components have so many links to each other that they affect each other in many ways.’
Thomas Homer-Dixon (2001: 116)
The author would like to thank John Hardie for suggesting this topic, providing background
materials, suggesting the first part of the title, and providing comments on earlier drafts.
Kathleen Flynn-Dapaah, Martin Kreuser, Rohinton Medhora, Joan O’Donoghue, the editors
of this journal and two anonymous referees also provided useful comments. The views
expressed here are purely personal, and do not reflect the official policy of any organization.
The author accepts full responsibility for all errors of commission and omission.
Development and Change 36(3): 425–447 (2005). # Institute of Social Studies 2005. Published
by Blackwell Publishing, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main St.,
Malden, MA 02148, USA
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Money, the philosopher and scientist Francis Bacon once noted, ‘is like
muck: good only that it be spread’. But spread how far? And how thinly? In
the current debates about aid effectiveness, it is commonly observed that
many aid organizations are spreading their resources — human, financial,
informational — too thinly, that they are pursuing too many objectives,
trying to do too many things in too many projects in too many sectors and
countries, and not doing any of them very well. The results, we are told,
include higher than necessary transactions costs, small projects without
critical mass, policy incoherence, and, ultimately, an aid effort that is less
effective than it could or should be. This situation analysis having been
completed, the development organizations in question are almost invariably
advised — and frequently opt — to ‘focus’ their activities on a smaller
number of objectives, activities, projects, sectors, partners or countries.
This analysis and prescription have become particularly common from
official sources in donor countries in recent years; official and semi-official
comments from the organs of donor governments such as the G-7 and
Organization for Economic Co-operation and Development (OECD) accept
this argument uncritically and repeat it frequently.
Having postulated that increased focus or selectivity or concentration
would help aid organizations improve their effectiveness, the question then
arises, ‘but how?’. Here there is less agreement. Perhaps the best known
argument is that of Burnside, Collier and Dollar at the World Bank, who
have argued in two papers that aid has its greatest developmental impact in
countries with large numbers of poor people and ‘good’ economic policies
and governance (Burnside and Dollar, 1997; Collier and Dollar, 1999). The
implication is that, globally, aid effectiveness would be improved if donors
focused their resources on the poorest countries with the best policies and
governance.1 This article, however, is not concerned with this macro perspective on aid effectiveness. Rather, it examines the literature on aid
effectiveness at a more micro level, that is, at the level of the donor
organization itself. We are told that individual aid organizations would be
more effective if they were more compact, more focused, more selective.
What are the strengths and weaknesses of these arguments, and what
evidence is presented to support them?
The language used to describe the recommended course of action varies,
but usually includes words like ‘focus’, ‘selectivity’ or ‘concentration’. The
proposed mechanisms or ways through which more focus would lead to
better developmental impact typically include obeying the law of ‘comparative advantage’, the need to ‘stick to the knitting’ or to ‘find your niche’ as a
1. This assertion, though now accepted as gospel by, for example, the G-7 Finance Ministers
(see G-7 Finance Ministers and Central Bank Governors, 2003a, 2003b), is controversial,
and the policy implications which flow from it are less straightforward than Burnside,
Collier and Dollar admit. See OECD-DAC and Development Centre (2001) and
Mavrotas (2002).
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prerequisite for success, and the need for ‘critical mass’ of effort or resources
to ensure results or to achieve potential economies of scale. Other arguments concern the burden of high transactions costs for aid organizations
with a large number of small projects or transactions.
This article critically analyses language and arguments used to both
describe and promote focus by individual aid agencies. The purpose is not
to engage in a purely academic exercise of semantics or to advocate indiscriminate spreading of scarce resources. It is, rather, to explore the issues in
greater depth than is usually the case, and to see how the language used
tends to push the debate in one direction or another. It then looks at other
arguments which suggest that focusing, or at least focusing too much, might
be a bad thing. A more subtle way of summarizing the debate over the
appropriate range of organizational activity is proposed. First, however, it is
necessary to understand the scope of the arguments around focus and then
take cognizance of the multiple dimensions in which development organizations work, and hence, the multiple possible dimensions of focus/selectivity/
concentration. Only once this is done can one consider the arguments in
favour of focusing along any one of those dimensions.
AID EFFECTIVENESS AND FOCUS: THE OFFICIAL VIEW
Let us first try to understand the criticism that so many aid organizations
lack focus and are too thinly spread. The Development Assistance
Committee of the Organization for Economic Co-operation and
Development (OECD-DAC) has expressed concern that Germany’s official
development assistance works in too many countries and in sectors where
Germany lacks comparative advantage. Germany, it has been suggested,
will be able ‘to take up a leadership role within the donor community’ if
only it focuses on ‘sectors and activities where Germany has a comparative
advantage’ (OECD-DAC, 2001a: 1, 4). In 1998, a Japanese government
committee recommended ‘focusing on priority areas’ in order to ‘enhance
(the) efficiency’ of Japan’s official aid (OECD-DAC, 1999: 3).
Similarly, critics have found that Canada’s official development assistance programme is ‘scattered . . . all over the place’ (Herfkens, 2003), with
‘the widest geographical scattering among all national (aid) programmes’
(Wood, 2001: 4). The peer review of Canada’s official development assistance conducted by the OECD-DAC concluded that ‘the current wide
dispersion of Canada’s aid . . . is increasingly problematic’ (OECD-DAC,
2002a: 12–14). An author at the conservative C. D. Howe Institute has
grumbled that Canadian aid is ‘dispersed among a diverse and highly
inclusive set of program priorities’ and countries (Goldfarb, 2001: 2–3).
A leading newspaper columnist has warned other donors not to ‘fall into
the trap of the Canadian International Development Agency, which spreads
Canada’s aid money far too thinly around the world’. He advises others to
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‘choose a select number of countries and programs, and stick with them’
(Simpson, 2004). A progressive researcher asserts — but, like others writing
on Canadian aid policy, does not attempt to prove — that ‘Canada’s aid
would have more impact if concentrated in a small number of countries’
(Culpeper, 2004: 5).
