Poverty reduction values and resource

transfers

Michael Hubbard, IDD, University of Birmingham

Discusses four questions:

1. Why has poverty reduction become a prominent value in development debates?

2. Why have resource transfers for poverty reduction become prominent in development management debates?

3. Why are there tensions between poverty reduction values and resource transfers ?

4. How can these tensions be better resolved?

Why has poverty reduction become a prominent, expressed value in development debates?

Three main reasons:

1 An obligation to help the poor is central in all religions, and in debates about social justice. Opportunity for those deprived of it,

particularly for children---poverty reduction by another name---is the common element in notions of fairness and justice.

In the debate between redistributive and libertarian rights approaches to social justice poverty reduction is a common element:

Rawls (1971) focused on fairness: [“…the principles that rational and free persons concerned to further their own interests would accept… as defining …the terms of their association” (1971:11)].

Nozick’s (1974) emphasis on essential freedoms is concerned with opportunity for individuals.

Adam Smith and Amartya Sen transcend this by focusing on an inbuilt motive in human beings to be fair:

Sen (2009) argues that fairness can be assessed without a justice ideal; and increasing social fairness requires reducing poverty in its multiple dimensions which restrict human capability. A capacity for fairness seems to be ‘hardwired’ into people.

Adam Smith (1759) claimed that human beings are inherently able to sympathise with each other—to imagine themselves in the predicament of another; some argue that this claim is now supported by brain science with evidence of a sympathy centre in the brain (Kiesling 2010).

2 There is a shift in concepts of poverty towards the whole person:

away from income alone to include rights (eg against gender discrimination) and towards factors restricting capability (health, education, living environment, social exclusion).

concern with so-called ‘new poverty’ problems (drugs, family breakdown, youth crime) which mix with old poverty problems (lack of income, education, health, housing).

3. Changes in measures of poverty increasingly reflect what are now global values

values which give equal concern to all people irrespective of gender, race, location (e.g. Millennium Development Goals);

global values give highest concern to children; social battles for racial and gender equality of recent

decades are not passing fashions

2. Why have resource transfers for poverty reduction become prominent in development debates?Five reasons:

1. Resource transfers have long been an important means of acknowledging and alleviating povertyPrivate transfers: eg remittances

Public transfers: equalisation transfers within governments

International aid transfers:

2. Transfers have increased in recent decades:

Intragovernment transfers of a regular nature expanded in the early-mid-20th century as governments in OECD countries expanded their operations towards 40-50% of GDP, compared with some 10% of GDP in the 1800s.

local governments and local public service provision (e.g. health, education, roads, water, fire services, police) increasingly rely on central government funding;

private transfers back to relatives have increased along with national and international migration of workers;

development aid (from governments, multilateral development banks, NGOs) has trended upwards. development aid (from governments, multilateral development banks, NGOs) has trended upwards.

These increases in transfers reflect uneven development globally and nationally and increasing capture of public revenues by central governments.

3. The basis of public transfers is shifting from entitlement towards performance Intra-and inter government transfers are now

increasingly results oriented, particularly in OECD countries:

----Intergovernmental fiscal relations theory was built on discretion over expenditure by local governments.

But now debates on intergovernmental fiscal relations emphasise performance rather than discretion.

--Public transfers directly to poor persons:are now often conditional rather than entitlement based; eg. unemployment benefits, switching to workfare in the US, grants for retraining and job search in the UK, conditional cash transfers for the poor

Marshall aid from the US to its allies after World War2 and grants in aid by UK and France to their newly independent former colonies seem to have allowed more discretion with less accountability than current budget support transfers

5. Poverty reduction indicators are used as a measure of performance.

Central-local governments, central ministries to executive agencies;

Transfers to the poor;

International development aid;

In sum: transfers have long been an important means

of acknowledging and alleviating poverty, they have increased in recent decades,

reflecting uneven development and capture of public revenues by central government.

the basis of individual transfers has shifted from entitlement towards performance.

