EU Development Policy and Poverty Reduction

Enhancing Effectiveness

Wil Hout

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781317140375
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

This inspiring collection analyzes the contribution of EU development policy to poverty reduction. It focuses on various aspects of the policy - trade, agriculture and food security, and modes of policy making and implementation - and covers three geographical areas in relation to Europe - Latin America, Asia and Africa/Middle East. The volume concludes with practical recommendations for improving EU development policy with a view to enhancing its effectiveness.

Chapter 1

Development Cooperation, Poverty
Reduction and the European Union

Wil Hout

1.1 Introduction

The studies that are brought together in this book relate to the emphasis in contemporary development cooperation policies on poverty reduction. More specifically, the studies focus on various aspects that are central to the development cooperation policy of the European Community.1 The following chapters present analyses and provide recommendations that aim to enhance the effectiveness of EC development policy.

The studies reported in this book were all supported under a research programme funded by the U.K.’s Department for International Development (DFID). The research programme was initiated in the light of DFID’s development objectives with regard to the European Community, which were ‘to maximise the contribution of the European Community’s development programmes to the international poverty eradication strategy, and in particular to the target of reducing by half the proportion of people living in extreme poverty by 2015’ (DFID 2000b, 5). More in particular, the research programme expressed a desire for studies that would (a) ‘support policy development of the European Community’s development co-operation programme’ with regard to its the poverty focus and coordination among the European Commission, member states and other donors, and (b) ‘support the EC in undertaking necessary reforms to be more effective in the discharge of its responsibilities for development co-operation’ (DFID 2000b, 6). The studies included in this book address one or both of these issues and thus seek to suggest ways to enhance the effectiveness of EC development policy, in particular with a view to its contribution to poverty reduction.

This chapter introduces some of the main themes in contemporary development cooperation policy and its focus on poverty reduction. Section 1.2 discusses recent trends in development cooperation. In particular, this section focuses on changes in the theoretical understanding of development and development policies, the recent emphasis on poverty reduction and the new thinking about instruments and modalities of development assistance. Section 1.3 focuses on the development policy of the European Community and discusses some recent changes in the policy making structures in the Commission. Finally, section 1.4 provides an overview of the studies in this volume.

1.2 Recent Trends in Development Cooperation

During the past decade the landscape of international development has changed in several major respects. In the first place, the theoretical approach underlying development and the ensuing policy prescriptions for developing countries have witnessed substantial transformation. In the second place, poverty reduction has come to the fore as the main official objective of development cooperation, and the overall emphasis on economic transformation, which was the hallmark of the 1980s and early 1990s, has become much less pronounced. Finally, the instrumentation of development assistance has been revised in some important ways.

Changes in development theory

Since the mid-1990s, the thinking about development has undergone substantial change. The dominant paradigm in development theory and policy of the 1980s and early 1990s, which was usually referred to as neo-liberalism or the ‘Washington Consensus’ and which emphasized the importance of markets, was replaced by a perspective that stressed the overall institutional framework of societies and paid more attention to the political dynamics of the development process. The transformation of neo-liberalism and the move away from the Washington Consensus has been interpreted by many scholars, pace Joseph Stiglitz, as the rise of a so-called post-Washington Consensus (see Stiglitz 1998; Fine et al. 2003; Öniş and Şenses 2005).

The neo-liberalism of the 1980s and early 1990s, which was characterized as the Washington Consensus by John Williamson (1990), was informed to a large extent by the apparent failure of economic policies enacted by Latin American countries before the debt crisis of the early 1980s. Policy prescriptions of the Washington Consensus, which was embraced, in particular, by the Washington-based international financial institutions and the U.S. Treasury, centred on economic liberalization, privatization, deregulation, fiscal discipline and tax reform. The implementation of structural adjustment programmes by developing countries as a precondition for support by the World Bank and the International Monetary Fund are generally seen as an integral part of the Washington Consensus.