Nor are the multilateral agencies exempt from the critique. The OECDDAC has urged the European Community to ‘promote further its comparative advantage’ in reforming its aid programme (OECD-DAC, 2002b: 1).
Donor country representatives regularly use the forum of the executive
boards of UN development agencies to voice criticisms of how thinly spread
those agencies are over various sectors and activities. Officials of UN
development agencies must constantly answer questions from donor governments as to whether and where their agency has found its niche or
followed its comparative advantage.2 Similarly, the World Bank under
President Wolfenson has come under criticism for a lack of focus and for
moving into new areas, such as religion and development, where it has little
or no experience. In 2001, the G-7 Finance Ministers and Central Bank
Governors said that ‘more can be done’ by the multilateral development
banks ‘to focus their action on poverty reduction’; the G-7 ministers urged
the multilateral development banks to exercise ‘greater selectivity in setting
priorities’ and suggested they should ‘focus on the needs of the poorest’. The
ministers linked ‘selectivity in setting priorities’ with ‘improving development impact’ (G-7 Finance Ministers and Central Bank Governors, 2001).
Canada’s Minister of Finance has said that improving the effectiveness of
development assistance ‘implies greater donor focus on priorities identified
by developing countries in their Poverty Reduction Strategy Papers’
(Goodale, 2004).
Having concluded that aid is too widely and thinly spread, the official
response has been to promise more focus or selectivity. The Joint
Development Centre and Development Assistance Committee Experts’
Seminar on Aid Effectiveness, Selectivity and Poor Performers has advised
donor countries ‘to determine their aid allocations according to their political priorities and comparative advantage’ (OECD-DAC and Development
Centre, 2001: 1). In a mea culpa in 2003, the G-7 finance ministers committed themselves to ‘increase selectivity in [their] assistance, focusing [their]
aid on the poorest and best performing countries’ (G-7 Finance Ministers
and Central Bank Governors, 2003b). Canada has begun to accept the
advice that its aid programme ‘clearly needs to be . . . in fewer countries
and sectors’ (Wood, 2001: 3) and has decided to put most of its forthcoming
increases in official development assistance into nine ‘focus countries’
(CIDA, 2002). The German Development Cooperation Ministry ‘has
2. The author worked at UNICEF headquarters from 2000 to 2003, and has had to face such
questions many times.
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decided to focus on [fewer] countries, and a reduced number of sectors in
each country’ (OECD-DAC, 2001a: 1) and has reduced the number of aid
recipient countries from 116 in the 1990s to 75 today, with 35 ‘focal
countries’ receiving greater levels of attention. The Netherlands has reduced
the number of recipient countries to twenty, with Dutch aid working in only
one or two sectors in each country. UNICEF reduced its priorities from
twenty-one in its Medium-Term Plan 1998–2001 to five for its MediumTerm Strategic Plan 2002–2005; these five were selected ‘because UNICEF
has comparative advantage in these areas’ (UNICEF, 2001: 18).
Mutatis mutandis, bilateral and multilateral aid agencies that have
recently come in for praise frequently did so precisely because of their
focus on a small number of objectives, sectors and/or countries. British
aid, for example, has recently been commended for its ‘strong focus on
least-developed and other low-income countries’ and ‘on the achievement of
the international development targets’ (OECD-DAC, 2001b: 3, 4); it is ‘the
best targetted and best managed of the major national [aid] programmes’
(Wood, 2001: 2). Where British aid does face challenges, it is to ‘[f]ocus the
next generation of bilateral country programmes on addressing the challenges of greater sector focus’ (OECD-DAC, 2001b: 5). Denmark’s ‘efficient
policy’ of ‘operational focus on a small number of priority countries and a
substantive concentration on a maximum of four sectors per country’ has
attracted praise from the peer reviewers at the OECD-DAC, who also
advised Denmark to ‘pursue past efforts to avoid geographic dispersion’
of Danish aid (OECD-DAC, 2003: 1, 3). UNDP, for many years an organization with a distinct lack of focus, has in recent years got kudos for its
withdrawal from the provision of technical assistance in areas such as
health, education and agriculture (where its efforts overlapped with the
UN specialized agencies), so that it could ‘focus . . . [on] Democratic
Governance, Poverty Reduction, Crisis Prevention and Recovery, Energy
and Environment, Information and Communications Technology, and
HIV/AIDS’ (UNDP, 2003).
THE DIMENSIONS OF FOCUS
As can be seen by the brief sample above, the first thing to note about
focusing an aid organization is that one can have greater focus (or concentration, or selectivity) with respect to a number of different variables, or
dimensions. An aid organization could focus by reducing the number of
goals or objectives it pursues, the number of target groups it helps, the
number of sectors (such as agriculture, health, energy) in which it works, the
number of countries where it works, the number of partners or aid recipient
organizations that it works with or funds, the number of projects it supports, the number of activities it supports in a project, or the number of
management units it has in order to support a given set of objectives,
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sectors, countries, projects, etc. The possible dimensions of focus are many.
Focus (or concentration, or selectivity) is a more complex concept than it
might at first appear.
The second thing to note is that more of one type of focus does not
necessarily mean more focus in terms of any of the other dimensions.
Focusing a country’s bilateral aid on fewer countries will not necessarily
reduce the number of aid projects that donor supports; it may simply shift
them from one country to another. Similarly, focusing one’s aid on fewer
objectives (for example, on the Millennium Development Goals or on
poverty reduction) will not necessarily lead to fewer sectors, activities,
partners or transactions. Indeed, Canada’s decision to embrace the
Millennium Development Goals (in part as a way of focusing its objectives)
helped lead the Canadian International Development Agency to move back
into agriculture, a sector where its support had been declining for a decade
or so. Development Cooperation Ireland puts most of its bilateral resources
into only seven ‘programme countries’ with whom it has a ‘special relationship’ (Development Cooperation Ireland, 2004), but it supports no less than
404 projects in just one of those countries, Tanzania (Center for Global
Development, 2004).
