Breakdown in Pakistan: How Aid Is Eroding Institutions for Collective Action - Hardcover

Bano, Masooda

Hardcover

ISBN 10: 080478132X ISBN 13: 9780804781329

Publisher: Stanford Economics and Finance, 2012

Synopsis

Thirty percent of foreign development aid is channeled through NGOs or community-based organizations to improve service delivery to the poor, build social capital, and establish democracy in developing nations. However, growing evidence suggests that aid often erodes, rather than promotes, cooperation within developing nations. This book presents a rare, micro level account of the complex decision-making processes that bring individuals together to form collective-action platforms. It then examines why aid often breaks down the very institutions for collective action that it aims to promote.

Breakdown in Pakistan identifies concrete measures to check the erosion of cooperation in foreign aid scenarios. Pakistan is one of the largest recipients of international development aid, and therefore the empirical details presented are particularly relevant for policy. The book's argument is equally applicable to a number of other developing countries, and has important implications for recent discussions within the field of economics.

About this title

About the Author

Masooda Bano holds a research fellowship in the Department of International Development and Wolfson College at the University of Oxford. Her research has won awards from the Economic and Social Research Council and the Arts and Humanities Research Council. She has collaborated with development agencies, such as the United Kingdom's Department of International Development and the United Nations.

Excerpt. © Reprinted by permission. All rights reserved.

Breakdown in Pakistan

How Aid Is Eroding Institutions for Collective ActionBy Masooda Bano

Stanford University Press

Copyright © 2012 the Board of Trustees of the Leland Stanford Junior University
All right reserved.
ISBN: 978-0-8047-8132-9

Contents

List of Illustrations..........................................................................................ixPreface........................................................................................................xi1 Revisiting the Collective Action Dilemma.....................................................................12 Intrinsic or Extrinsic Incentives: The Evolution of Cooperative Groups in Pakistan...........................283 Why Cooperate? Motives and Decisions of Initiators and Joiners in Other-Regarding Groups.....................544 Why Cooperate? Motives and Decisions of Initiators and Joiners in Self-Regarding Groups......................955 Does Aid Break Down Cooperation?.............................................................................1196 Why Aid Breaks Down Cooperation..............................................................................1437 Fixing Incentives: The Way Forward...........................................................................167Glossary.......................................................................................................187Bibliography...................................................................................................189Index..........................................................................................................207

Chapter One

Revisiting the Collective Action Dilemma

The fundamental theoretical problem underlying the question of cooperation is the manner by which individuals attain knowledge of each others preferences and likely behavior. Moreover, the problem is one of common knowledge, since each individual, i, is required not only to have information about others preferences, but also to know that the others have knowledge about i's own preferences and strategies. Norman Schofield, "anarchy, altruism and cooperation: a review," 1985, 218

Further, communities of individuals have relied on institutions resembling neither the state nor the market to govern some resource systems with reasonable degrees of success over long periods of time. Elinor Ostrom, Governing the Commons, 1990, 1

THE RURAL AREAS OF SINDH, the southern province of Pakistan, harbor a rich tradition of voluntarism. These rural communities have traditionally supported a large number of voluntary organizations through which community members have pooled resources, at times for charity and at other times to address a collective need. These organizations are known to be much more effective than the state in responding to emergencies; they are particularly good at mobilizing local donations and volunteers. In the 1980s, Oxfam Pakistan initiated a civil society-strengthening program to provide small grants to some of these organizations. The program was premised on the assumption that placing additional financial resources at the disposal of these groups would, in combination with some capacity-building, enable them to expand their work and improve their efficiency. The outcomes were, however, unexpected. Within a year, the groups supported by Oxfam had lost most of their members. Those who were still attached had split into factions, and the hostility that marked these new alliances was starkly visible in the court cases that some members had filed against each other. The welfare work carried out by these groups was a thing of the past.

This story of the negative impact of aid on local community-based collective action structures in rural Sindh is not unique. Many similarities are contained in the story of donor-and NGO-led programs designed to introduce new methods for cultivating quinoa, a traditional crop harvested by smallholder farmers in the highlands of Bolivia. Starting in the 1990s, many donors launched such initiatives under their livelihood-support and income-generation programs, to improve the income of the smallholder farmers. New technologies for cultivation were introduced; for example, farmers were provided with access to modern machines, such as tractors, for use in replacing traditional cultivation practices. Despite increasing the overall yield and the income of these farmers in the short term, the long-term impact of these programs has been markedly detrimental. The support provided by the donors led to a significant decrease in cooperation among the farmers; the resulting individualization and monetarization of agricultural practices restricts the community's ability to play its role of "collective fertility regulator" (Puschiasis 2009), and the unchecked mechanization of agriculture threatens the fragile stability of the ecological and social systems. In recent years there has been growing evidence of soil erosion, which is restricting the yield, and the strong social ties that sustained the cultivation of this crop have been replaced with feuds over land.

