Transcript The Mondragon Experience Viewed from Basic Principles

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Social Funds and MicroFinance
 and the Role of Impact Evaluations
David Ellerman
University of California at Riverside
and WWW.Ellerman.org
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Analysis of Selected Developments Ideas (or Fads)
First rule of development assistance is: "Do no
harm"
 Thus analysis needs to start with criticism of
ideas or fads that are "unhelpful help."
 Wisdom and possibility of genuine help may
come later after working through ideas.
 Examples: social funds and microfinance
supported by impact evaluations.
 Recurrent patterns of unhelpful help are "antipoverty traps" for development agencies.
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Example of Social Funds
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Social funds are "special clean technocratic
agencies" outside sectorial ministries. Often
answer to President.
Funded by hard currency loans and donor funds.
Salaries often outside civil service standards.
Bypasses ordinary government channels.
Makes (near) grants to communities to fund local
infrastructure projects or other accepted
community projects.
Not intended simply as disaster relief but as an
instrument for local infrastructure development.
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Social Funds Controversy at WB
SF Attribute
SF Supporters
SF Critics
Separate
Organization
Bypass corrupt ministries
Central govt largess
Staffed outside civil
service standards
Clean technocratic agency
Nice job for ex-generals and
ruling party sycophants.
Social fund chooses
communities
Targeted assistance
Targeted largess
People choose grant
project
Bottom-up demand-driven
Top-down paternalism--no
capacity building
Quick disbursing
Getting resources to people
quickly
Giving "fish" out quickly so
no capacity building
Impact evaluation
compares $ with no $.
Impact eval. ignores costs +
has phony counterfactual
Evaluation
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“Alice in Wonderland” Discourse
SF Supporters
SF Critics
"Demand-driven"
Projects
Demand means demand when paying the
costs--not getting (near) gifts.
"Bottom-up" development
Top-down patronage from Central Govt.
Community "Empowerment"
"Empowerment" to choose which patronagegift to get from a menu.
"Participatory development"
Community meeting called to choose which
project from menu.
"Matching" contributions
Matching = 50% or more.
5%-15% is not "matching"
Learning to "mobilize resources"
Learning to beg money from Central Govt.
"Building capacity for local
infrastructure development"
Bypasses sectorial ministries in charge of
infrastructure so no real capacity building.
SF Supporters
SF Critics
"Demand-driven"
Projects
"Demand" means demand when
paying the costs--not getting (near)
gifts.
Top-down patronage from agency of
Central Govt.
"Empowerment" to choose which
patronage-gift to get.
Matching = 50% or more.
5%-15% is not "matching"
Learning to beg money from Central
Govt. --or EU.
"Bottom-up" development
Community "Empowerment"
"Matching" contributions
Learning to "mobilize
resources"
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Social Funds and Disaster Relief
Constant need to rethink relief work from
development perspective since "relief" is often
more long-term than expected.
 Main idea: promote autonomy and active-agency
of "relief clients".
 Example: After earthquake or other disaster,
promote self-help owner-builder programs to
rebuild housing. John F.C. Turner's work.
 Always ask how people could do more for
themselves rather than being the objects of relief
or humanitarian charity.
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Second Example: MicroFinance
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Major current development fad is loan-led (as
opposed to savings-based) microfinance projects.
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Off-the-shelf packages with NGOs as
intermediaries for quick heart-warming results.
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Even Internet-based MF loans, e.g., www.kiva.org
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Discourse of "helping the poor," "job creation,"
"entrepreneurship," & "business development".
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Much publicized "success stories".
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What's Wrong with MicroFinance ?
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Most microloans consumption-oriented, not businesses.
Off-the-shelf loan-led programs lack the capacity-building of
savings-based programs which take longer to develop.
Unemployed poor are not "entrepreneurs who need finance" but it is
a lovely fantasy.
Few "businesses" that start with microcredit are easy-entry &
subsistence-level with no growth potential.
Much publicized success stories could get ordinary loans—but are
happy to get subsidized MF loans.
Often has negative crowding-out effects:
• Shuttle-traders crowd out local producers and merchants.
• Externally funded micro-credit orgs with subsidized operations crowd out
development of local SME banking.
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MF and “Asset-based” Poverty Reduction Strategies
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Those who have assets tend to see society through the lens of the
market where wealth opens all doors and secures all needed
cooperation.
Many poverty reduction strategies see world through the same
market-oriented lens of the rich.
But the “wealth” of the poor is their numbers if they can only
achieve the social organization (e.g., coops, second-tier support
orgs, and other orgs & alliances) to use that power for social,
economic, and political advancement.
MF puts the focus on individual (family) actions to increase
income and accumulate wealth—as if “poverty” was only a lack
of assets rather than the lack of the capacity, trust, and ‘social
capital’ to organize to advance one’s interests in a social manner.