FOCUS . . . CONCENTRATE!
Let us now look at the language used in the debate about focusing, and how
that language pushes towards the conclusion that more focus will help
create greater impact. The concept of focus comes from optics. ‘Focus’ is
sharp, defined, neat, clear. No one would dare argue for fuzziness, obscurity
or poor definition. The same is true with ‘concentration’, which evokes
notions of thoroughness, thoughtfulness, due consideration, and compactness. ‘Selectivity’ suggests careful sifting and well thought-out choice, and
contrasts with ‘dispersion’ or ‘scattering’, which suggest impetuosity, indiscriminate behaviour, even rashness. No one would dare frame their argument about the appropriate range of a donor’s organizational activity in
terms of its rashness, impetuosity or dispersion.
It is also worth noting that the advice to ‘focus’ or ‘concentrate’ is almost
always phrased in a positive tone. The inevitable corollary of ‘focusing’
will be to stop doing certain things in order to free up resources for use in
the area of focus. Yet, words like ‘cut’, ‘eliminate’, and ‘stop’ — with all
their negative connotations — are rarely used. If the debate does move
towards such notions, euphemisms are often used, like ‘streamline’ or
‘re-engineer’.
Regardless of the words used, the language of focus has a quasi-religious —
or at least faith-based — quality. There seems to have been no systematic
empirical study, indeed no evidence whatsoever beyond the impressionistic
and purely anecdotal, to back up the claim that an aid organization with
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more focus is a more effective one. None of the OECD-DAC peer reviews,
perhaps the main source of the advice to focus, has provided documented
evidence of the link between the degree of focus and the developmental
impact of any aid organization. The link between focus and effectiveness
has become axiomatic, an article of faith. This lack of evidence is troubling
enough in an era that prides itself on evidence-based policy making.
But what about theoretical arguments in favour of focus? Perhaps the
empirical research is just slow to catch up with the strong theoretical
arguments in favour of more focus? Let us take a look. As noted above,
in addition to the language used to describe and prescribe more focus, there
is a set of arguments employed to promote that increased focus. The most
widely-used of these arguments are presented below, and are analysed
critically.
Follow your Comparative Advantage!
Perhaps the most commonly-used argument on why organizations should
limit themselves to doing a smaller number of things is that of comparative
advantage. The notion of comparative advantage comes from the Ricardian
theory of international trade (Ricardo, 1817: Chs VII and XIX). The
economist David Ricardo suggested that all countries would benefit and
world production would be maximized if every country specialized in that
line of production where it had an efficiency advantage compared to its
competitors. For example, while both England and Portugal are capable of
producing wine and hardwares, Portugal is capable of producing wine more
cheaply than England and England produces hardwares more cheaply than
Portugal. Ricardo’s conclusion is that England should specialize (focus) in
the production of hardwares and Portugal in the production of wine, and
the two should then trade, to mutual advantage.
Organization theorists and political scientists have taken Ricardo’s analogy and applied it to organizations both public and private. They suggest
that any given organization will be relatively better at a small number of
types of activities than at others, and that the world would therefore benefit
if organizations ceased to undertake those activities where they are at a
comparative disadvantage vis à vis other organizations in that sector or
industry. If everyone played to their comparative advantage, then the total
production of all organizations in that industry (in this case, the aid
industry) would be maximized.
There is no doubt some strength to this argument. Nobody would argue
that an organization should continue to work in an area where its mandate,
governance, structures, lack of capacity or internal policies and procedures
have created manifest inefficiencies and failures in the past, especially if
there are other organizations doing the same work, only much better.
Nonetheless, the analogy of comparative advantage is an imperfect one.
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England and Portugal are producers who may wish to trade with each other.
Aid agencies are not direct producers (at least, not in the same sense) and do
not want to trade with each other. Rather, they each wish to contribute to a
greater good, which is ‘development’.
More fundamental, though, is what many consider to be the Achilles heal
of the Ricardian theory of comparative advantage, namely, where does
comparative advantage come from? Ricardian comparative advantage theory is basically ahistorical; it does not inquire much into the origins of one’s
comparative advantage, or its evolution over time. Ricardo only noted that
‘the capital and enterprise of the country will be turned into those departments of industry in which our physical situation, national character, or
political institutions fit us to excel’ (Ricardo, 1817: Ch XIX, note 1). Of
these three sources of comparative advantage, perhaps only the latter is
variable in the medium-run. Amongst later adherents to the Ricardian
theory, there is often an assumption that comparative advantage has to do
with exogenous factor endowments that are highly inflexible in the short- to
medium-run, and even in the long-run too.
Clearly, however, the comparative advantage of a country or territory
changes over time. England no longer has a comparative advantage in the
hardwares of the sort meant by Ricardo; it lost that comparative advantage
decades ago to other industrial countries, and they in turn have lost it to the
so-called newly industrializing countries, and so on. That comparative
advantage changes over time, indeed that it can be created and destroyed
by deliberate acts of policy, has been recognized for over 150 years (Marx,
1848/1956: 252). Mainstream economics has, however, begun to give the
notion serious attention only in the last few decades; several branches of
modern economics, notably the new trade theory and parts of institutional
and evolutionary economics, now seek to explain how and why comparative
advantage comes and goes (for example, Krugman and Obstfeld, 2002). Key
variables include technological change, social and demographic change,
armed conflicts (which stimulate certain technological changes while also
destroying productive capacity and altering factor endowments), changes in
competitors’ positions, public policy, institutional change, and the often
hard to predict inter-play between these and other variables.