In rural Aceh, Indonesia, community members had long participated in many collectively beneficial activities, such as road work and cleaning water drainage systems, under the rubric of Gotong Royong, a traditional institution of collective action. Upon the introduction of cash-for-work schemes by international NGOs (INGOs) and multilateral organizations as part of the reconstruction work in tsunami-hit areas, these activities ceased. The cash-for-work schemes had aimed to rehabilitate the local communities by providing short-term employment opportunities that would generate household income and stimulate the rebuilding of the rural and small-scale infrastructure necessary for commerce and the delivery of essential public services (Thorburn 2007). Instead, these schemes led to the erosion of the patterns of voluntary cooperation that the villagers had traditionally manifested in carrying out these activities. By the end of 2005, many practices that had long been sustained as part of Gotong Royong had altogether disappeared from Ache (Brusset et al. 2006). By developing a typology of seven forms of activity undertaken under Gotong Royong, ranging from volunteering time to harvesting the fields to taking part in youth cleaning groups, Ewert (2010) shows that the activities that received support under the cash-for-work program were discontinued after the introduction of these schemes, even though the village leaders themselves continually attempted to organize these activities. The possibility that the tsunami itself led to the collapse of the structures that traditionally facilitated this collective action is ruled out in light of the evidence that these activities did not stop immediately; rather, they remained markedly robust for a significant period after the tsunami, disappearing only after the cash-for-work scheme had been in place for a couple of months (Ewert 2010).

All three of the traditional institutions of collective action noted earlier drew on historic patterns and ties of collective action that had evolved and survived in these communities over many centuries, but all three registered dramatic shifts in the members' willingness to contribute to the group when aid was received. Further, these shifts occurred within only a few months or a year. In all three cases, development interventions that introduced cash incentives with the aim of stimulating activities traditionally done voluntarily had the opposite impact. Although in-depth studies analyzing the cases where aid has had a reverse impact are few, the concern that aid is having a negative impact on civil society groups' ability to mobilize members is by now reasonably well established in the development studies literature on NGOs. Thirty percent of development aid is currently being channelled through NGOs, civil society groups, and community-based organizations (CBOs) involved in development work (Riddell 2005). Recent publications on evaluating aid effectiveness, such as Easterly's The White Man's Burden and Moyo's Dead Aid, by showing the inefficiency of aid channeled through developing countries' governments, indirectly end up supporting calls for channeling increased aid flows through NGOs and civil society groups. However, such calls are worrying when placed alongside growing evidence that civic groups funded by development aid end up having no members. If aid channeled through NGOs and CBOs is to be effectively utilized, the validity of these concerns needs to be tested. If the concerns are borne out, then development theorists must inquire into why aid has this negative impact on individuals' propensities to cooperate to produce a charitable outcome or a collectively beneficial good.

This book fills this gap; however, it first tests whether the concerns are grave enough to be taken seriously. It does this by addressing three core questions: (1) Is the erosion of the individual's propensity to cooperate upon receipt of development aid a widespread phenomenon? (2) Does losing members affect a group's ability to achieve its stated development objective? (3) What are the underlying factors that make individuals engage in collective action, and what are the incentives provided by aid that can break down this cooperation? In The Logic of Collective Action, Olson (1971) established why individuals are likely not to cooperate to produce a collective good, and Elinor Ostrom's (1990) seminal work on collective action has shown how communities can overcome this free-rider problem to provide nonstate and nonmarket solutions to many collective-action dilemmas, especially those involving common-pool resources. The lessons learned from debates about these questions have not yet been systematically applied to analyzing why collective action could break down upon receipt of development aid. This book attempts to build on the analytical tools developed by Olson and Ostrom to explain why aid has this unintended impact.