The focus on market-oriented economic transformation was gradually being questioned during the 1990s because of its one-sidedness. The East Asian financial crisis of 1997-8 challenged the assumptions about economic reform held by many policy makers, and turned out to be a major factor in the reorientation of neoliberalism and the introduction of the post-Washington Consensus (Jayasuriya and Rosser 2001). World Bank President James Wolfensohn, addressing the World Bank Board of Governors after the Asian crisis, put it as follows:

Too often we have been too narrow in our conception of the economic transformations that are required – while focusing on macroeconomic numbers, or on major reforms like privatization, we have ignored the basic institutional infrastructure, without which a market economy simply cannot function. … Too often we have focused too much on the economics, without a sufficient understanding of the social, the political, the environmental, and the cultural aspects of society. (Wolfensohn 1998, 11-12)

In his period as the World Bank’s chief economist, Joseph Stiglitz contributed importantly to the revision of neo-liberal development policies. According to Stiglitz, the focus of the Washington Consensus on trade liberalization, macroeconomic stability and privatization was not appropriate for most developing countries. Instead of emphasising economic reforms aimed at markets, policies would need to concentrate on the ‘redesigning’ of the market economy’s regulatory framework (Stiglitz 1998, 15-8). The development of a legal framework would be pivotal in order to ensure the provision of information for the effective working of markets. More specifically, governments ‘should serve as a complement to markets, undertaking actions that make markets work better and correcting market failure’ (Stiglitz 1998, 26).

The change in thinking about development policies away from the market-oriented Washington Consensus toward the institution-based post-Washington Consensus was supported by a number of academic theories that had been emphasising the role of institutions in the economy. The new institutional economics, associated with the work of Douglass North, provided a general orientation to the importance of social, political and economic institutions for development. Information-theoretic economics, linked primarily to Joseph Stiglitz, focused on the role of governments in countering market failures.

The new institutional economics came up in response to dominant neo-classical economics, which is built on assumptions of economic equilibrium regarding a world of perfect information and without frictions, where transactions can be made in markets without any transaction costs. According to North, economic transactions can hardly ever take place without costs, as actors will need to obtain information about the characteristics of goods and services and the terms under which these are delivered. North’s conclusion was that ‘when it is costly to transact, institutions matter’ (North 1990, 12). The establishment of markets is, in North’s view, required for sustained economic growth and development (North 1987, 422-425), and certain institutions – such as the rule of law, a system of property rights and civil and political freedoms – should be in place to facilitate the effective expansion of markets (North 1995, 25).

Joseph Stiglitz’s contribution to information-theoretic economics focused on so-called market failure, which, in his view, is prevalent due to unequal access of economic actors to information. Similarly to new institutional economics, Stiglitz argued that institutions are essential to development: to a large extent, differences in the level of development among countries can be attributed ‘to differences in economic organization, to how individuals (factors of production) interact, and to the institutions which mediate those interactions’ (Stiglitz 1989, 197). As individual economic actors are usually faced with multiple equilibria, it is almost impossible for them to adopt behaviour that would lead them to a higher collective equilibrium. Government intervention would generally be required to resolve the resulting coordination problems among economic actors (Hoff and Stiglitz 2001, 416-26).

Changes in development policy

In addition to the reorientation in academic theory and the ensuing reappraisal of (government) institutions, a notable change has been evident in development policy over the last decade, where the focus has shifted toward poverty reduction. The attention for poverty and poverty reduction came at a time when many academics and policy makers realized that global poverty had persisted at a relatively high level despite the policy emphasis, evidenced by the Washington Consensus, on economic reform and economic growth. Data on the global poverty level, as well as research findings that indicated that worldwide inequalities had increased during the era of neo-liberalism (cf. Wade 2001), led to serious questions about assumptions regarding the integration of developing countries in the global economic system and claims about the convergence of income levels and the spreading of wealth to the world’s poor.

Official statements of the international community, such as the United Nations’ Millennium Declaration and the Monterrey Consensus on the financing of development, have placed much emphasis on the need to take the issue of poverty seriously. The Millennium Declaration, adopted at the September 2000 meeting of the United Nations’ General Assembly, stipulated:

We will spare no effort to free our fellow men, women and children from the abject and dehumanizing conditions of extreme poverty, to which more than a billion of them are currently subjected. We are committed to making the right to development a reality for everyone and to freeing the entire human race from want. (United Nations 2000, 4)

The first article of the Monterrey Consensus stressed that ‘[o]ur goal is to eradicate poverty, achieve sustained economic growth and promote sustainable development as we advance to a fully inclusive and equitable global economic system’ (Monterrey Consensus 2002, point 1).

The most evident witness to the emphasis on poverty and poverty reduction are, no doubt, the Millennium Development Goals (MDGs), which were formulated on the basis of the targets mentioned in the UN’s Millennium Declaration. Since 2000, eight goals have been specified that address issues of extreme poverty, education, health, the environment and international cooperation. The MDGs are summarized in table 1.1. For most of the MDGs, the UN member states have committed to work towards achieving the targets by 2015. The specific targets are given in the third column of table 1.1.