What is true of comparative advantage at the scale of national and
international trade is also true for individual organizations. The Detroit
auto makers of the 1970s had little capability and certainly no comparative
advantage in small car production; the Japanese and western Europeans
had that. But Detroit was forced to develop that capability quite rapidly in
the late 1970s and early 1980s as higher fuel prices, gasoline shortages and
increased competition from Japan and Germany forced their hand. In the
field of development assistance, UNICEF had very little capacity in immunization in the early 1980s, but quickly developed a strong comparative
advantage in vaccine supply, procurement, distribution and district-based
immunization planning after a new Executive Director declared in 1982 that
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immunization was his number one priority, and that he would use immunization to drive his vision for the whole organization. Today, UNICEF
purchases and distributes 60 per cent of the childhood vaccines for the
developing world. Organizations can, if pushed by external circumstances
or internal dynamics, dramatically alter their capability set and so change
their comparative advantage.
The importation of crude Ricardian comparative advantage rhetoric into
the literature on organization theory and public administration is an example of the ‘cultural lag in political science’ and public administration that
C. B. Macpherson identified four decades ago. According to Macpherson,
political scientists and organization theorists, envious of the seeming rigour
and scientific nature of economics, sometimes import concepts from neoclassical economics directly into their branches of social science. However,
the imports are often crude and outdated versions of what the economists
are using, and are often inappropriate anyway (Macpherson, 1961). What
results is neither good economics nor good political or administrative
science.
Stick to the Knitting
A closely related set of theories, summarized here under the label ‘stick to
the knitting’, suggests in essence that an organization’s capability set is not
as malleable as the last section suggests, and that most large organizations
are not capable of fundamentally re-inventing themselves. Such organizations — the vast majority, if the literature is to be believed — should ‘stick
to the knitting’, in the famous phrase of Tom Peters and Robert Waterman
(1995). The ‘knitting’ is the core business of the organization, the area of
work or line of production in which the organization has worked for years
and thereby developed expertise, know-how, traditions, institutional memory and a good feel for what clients and customers want. Departing from
this core business and this core set of customers is highly risky, not least
because the organization lacks the knowledge necessary to guide its
decision-making in the new and largely unfamiliar terrain.
While the research on which Peters and Waterman based their famous
book has since been shown to be flawed, their basic point — sticking to the
knitting — has endured, and there is no shortage of case studies in support.
The mania for corporate re-invention in the 1980s and 1990s, for example,
produced some spectacular failures. After all, Enron was once just a reasonably successful pipeline company which then decided to adopt a radically
different business model. On the flipside, however, history is full of organizations that stuck too closely to their knitting and failed to notice that the
world around them was changing fundamentally. Does anyone remember
the time when IBM, and not a small start-up called Microsoft, dominated
the world market for computer operating systems?
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The question, it seems, should not be whether to stick to the knitting, but
rather, ‘how closely?’ and ‘under what conditions?’. Organizations have to
innovate to survive, but going too far out on a limb is no recipe for salvation
either. The point is to manage the tension between continuity and innovation in different (types of) organizations and situations. An important
unresolved issue is to identify what organizations or types of organizations
are capable of what kinds of fundamental re-inventions, and under what
circumstances.
Cracking a Niche Market
Starting in the ninetheenth century and going on well into the twentieth,
production and marketing were geared to mass markets of largely undifferentiated products for largely undifferentiated or mass publics. Philosophers
and sociologists developed theories about mass society, mass movements
and mass media. Henry Ford summed up the thinking when he said you
could have your Model T in any colour you wanted, as long as it was black.
But as incomes rose and tastes became both more sophisticated and more
diverse, production and marketing for ‘the general public’ began to reach
their limits. That ultimate expression of mass production and marketing, the
department store, began to lose ground to smaller, more specialized shops
targeting specific socio-economic and/or demographic groups. Rather than
trying to be all things to all people (or even most things to most people),
organizations are increasingly being encouraged to find and exploit their
niche, that is, to identify the sub-sector of the market to which they can
successfully appeal, and orient their products and services toward that
group.
The analogy of the niche probably comes from biology. Biologists have
come to realize that the success of a species is not measured so much by the
size of its population as by its ability to live and thrive in a given environment or sub-environment. Many species of plant and animal life live literally
in the cracks, or niches, of rocks, trees and the sea floor, and do so quite
successfully. Niche thinking is clearly related to the arguments in favour of
comparative advantage and, to a lesser extent, to the advice about sticking
to the knitting. The message is simple: identify your target group or core
clientele, find the few things you can do best for them, and don’t stray too
far from what your core clientele expect from you. Like its close cousins,
niche thinking has at its core some obvious simple truths. But like its
cousins, it can be stretched too far, and may be more applicable in some
areas than in others.
Central to the problems of niche thinking is the question of time. Find
your niche and exploit it, but for how long? In biology, environments
usually change relatively slowly (with some exceptions, of course!), and
species have many years to find and adapt to a new niche. Central to
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modern economies, however, are the relatively fast-moving phenomena of
demographic change and socio-technical innovation driving economic
growth and structural change. These phenomena are core themes in, for
example, demography, marketing theory and evolutionary economics (see,
for example, Foot, 1996). Both marketing theory and evolutionary economics emphasize that, whatever market niche a firm manages to identify and
exploit, it can be no more than a temporary monopoly, and that therefore
the monopoly rents from exploiting that niche must also be temporary.
One’s very success in exploiting a niche will attract others who will try to
do the same. Soon, the niche will be overpopulated, containing not only its
original inhabitants, but scores of imitators as well. Returns to exploiting
that niche will fall, and the original innovators will either have to surrender
their temporary monopoly and share the niche, or move on to find new
niches. Such, for example, is the story of most of the IT industry over the
last few decades.
Those who advise development organizations to ‘find their niche’ rarely
have such a dynamic framework in mind. Development organizations are
usually advised to find their niche and stay in it. But while the development
field does not evolve as rapidly as, say, the IT sector, it is certainly a
dynamic and rapidly evolving environment. As in business, there is no
guarantee, once one finds one’s niche, that it will be a comfortable place
to stay in for long.