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Recent e-mail on MF
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"The one thing that I learned during my fieldwork in *** was that
the textbook informal entrepreneur, the one featured as the typical
success story of any microfinance scheme and in the development
literature, is in fact really hard to find, if he exists at all. The great
majority of the 50 "microentrepreneurs" of the voucher scheme I
interviewed were merely people struggling to survive and to
diversify income-generation activities on a very low scale of
productivity and without any realistic growth potential. None of
them had a clear business-idea or showed any entrepreneurial spirit
in a Schumpeterian sense. This was very eye-opening and I have
since developed an allergic reaction towards the over-optimistic
assumptions of development rhetoric that portray the poor in the
less developed countries as sleeping beauties eagerly waiting to be
kissed awake by a prince called microfinance or any other business
development form of aid."
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Role of Impact Evaluations
 Continuation
of "unhelpful help" like
many social funds and MF projects is
"justified" by positive (impact)
evaluations.
 Hence the debate over SFs and MF
requires an analysis of impact
evaluations.
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The Impact of “Impact Evaluations”
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An evaluation of X means comparing the benefits to the costs of X.
The “costs” are not just a past expenditure but are the benefits foregone
from the best alternative use of that same expenditure (which economists
call the “opportunity costs”).
A so-called “impact evaluation” of X ignores costs (explicit or opportunity
costs) of X and looks only at benefits or impact of X.
The true counterfactual would be to compare those benefits to the benefits
of the best alternative use of the same resources.
The phony “counterfactual” used in “impact evaluations” is to compare
those benefits to those of the alternative that uses no resources, i.e., the
alternative of no program or “treatment.”
If the program has, say, $1000 of benefit compared with $0 benefit of no
program, then the program gets a “positive impact evaluation”—even
though it may have cost $1,000,000.
Development agencies and donors keen to get “positive” evaluations of
their programs are understandably quite enamored with “impact
evaluations.”
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Plan A versus Plan B
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"Patient" has infection:
• Plan A = taking "aspirin" which relieves symptoms.
• Plan B = taking "antibiotics" which cures infection.
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"Doctor" has organization prestige and stake in plan A and
controls funds to evaluators.
Evaluators' impact evaluation compares Plan A to
counterfactual of no treatment, and finds Plan A has
positive impact ("reduces fever") so evaluation is positive.
Yet in any side-by-side benchmarking evaluation between
Plan A and Plan B, Plan B would easily win.
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Impact Evaluation in Dev. Agencies
If medical research was based on "impact
evaluations" then we would never get beyond
medicines that give only symptomatic relief
since that is "better than nothing."
 But if the "medicines" a development agency has
give only symptomatic relief ("throwing money
at a problem without capacity building"), then
impact evaluations are perfect to give ultimate
low-hurdle "positive" evaluation and continue
the business.
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Major program to push Impact Eval. at World Bank
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"Impact evaluations assess the specific outcomes attributable to a
particular intervention or program. They do so by comparing
outcomes where the intervention is applied against outcomes
where the intervention does not exist. An appropriate comparison
group represents what would have happened in the absence of the
intervention. By establishing a good comparison of outcomes for
these two groups, an impact evaluation seeks to provide direct
evidence of the extent to which an intervention changes
outcomes." (italics added)
Source: On the World Bank's website, www.worldbank.org, click
on "Data & Research", and then "Development Impact Evaluation
Initiative" to find this description of DIME program.
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Recent e-mail on impact evaluations
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"The problem is that microfinance as a development tool is so
popular with politicians and donor agencies, mine included,
that one is considered a whistle-blower if talking about the
apparent shortcomings of MF. Consultants, who are actually often
the ones who undertake the evaluations you rightly criticize, are,
allow me, the worst. But as you will know from your time at the
Bank, a desk officer is happy about any form of positive written
statements by "outsiders" concerning project impact, sustainability,
gender empowerment and whatever fad is currently en vogue. At
least in my case, no one would dare to care about the methodology
of impact analysis or feasibility studies...as long as they are
positive: "Oh, the impact analysis is positive? Great!, write a letter
to the Ministry at once!". Worse yet...in a world where not only the
bilateral donors are under pressure to disburse, but the relevant
ministry as well, no one there would care either...."
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Genuine Evaluations
Econ 101: An evaluation of Plan A compares it to
the best alternative, Plan B, using comparable
resources.
 Evaluation is pointless if not embedded in a
social learning program.
 Decentralized social leaning programs should:
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Promote experiments, Plans A, B, C,…,
Real-time benchmarking between programs,
Cross-learning between experiments, and
Ratchet up performance of all programs (and repeat).
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“Anti-Poverty Traps” in Development Agencies
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In addition to poverty traps in poor countries, there are "antipoverty traps" in development agencies.
An anti-poverty trap is a program that is popular in
development agencies because it gives quick heart-warming
small-scale poverty reduction but is a trap because it retards
sustained development of economic capabilities.
• Social funds give quick local projects but retard capacity for
infrastructure development.
• MicroFinance gives quick heart-warming results at local level but
may retard local producers/merchants and small business finance.
• Popular anti-poverty program for native Americans is now to allow
them to set up casinos, i.e., to contract with casino developersoperators to put them on reservation land. "Resource curse" where
resource is slot machines.
• Remittances from labor migration to North gives a quick poverty
reduction to some communities in South but retards their own
development of productive capacity.