Collective Action: The Central Puzzle in Development

A collective action situation occurs whenever a desired collective outcome requires the input of several individuals (Gibson et al. 2005); in other words, all productive relationships involve some form of collective action. The problem, however, is that often such collaborative behavior is in short supply: collective action situations often become collective action problems, in which ensuring cooperation among the relevant actors is a major challenge, despite the fact that collectively they would all be better off if they cooperated (Gibson et al. 2005). The great advancements in the field of new institutional economics in the last three decades have demonstrated how understanding the collective action dilemma rests at the heart of understanding the different development trajectories followed by various countries (North 1990). The growing body of literature in this tradition convincingly demonstrates that the quality of institutions—where institutions are defined as "humanly devised constraints that shape human interaction" (North 1990, 3)—is central to determining how well a society will be able to resolve the challenges to collective action in the sphere of politics, economics, and social organization. Institutions help solve collective action problems by reducing transaction costs—that is, the costs of gathering information and monitoring—and this facilitates exchange (North 1990). Inherent in any collective action decision is the cost of gathering information about the intentions and motivations of other actors (Olson 1971; Ostrom 1990; Schofield 1996). By restricting the choices of individuals, institutions—whether formal (the state, legal systems) or informal (culture, norms, beliefs)—increase the predictability of other individuals' actions and thus make possible outcomes that otherwise would not occur because of the high transaction costs incurred in monitoring others' commitment in the absence of those institutions. As North (1990, 3) puts it, institutions "structure incentives in human exchange, whether political, social, or economic."

The increasing recognition that the development dilemmas faced by many developing countries cannot simply be attributed to lack of resources and that weak institutional arrangements lie at the heart of many such challenges has had direct bearing on donor funding policies. Governance reforms aimed at improving the quality of state institutions in developing countries now form an integral part of the portfolio of most donor agencies. These institutional reforms are given different titles in different donor projects—such as decentralization programs, fiscal reforms, or judicial reforms—but what remains central to these interventions is the desire to replace old-style interventions aimed at ensuring the delivery of the service itself with interventions intended to improve the ability of actors within the recipient country to manage better that activity collectively. Within the education sector, for example, rather than constructing new school buildings, many donors now invest in efforts to improve the governance of existing schools through institutionalizing school management committees and making the central governments devolve school management responsibilities to the district level, thereby helping to resolve the collective action problem that currently exists between state and society and prevents proper governance of schools. Since the late 1990s, all major donors have invested heavily in supporting the introduction of decentralized governance structures in developing countries across Africa, Asia, and Latin America. The logic behind these interventions is to put in place institutional mechanisms that will help make state bureaucracies and elected representatives more accountable to the public and thereby help development reach the poor.

The recognition of the role of institutions in shaping development outcomes has, however, not been restricted to formal institutions of the state. Institutional economists—as well as the donors—have in recent years become equally cognizant of the importance of informal institutions in determining development outcomes, especially in contexts where the formal institutions are weak (North 1990). Informal institutions operate by rules that are not formally endorsed by the state but that are widely adhered to in a given community. Norms, values, and religious beliefs, although often not supported through the legal apparatus of the state, lead individuals to restrict their choices in ways that might not seem entirely rational if seen purely from a wealth-maximizing perspective. Helmke and Levitsky (2004) maintain that formal institutions are rules and procedures that are created, communicated, and enforced within officially sanctioned channels; they include political (and judicial) rules, economic rules, and contracts. Informal institutions are socially shared rules, usually unwritten, that are created, communicated, and enforced outside officially sanctioned channels (Helmke and Levitsky 2004); these include norms, taboos, and traditions.

Unlike formal institutions, informal institutions are little studied, leading Williamson (2000, 597) to argue that understanding of "the mechanisms through which informal institutions arise and are maintained" is still missing. The importance of such institutions in helping the poor meet their immediate development needs is, however, well documented (OECD 2007). An Organisation for Economic Co-operation and Development (OECD) conference on informal institutions and development held in 2006 brought together development academics and experts from leading development agencies who noted not only the widespread prevalence of informal institutions in developing societies, and the opportunities and challenges they present for implementing development programs in these societies, but also the limited understanding of how these institutions work. The limited literature available on informal institutions to date does, however, reflect a trend toward greater recognition that informal institutions are particularly resilient and important in shaping individual and collective decisions in contexts where state institutions are failing (Ostrom 1990; OECD 2007). Thus, in the absence of state-led and commercial banking systems and insurance institutions, impoverished communities have developed their own informal credit societies and insurance networks.

(Continues...)

Excerpted from Breakdown in Pakistanby Masooda Bano Copyright © 2012 by the Board of Trustees of the Leland Stanford Junior University . Excerpted by permission of Stanford University Press. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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Edition details

• Publisher: Stanford Economics and Finance
• Publication date: 2012
• Language: English
• ISBN 10: 080478132X
• ISBN 13: 9780804781329
• Binding: Hardcover
• Edition number: 1
• Number of pages: 240