Critical Mass: An Explosive Issue?
A fourth, and somewhat different, reason proposed by advocates of increased
focus is critical mass. There are several variants of this argument. In the
simplest and most plausible version, which I will call Critical Mass 1, it
is suggested that ‘a minimum level of resources must be available for
a[n] . . . activity to produce useful results’ (Daniels and Nestel, 1993: vii).
This minimum level of resources is called the ‘critical mass’. The Critical
Mass 1 argument suggests that donors often put too few resources into a
project, thereby hampering its effectiveness; the corollary is that the donor
should focus on fewer projects, and put more resources into each (Daniels and
Nestel, 1993: 1). Related to this first critical mass argument is an argument
based on economies of scale. Based on the neo-classical microeconomics of the
firm, it suggests that the relationship between project inputs and project outputs is not linear; more specifically, after a certain level of inputs is reached,
outputs will rise faster than inputs as economies of scale are achieved.
A second variant, which I will call Critical Mass 2, suggests that a donor
should have a critical mass of (inter-related) projects in a country. Such a
critical mass of inter-linked projects would synergistically produce greater
developmental impact than the sum of the individual projects. Following
this logic, the OECD-DAC says that ‘Canada has almost no partner
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countries in which it has critical mass’, and concentrating more resources in
fewer countries would help in ‘achieving greater impact’ (OECD-DAC,
2002a: 14).
The notion of critical mass (in both these senses) comes from nuclear
physics, where two pieces of fissile material such as uranium have to be
smashed together at a certain velocity in order to create the chain reaction
that is a thermo-nuclear explosion. Without the critical mass of fissile
material brought together at the right velocity, the chain reaction cannot
begin, and the desired result — a nuclear blast — will not occur.
These first two critical mass arguments have obvious strengths and
attractions. Certain things do have minimum resource requirements. There
is no point in trying to build a car if you only have 50 kg of steel and a single
tire. You cannot fully immunize all the children in a district if you don’t
have enough doses of each vaccine, a certain amount of cold chain equipment, vehicles, fuel, etc. Plenty of development projects have failed — or at
least underachieved — because of an underestimation of the resources
required for completion. Critical Mass 1, the need for sufficient resources
for a single project or sufficient resources to achieve economies of scale, is
clearly an issue.
However, Critical Mass 2 — a donor not having a critical mass of projects
in a given country — is more problematic, both empirically and theoretically. One might ask, for example, about the empirical evidence in support of
the proposition that a donor agency that concentrates its resources in fewer
recipient countries has ‘greater (developmental) impact’. None is ever given.
On the theoretical side, this second critical mass argument depends on
synergies between projects. The argument depends, therefore, not just on
the donor focusing its resources on fewer countries, but also on the donor
creating a pattern of inter-linkages between donor-supported projects in a
given country. This is the only way that a set of projects can have a
cumulative impact greater than the sum of the individual net present values
calculated through the conventional cost–benefit analysis part of each project’s planning cycle. For the donor, the challenge then is not simply to
focus on fewer countries, but to develop inter-linkages between projects as
well. The question then arises, ‘why must the critical mass of inter-linked
projects in country X all be supported by donor A?’. Could not the same
critical mass of inter-related projects come from projects supported by
several donors and co-ordinated by the country X government? In an era
of sector-wide approaches and poverty reduction strategies (allegedly) under
national ownership, is there any reason to believe that inter-donor coordination is so much more difficult than intra-donor co-ordination? This
Critical Mass 2 argument focuses too much on the individual donor, and
not enough on the recipient country.
Furthermore, the Critical Mass 2 theory assumes that the critical mass
can only be achieved within a country; it does not consider the possibility
that the critical mass of projects can be achieved transnationally, by a
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networked set of projects in different countries. In the era of the internet,
cheap long distance phone calls, inexpensive air travel and proliferating
transboundary issues like epidemic diseases, river basin management,
human trafficking and climate change, this possibility should not be
excluded.
These difficulties are troubling enough, but the analogy of critical mass
itself has important limits. First of all, it is worth asking whether an analogy
brought from nuclear physics is entirely appropriate to the realm of management and organizational reform. Development projects do not generally
follow a predictable, calculable path of chain reaction in the way that
atomic bombs do. The literature on development planning in the last
thirty-five years has highlighted the prominent — sometimes even preponderant — role of unintended consequences in the life of projects, the often
hard to predict political aspects of development work, the inability of
project planners to predict all requirements and circumstances, and, hence,
the need for adaptive administration (see, for example, Hirschman, 1967;
Pressman and Wildavsky, 1983; Rondinelli, 1993). Furthermore, it is well
established that the best development projects are not necessarily the biggest
or the ones where the donor has the deepest pockets. Small to medium-sized
projects with careful selection of donor inputs may be highly successful. The
engineering model of projects as simple, deterministic input–output systems
applies poorly to the context of development projects.
Secondly, the Critical Mass 1 argument implicitly views the donor’s role
as predominant. It is one thing to argue that a project must have a critical
mass of resources if it is to have an impact; but the argument quickly slips to
the conclusion that making up that critical mass is the job of the donor
alone, and not the recipient. By arguing for more ‘focus’ by the donor in
order to achieve critical mass in each of the donor’s projects, the argument
slides into the conclusion that the donor has not been adequately fulfilling
its role of providing the critical mass of resources. But this surely is an
empirical question, to be decided in the case of each project, especially in an
era when one hears so much talk about ‘national (or local) ownership’ of the
development process, and partnerships and mutual obligations between
donor and recipient countries.