Changes in development assistance

The persistence of poverty and the apparently limited effectiveness of development assistance for reducing poverty and stimulating economic growth in developing countries resulted in a revision of the practice of development assistance. The industrialised, aid-giving countries, represented in the Development Assistance Committee (DAC) of the Organisation for Economic Co-operation and Development (OECD), initiated a rethinking of the principles and modalities of development assistance in the mid-1990s. The objective of the rethinking was to enhance the effectiveness of development aid.

Table 1.1: The Millennium Development Goals

The DAC’s report Shaping the 21st Century (Development Assistance Committee 1996) was highly instrumental in the reassessment of development cooperation from the perspective of the donor countries. Apart from formulating several international development targets, which would be integrated into the Millennium Development Goals (Development Assistance Committee 1996, 9-11), the report introduced a set of concepts which have proven to be very influential in the donor community. The concepts of ownership, alignment, coherence and coordination or harmonization were all introduced to signal the enhanced results-oriented approach adopted by the aid-giving countries. These concepts would form part of the Paris Declaration on Aid Effectiveness that many donor and recipient countries adopted in 2005 (High Level Forum on Aid Effectiveness 2005).

Ownership was introduced primarily in response to the problems associated with policy conditionality. It was argued that the attachment of policy conditions to development assistance – implying that developing countries would promise the adoption of certain policies in exchange for aid – had proven generally ineffective. As it was felt that ‘aid does not buy policy reform’, different incentives had to be introduced to guarantee the commitment of aid-receiving governments. Ownership implied that the programmes initiated with the support of development assistance monies would require ‘agreement and commitment from developing country partners, through their own national goals and locally-owned strategies’ (Development Assistance Committee 1996, 9).

It was felt that programmes that would be ‘owned’ by the aid recipients would provide more incentives for national governments and other actors to ensure proper implementation. Donor countries argued that such ownership would give them the opportunity to align their development cooperation programmes with ‘partner countries’ national development strategies, institutions and procedures’ (High Level Forum on Aid Effectiveness 2005, 3).

Donor coordination or harmonization implied that donors would work closely together to achieve ‘common arrangements at country level for planning, funding (e.g. joint financial arrangements), disbursement, monitoring, evaluating and reporting to government on donor activities and aid flows’ (High Level Forum on Aid Effectiveness 2005, 6). The idea behind this principle was that developing countries are faced with a large burden of administration because of the existence of a multitude of procedures related to the practices of individual aid-giving countries, and that a reduction of the administrative load involved in development assistance would greatly enhance the capacity of national governments in the countries concerned.

Apart from the three process-oriented principles noted above, the DAC also introduced the more substantive concept of policy coherence. It was felt that the effectiveness of development assistance strategies is greatly hampered by the existence of policies in other issue areas. Limited market access, agricultural subsidies and the dumping of agricultural produce on developing country markets were seen as practices of industrialized countries that had a great negative impact on the development prospects of developing countries, and would actually counteract the potentially positive contributions deriving from aid. The DAC argued that instruments adopted in different policy areas should actually work together and should be scrutinized on their effect on developing countries (Development Assistance Committee 1996, 14).

The principles discussed above led to the introduction of new modalities of development aid, which were assumed to have a greater development impact than previous project-oriented modes. Programme aid, given as balance of payments support, debt relief or general or sectoral budget support, was generally preferred over project assistance since the former mode would lead to the transfer of funds directly to the recipient government and would involve much less transaction costs than the latter. Similarly, sector-wide approaches were argued to enhance effectiveness, as aid programmes would target a whole sector in a developing country (such as health or education) and would lead to synergies and economies of scale.

A different, but linked, element of the aid effectiveness approach concerns the issue of governance quality – which is often referred to as ‘good governance’. After the publication of two World Bank reports (Burnside and Dollar 1997; World Bank 1998), a common assumption of development assistance...

Table of contents

• Cover Page
• Half Title page
• Series Page
• Title Page
• Copyright Page
• Contents
• List of Tables, Figures and Boxes
• Notes on Contributors
• Preface
• List of Acronyms
• Chapter 1 Development Cooperation, Poverty Reduction and the European Union
• Part 1 Trade Policy, Regional Integration and Poverty
• Part 2 Agriculture, Livelihoods and Food Security
• Part 3 Modes of Policy Making and Implementation
• Part 4 Conclusions
• Bibliography
• Index