Modern development cooperation renounces paternalism. It relies on the market to negotiate projects and puts partner countries to compete with each other for favorable conditions for investments.
When talking about developing countries, we think primarily of miserable conditions. Too often the three „Cs“ characterize our view of Africa: crisis, corruption and conflict. Positive developments, such as the halving of the number of people living in poverty and the establishment of middle classes are rarely discussed. New, locally adapted technologies have emerged in developing countries. Unfortunately, we pay too little attention to these developments. Accordingly, German and European development cooperation is still far too often based on an outdated image of African countries. It rarely sees actors from African countries as peers.
Thus, the question arises whether development cooperation needs a hierarchy (“we” at the giving and “them” at the receiving end), and whether the entire Western set of governance standards must apply to all. We argue that is it possible to organize cooperation in such a way that all sides can contribute interests, knowledge and proposed solutions on an equal footing and suggest to replace the three „Cs“ with four alternative concepts: Dignity, Consistency, Effectiveness, and Efficiency.
Development depends largely on the quality of domestic governance. Modern development research has summed this up succinctly: „Institutions matter!“ Development policy can support, but modesty is of particular importance. Today’s objectives of development are fairly well described by the Sustainable Development Goals (SDGs) of the United Nations, defining a decent life in a healthy environment. They are based on the concept of sustainability with its three dimensions of ecological, economic and social sustainability.
These dimensions are not subject to a hierarchy. That said, economic goals have special significance in that they prhttps://www.die-gdi.de/en/2030-agenda/omote the achievement of the goals of the other two dimensions as well. The creation of jobs and income for people also promotes the provision of improved social services such as health care and the application of more efficient and environmentally friendly technologies via the creation of demand with purchasing power. Thus, economic sustainability can be seen as an intermediate goal, thus subordinate. At the same time, it can be interpreted as a sufficient condition for achieving the other two goals, thus superordinate. In the development context, this logic is sometimes overlooked. Therefore, it is crucial that some basic principles be observed in its operational implementation.
Principles of modern development cooperation are often neglected
Dignity. Apparently there is still the image of immature developing countries whom the West has to teach basics of good governance. For this purpose, development aid is paid to governments in developing countries. This is problematic as still often the agenda is driven by donor interests. As a consequence, the beneficiaries lack ownership; they do not see the projects as their own. Finally, they suffer from so-called Samaritan’s Dilemma: through permanent aid and paternalism, beneficiaries lose their own initiative. Peter Bauer pointed out these problems as early as 1960, and many empirical studies have confirmed them. „Ownership“ is crucial: democratically elected governments in Africa must determine the development pathways for their countries. Foreign partners can play a supporting role within this political agenda if proposed projects are of interest to both sides.
As for companies from Europe, they will consider factors such as political stability or legal security when selecting possible target countries for their projects. In this respect, African countries automatically compete for investment; they will be particularly successful if they provide the best possible institutional framework. A combination of intergovernmental cooperation and market-based competition can therefore ensure greater dignity in cooperation.
Consistency. Often, good intentions pave the road to hell! To achieve the desired goals, a precise understanding of market and incentive mechanisms is needed. Take the example of supply chain legislation in the EU and its member states: The obligation to secure human rights throughout most of their supply chains will definitely overburden German SMEs; as a consequence, they might pull out. Companies from other parts of the world, where human rights may play a lesser role, are likely to take the vacated places. This weakens the achievement of the Sustainable Development Goals and ultimately has the opposite effect. Similarly, the trade policies of OECD countries regularly block exports from developing countries, despite a number of preferential trade agreements. This is also adverse to development.
Effectiveness. Primarily for the reasons described above, development aid in the form most commonly practiced is generally not effective. A broad academic literature has intensively studied the question of „aid effectiveness“ and comes to similar assessments. Donors care about spending their money – they think in fiscal years. Many government agencies function like bureaucracies. William Niskanen showed conclusively 50 years ago that bureaus are not necessarily interested in optimizing results, but in maximizing their budgets, which is incentive-compatible. In addition, an aid payment acts like a resource fund, risking a Dutch disease problem. The currency of the recipient country will appreciate, and the export industry there will suffer.
Economic efficiency. Development cooperation is usually strictly separated from economic policy. However, potential development projects should be prioritized according to their contribution to the SDG, and only those projects that promise the highest contribution should be selected. Particular weight must be given to job and income creation, because it has a positive impact on all other sustainability goals.
A modern development policy approach that achieves sustainable economic, ecological and social development places private sector investment in the center. When investments emerge as a result of negotiations between investors, local private partners or governments as peers, they have gone through a process of market-based exchange. Not only the investor, but also banks, suppliers and buyers have reviewed the project for feasibility, effectiveness and economic viability.
The state can help where potential projects cannot be realized as an exclusively private investment, for example because of market failure due to incorrect risk assessments by stakeholders. For example, if a solar park is not built because banks refuse to lend to it out of fear that the local power company will default, a guarantee from the federal government could help such projects to be carried out privately. Thus, the investment can contribute to economic growth and job creation and enable the operation of businesses that depend on a stable power supply.
In addition, it would make sense for the departments of various ministries dealing with foreign trade and development to be combined in a joint ministry in the next federal government. The areas of responsibility would include foreign trade and investment promotion as well as development aid and consulting, if this is desired in the target country. Thus, development cooperation can be a positive sum game, as practiced in other European countries such as Denmark.
It is often argued that African countries must strengthen their governance first before investment can take place. In contrast, we believe that every successful project can lead to better governance. It is sensible to accept the current situation as a given and work with it. Our model is to bring countries into competition with each other and thereby achieve improvements. Under otherwise comparable conditions, investors will choose the country for their projects that offers the best institutional setting; the German government can support this process with investment guarantees. If investment flows only go to such countries, this will put pressure on neighboring countries to improve their conditions in order to attract investment and new jobs. Governance can improve without paternalism. To the contrary: development cooperation based on the subsidiarity principle and competition treats partners as peers.
This blog contribution is based on an article “Development at eye level: With a social market economy against outdated role models” in German language , published by the authors in Frankfurter Allgemeine Zeitung (FAZ).