Thirdly, if a project — even an under-performing project — has been
producing any results at all, then surely it has in some sense been getting its
critical mass of resources in the first sense of the term. The critical mass
argument works, then, if and only if the project has been achieving no
results whatsoever. If the project has produced results, then the argument
in favour of focusing on this project and providing it with more resources
has to rely on the assumption that more resources will necessarily bring
more or better results. This argument in turn requires that the marginal
benefits of a dollar (or other unit of resources) moved out of project 1 be
smaller than the marginal benefits of that same dollar if it were moved to
project 2. This again is an empirical question about the extent to which the
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project follows the old engineering model of development projects as relatively simple input–output systems. No generalizations are possible.
The reader should note, however, that there is a third — and even more
donor-centric — critical mass argument that has little to do with aid effectiveness. I will call this Critical Mass 3. Herfkens, for example, says ‘there is
no critical mass of Canadian aid in any country’ and that ‘you need a
critical mass to be a player’ (Herfkens, 2003). The recent policy statement
from the Canadian International Development Agency suggests that ‘[t]o
play a role in the reform of a particular sector, a donor usually needs to
bring a certain critical mass of program funds as a precondition for effective
participation in such a sector-wide effort’ (CIDA, 2002). This Critical Mass
3 argument assumes that the donor’s role is ‘to be a player’, that is, to be big
enough to have influence on national or sectoral policy in the recipient
country, rather than just on a few projects.
The Critical Mass 3 argument is not an argument for aid effectiveness so
much as an argument in favour of increased geo-political influence by
individual donors. The implicit ‘donor knows best’ paternalism requires
no further comment. But it should also be noted that, for all but the biggest
and/or most geographically concentrated donors, ‘if the drive for geographic concentration is about leverage, it is misplaced’ (Smillie, 2004: 24),
since most medium-sized donors in most recipient countries do not amount
to more than 10 per cent of aid receipts. Since donors are now adopting
similar performance criteria for their selection of recipient countries, there is
a real danger that donors will focus on the same few countries. If they do
that, then their relative shares of the ODA going to those countries may not
change much, and so none may gain the Critical Mass 3 that it desires.
Furthermore, if several like-minded donors shift their money to the same
small group of recipient countries, the results are not necessarily going to be
great. The development record of the most aid-dependent economies has
sometimes been good (such as Côte d’Ivoire and Kenya in the 1970s,
Bangladesh in the 1990s) but sometimes been bad (for example, Egypt,
Bangladesh in the 1970s and 1980s, Tanzania). The concentration of aid
in fewer countries may also set off a process of substitution, rather than
supplementation, of resource flows from international and domestic sources
(Hansen and Tarp, 2000: 124n).
The Burden of Transactions Costs
A strong argument in favour of increased focus concerns the burden of
transactions costs. Deriving from micro-economics, this argument states
that there are certain fixed costs associated with making a grant. The
smaller the grant, the higher the fixed costs are as a proportion of the
grant. Simply put, bigger grants mean more efficiency in the use of administrative and accounting resources. This is true both for donor and recipient.
Focus-Pocus?
439
However, the transactions costs argument works for effectiveness as well
as efficiency. Consider the following thought experiment. Take an aid
agency whose budget is $100 million per year and which distributes $1
grants to each of 100 million projects. Not only would the transactions
cost per grant be enormous, but it is easy to see that the developmental
impact of such a thin spreading would be nil, even negative (since transactions costs would exceed any possible benefits from such a tiny grant). Any
partner with whom the agency works could find an extra dollar from their
own resources, and so would not need to seek such a tiny grant. For global
welfare to increase, the value of the grant has to exceed the fixed transactions costs. A minimum size for each grant then seems inevitable, but for
different reasons from the ‘critical mass’ argument.
Then go to the opposite extreme, and focus the entire $100 million budget
on one single project with one single recipient institution. Transactions costs
and fixed costs fall to almost nil as a proportion of total costs. The project
becomes an extremely efficient user of administrative and accounting
resources. But what would happen to the project’s impact? That is hard to
say, and would depend crucially on the selection of the project and on the
quality of project management in both donor and recipient institutions.
Certainly, as we have seen above, simply throwing money at a problem is
not necessarily the right solution. There is not likely to be a simple relationship between the value of inputs and the value of outputs. The relationship
could be one of constant, increasing or even decreasing returns to scale,
depending on a myriad of factors. Returns to scale may be increasing over a
certain range, and then become decreasing. A project that looks too rich in
resource inputs may start to attract the wrong sorts of people and the wrong
sorts of attention, which in turn will affect its effectiveness.
Risk Aversion, Stability, and Austrian Economics
So you concentrate on one project. What if that project fails? Then your
whole institution fails. Putting all your eggs in one basket can bring high
returns but, since this is just a niche strategy, the high returns are likely to be
temporary. While many firms start with a niche-based strategy, few stay
there for long due to the high downside risk and the instability it brings.
Most new firms quickly adopt the more risk-averse strategy of spreading
themselves into several projects. If one fails, then the effects may be serious,
but rarely catastrophic. The larger the number of projects (at least within a
certain range), the higher the likelihood of stability and long-term survival,
other things being equal.
The key to understanding the link between the level of focus, the stability
of the system, and the impact of one’s projects lies in Austrian economics.
Austrian economics is a radically pro-market school of economic
thought that focuses on information, innovation, entrepreneurship and
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disequilibrium as the driving forces of the capitalist economy (for example,
Hayek, 1944, 1976; Schumpeter, 1934). While many aspects of Austrian
economics are controversial, it has nonetheless provided an insightful interpretation of the relative performance of the capitalist and centrally-planned
economies, based on information, experimentation, and the resulting stream
of innovations. Simply put, the Austrians believe that the reason why the
capitalist economies outperformed the centrally-planned economies in the
long run was the number of experiments (in technologies, in policies, in
basic science, in social and institutional arrangements) the two systems were
able to conduct. To the Austrians, the system that produces the most
experiments will also tend to produce the largest number of successful
experiments, due to the law of large numbers. Capitalism, with its highly
decentralized research and innovation system mixed between the private,
public and ‘third’ sectors, produced more technical and socio-institutional
experiments, and therefore innovations, than state socialism did with its
more centralized approach.3
The implication is clear. Focus on doing fewer things is not always a good
thing. If development projects are, as Rondinelli (1993) has suggested,
basically policy experiments, then a more narrow focus may cut off useful
lines of inquiry and experimentation. This fear is particularly likely to be
well-founded in an era when donors are using their move away from
project-based assistance to programme and budgetary support to encourage
an ever narrower range of policy options drawn from a neo-liberal agenda.