The use of poverty reduction indicators to measure performance of public transfers has increased

3. Why are there tensions between poverty reduction values and resource transfers?

Resource transfer components: Eligibililty: to identify who should get the

transfer; Type, size, frequency, duration: to identify

the resource needed, available and transferable;

Delivery: to get the full value of the transfer through to the receiver intact, despite any stages and transformations it passes through on the journey;

Effect: to enable the transfer to achieve a desirable effect on the receiver’s and the giver’s behaviour.

When there is entitlement to a transfer of a given type, size and frequency, design and implementation tasks focus on delivery. Full entitlement to receive a transfer is by definition an obligation on the giver to confer it.

When achieving desired effects is the justification for the transfer, design and implementation tasks include all four tasks above. Performance in attaining broad or multiple objectives is more difficult to measure.

Long transfer chain problems: how to get more timeliness, transparency, less leakage and greater enhancement of value in the delivery chain between giver and receiver?

A broad principle is that the more links there are in the delivery chain, the more likely are delays and leakages of value from the transfer:

caused by handling time and subtraction of costs at each stage, or diversion of funds from the original purpose --- legitimately where the funds pass through a decision making body which has the discretion to do so.

This leads to transfer focused thinking: each transfer requires a delivery chain or chains, appropriate to its type, size and frequency, to get it from giver to receiver.

Delivery channels for central budgetary transfers are multi-staged, beginning with parliamentary approval, going through treasury, ministries, local government and/or specialised agencies, before getting to the consumer of the service.

Just as "food miles" have increased so too have "public service miles" as transfers fund an increasing proportion of local public services. They are even longer for development aid, originating in the donor parliament.

In sum, the logic of results orientation presses towards narrowing and limitation of measured objectives; and towards shortening of delivery chains.

4. How can tensions between transfers, results orientation and poverty reduction be better resolved?

Efforts to resolve tensions:

Devolution is resorted to:

--for better allocation and management, when there is a complex, changing, locally specific requiring local skills. This is the motivation for decentralised management, whether private or public.

-when the objective is to promote self-management: this is rarely the case where transfers are involved, except prominently in the case of development aid to weak, aid dependent governments whose weakness is believed to be partly the result of control of decisions and public processes by donor agencies;

But devolution recreates the "common pot" problem for resource transfer, resulting in uncertainty whether the transfer is responsible for the effect.

How to overcome this uncertainty?

Responses to devolution uncertainty: -use hierarchy: impose a stream of

conditions which seem likely to achieve the effect, against the achievement of which a stream of payments will be made. Analysed by principal-agent theory. What budget support is becoming ?

-use partnership: build trust relations between giver and receiver agencies working together to construct the delivery channels and transparency mechanisms.

Easy to do when good chemistry between small numbers of good leaders on both sides. Hard to sustain. Vulnerable to break down in political cooperation. No adequate partnership theory.

-use market relations: Contract with receiver so the transfer is a reward for achieving the desired effect. CCT writ large to COD aid. Set up tournaments, awarding the transfer as a prize to the best achiever of the desired effect. How many winners? How to handle partial performers?

--recognise that tensions in transfers between poverty reduction and results orientation are ‘wicked problems’: apply complexity theory:

Complexity has three dimensions (Hospes):

1. complex problems: eg. multi-dimensional poverty

2. the program or project is an adaptive, emerging system with shifting goalposts

3. complex relations between the programme and its environment

“The notions of causality and control must be replaced by notions of complexity and adaptation to complexity. Logic and reasoning should be applied to learning and to the development of alternative, more reflexive, styles of policy making” (Hospes)

Use more experimentation and shorter feedback loops to users. These seem essential for getting to successful devolution to reduce the tensions in resource transfers.

References:

L Kiesling (2010) Is There a Neurological Foundation for Institutions? Mirroring, Sympathy, and Institutional Design http://papers.isnie.org/stirling.html

R Nozick (1974) Anarchy, state & utopia

J Rawls (1971) A Theory of Justice

A Sen (2009) The Idea of Justice

World Bank (2009) Conditional cash transfers: reducing present and future poverty