These few options are applied through ‘co-ordination’ mechanisms such as
sector-wide programmes (SWAPs) and Poverty Reduction Strategy Papers
(PRSPs) that are meant to set the tone for all policies and projects.
Under SWAPs, donors work together with the local sectoral ministry
(typically agriculture, health, or education) to establish a policy framework
for that sector; this policy should be ‘nationally owned’ even if it is not
strictly speaking ‘home grown’. Participating donors are then expected to
put their money into a common pool, rather than supporting individual
projects in that sector. The common pool is then used to support implementation of the sectoral policy agenda, under the leadership of the sectoral
ministry, and the use of the pooled funds should be subject to periodic
3. The Austrians would argue that capitalism had a further advantage. The market also
serves as ‘a mechanism that shuts down experiments which fail’ (Giddens, 2003). State
socialism lacked such a mechanism, and so had a greater tendency to continue pouring
resources into failed experiments. (In fairness, it should be noted that Giddens is not an
Austrian, though elements of Austrian thought do permeate his ‘third way’ thinking.) As
we shall see below, the supply-driven, centralizing and cookie-cutter tendencies inherent in
recent sector-wide approaches and poverty reduction strategy papers also mean that
modern development policy-making lacks an incentive to learn; hence, it too lacks a
mechanism to shut down policy experiments that fail, though this time they are
capitalist-inspired experiments. See Pieper and Taylor (1998: 62).
Focus-Pocus?
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audits to ensure their proper use. Under the PRSP framework, the recipient
government and donors work together to establish poverty reduction priorities; donors promise debt relief in exchange for a plan showing that the
funds freed up by debt relief will be applied to poverty reduction projects
and programmes such as primary education, primary health care, or rural
development.
The logic behind the SWAPs and PRSPs is not altogether faulty. The
tremendous burden placed on aid-dependent countries by the projectization
of aid — which implies having to respond to the differing desires and
requirements of dozens of different donors for hundreds, even thousands,
of different projects — has in fact been known for at least twenty years
(Morss, 1984). A change of approach was overdue. Similarly, debt relief is a
good thing, and donors do have a legitimate interest in knowing whether
their debt relief goes to pay for swords or ploughshares. At the same time, it
must also be admitted that the logic of SWAPs and PRSPs is not flawless,
and that some bad has come in with the good.
The similarities of SWAPs to the Leninist doctrine of democratic centralism are striking, but not frequently remarked upon. The (sectoral) policy is
debated openly and vigorously at the beginning, but once a decision is
taken, all members of the party must rigidly stick to the policy and implement it. In a SWAP, if we are all doing the same thing (that is, implementing
the agreed-upon sectoral policy) and it is the right thing (that is, the policy is
a good one), then success is almost guaranteed. But if we are all doing the
same thing, and it is the wrong thing, then we are all in trouble. In Austrian
terms, the SWAP suffers from the same failing as centrally-planned economies did: too few experiments. Moreover, if the sectoral policy is a bad
one, then it may be hard to change course. The fact that the SWAP makes
no room for experimental or exploratory projects beyond the sectoral policy
framework reduces the chances of learning something new from outside the
framework. The central planning mentality behind SWAP — even when the
SWAP encourages liberalization — has neither a provision for punishing
failure nor a mechanism (like exploratory or experimental projects outside
the SWAP) to encourage innovation and organizational learning. More
focus, this time within a sector, is not necessarily a good thing.
PRSPs have of course come in for criticism for being little more than
structural adjustment under a new name. They have also been accused of
being mechanisms for perpetuating, even strengthening, the domination of
donors and international financial institutions (IFIs). The allegation is that
PRSPs simply move the control mechanism from the project level to the
national policy level. Whatever the strengths or weaknesses of these arguments, they are not directly related to this article’s preoccupation with
focus. The PRSPs have undoubtedly served as a mechanism for focusing
public policy in developing countries on a small number of objectives such
as macro-economic stability and human capital formation. But, like
SWAPs, PRSPs lack a built-in learning-compatible incentive system. It is
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incontestable that officials from donors and IFIs, especially the World
Bank, have played a predominant role in the construction of the PRSP
edifice, both globally and nationally. But the incentives that such people
face — in terms of their career prospects within their home organization —
are not aligned with learning from mistakes and modifying a course of
action accordingly. Incentive systems involve pleasing a boss in
Washington or Paris or the Hague, which frequently means meeting appropriation and reporting targets, more than learning. The staff rotation cycle
is often shorter than the life of programmes and projects, which means that
those present in the donor or IFI at the start are rarely present to see the
final result, be it good or bad. Promotion within donor organizations and
IFIs is therefore delinked from project and programnme results to a great
extent. Focusing on fewer — even more appropriate — objectives may then
fail to bear sufficient fruit if the learning and experimentation systems are
not in place.
Finally, the narrowed set of policy options promoted by modern SWAPs
and PRSPs are (to quote an anonymous reviewer of an earlier version of this
paper) the ‘intellectual equivalent of mono-cropping systems’, with all the
attendant dangers that come with a loss of bio-, or intellectual, diversity.
They (over-) simplify the complex, they assume the primacy of tidy planning
over messy practice, they prefer patterns to details, and they underestimate
the need for adaptation.
Synergies between Projects
A final set of considerations concerns synergies between projects. Again, the
argument cuts both ways. Two or more projects may have mutually reinforcing effects, such that the impact of the projects taken together is greater
than the sum of the impacts of the projects individually. Such synergistic
effects can come through several avenues, for example, through increased
learning by project managers involved in two or more projects, through
innovations in one project that can be applied in another, through increased
efficiency brought about by the sharing of resources (such as infrastructure,
administrative and financial staff) between two or more projects, or through
backward or forward linkages.
While the existence of such synergies argues for a certain amount of
spread of projects, the synergies argument does have its limits. The learning
of managers or the application of innovations from other projects can come
from observing projects run by other organizations, not just one’s own
organization; building-in extra projects in the hope of gaining such synergies
is probably not a good bet. Furthermore, synergies are often of the unexpected type, and cannot be planned for; calculating the number and spread
of projects needed to get a certain set or level of synergies is a highly
problematic exercise. Finally, synergies can be negative as well as positive.
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Bad morale and inappropriate lessons can spread from project to project as
easily as can good ones.
One important negative synergy can be the costs associated with the
communication and co-ordination of increasingly complex organizations.
More projects in more sectors and places can pose challenges in terms of
co-ordination and communication. As the number of projects, staff and
locations increases, so too may the difficulties and costs of communication
for co-ordination and management purposes.
CONCLUSIONS
Where does all this leave us? The foregoing definitely does not constitute a
case for indiscriminate spreading of aid resources without any plan or focus.
The thought experiment about spreading a $100 million budget among 100
million projects alone should be enough to persuade us that some minimum
project size is necessary. But while avoiding Scylla, we must avoid
Charybdis as well. Increased ‘focus’ is not an unalloyed good either, and
many of the arguments put forward in favour of increased focus in aid
organizations are either invalid or need to be better thought out and more
carefully nuanced. Furthermore, there will be losses as well as gains in the
move to a more focused aid organization.
Clearly, some of the arguments about focus are stronger than others.
Among the stronger arguments linking greater focus to improved aid effectiveness are the following:
*
*
*
*
the need for a minimum project size so that transactions costs do not
swamp the size of very small grants;
focusing administrative resources in fewer units or work processes to
administer a given set of grants, and so reduce the ratio of transactions
costs to grants;
Critical Mass 1, that is, the idea that a project’s resources must be
sufficient to achieve the project’s objectives, with the proviso that the
critical mass of resources comes from both donor and recipient sides;
the increasing co-ordination and communication costs of organizations
that are thinly spread over one or more dimensions (such as, over many
countries, sectors, individual projects).
Among the weaker of the arguments for focus are what we have called
Critical Mass 2 and Critical Mass 3. Both of these look to the donor alone,
either to create the necessary developmental synergies among projects or to
become a player. They are not really arguments about aid effectiveness as
such.
Other arguments in favour of greater focus may have some validity, but
need important qualifications or caveats attached. These include: following
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your comparative advantage; sticking to the knitting; and finding your
niche. In particular, these arguments need to be nuanced to take into
account the malleability, especially over the medium- to long-run, of one’s
comparative advantage, niche and knitting. One’s place in the world has to
be seen in an evolutionary perspective. Rather than criticizing aid agencies
for working in areas where they allegedly do not have comparative advantage, critics, observers and peer reviewers would do better to ask what the aid
agency thinks its comparative advantage, niche or knitting is, how the
agency sees that evolving over time, and what steps are being taken to
reinforce the agency’s position or to build capacity to move into new
areas, and at what cost to other areas of work.
All these arguments in favour of greater focus then need to be counterbalanced against the arguments against too much focus — the Austrian
economics argument that more experiments will lead to a greater number of
successful experiments; risk spreading and risk management arguments; and
the arguments on the possibility of building positive synergies between
projects, either at national or international level.
The relationship between focus along any one dimension and aid effectiveness is almost certainly not simple or linear. In fact, along a good many
dimensions, the relationship is probably curvilinear, perhaps even parabolic.
This is almost certainly the case with, for example, the number of projects
supported by a donor: too few projects makes for too little internal learning
and too few synergies between projects, but too many small projects means
that transactions costs and communication and co-ordination costs get out
of control. In a few cases, however, for example on the alleged link between
aid effectiveness and the number of countries in which a donor operates,
there is no evidence to state what the relationship between focus and
effectiveness is.
Furthermore, an organization is likely to face different non-linear paths
for each dimension of focus. Focusing on fewer countries, for example, will
not have the same impact on aid effectiveness as focusing on fewer sectors.
Too much spread in terms of small projects and large numbers of transactions means that fixed costs exceed the possible benefits, and so net social
benefits are negative. Too much spread, especially in terms of number of
countries or partners or beneficiaries may also increase variable costs for coordination and communication. Increase in the level of focus beyond the
minimum grant level may increase organizational impact for a time, as
various economies of scale kick in. But too much focusing may cut down
on synergies and reduce the whole organization’s ability to produce sufficient numbers of innovations through successful experimentation, and may
expose the organization to catastrophe in the event that one of the organization’s very few but large projects results in failure. Calculating the various
permutations and combinations of focusing to various degrees along various dimensions will lead to a series of equations of intractable complexity,
even leaving aside the problems of measuring both focus and effectiveness.
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In the end, and within certain limits, it is the strategic selection and good
management of projects — including both technical and political aspects of
management — that may have more impact on an aid agency’s ability to
generate developmental results than the degree of spread or focus per se of
its projects.
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Lauchlan Munro is Director of Policy and Planning at the International
Development Research Centre in Ottawa, Canada (PO Box 8500, Ottawa,
Ontario, Canada, K1G 3H9; email: [email protected]). From 1989 to 2003,
he worked for UNICEF in Uganda, Zimbabwe, DR Congo and at headquarters in New York, where he was Chief of Strategic Planning. From 1985
to 1987, as a member of the Royal Bhutanese Civil Service, he experienced
being the recipient of official development assistance from a very unfocused
donor.