This paper is a draft chapter. The final version will be available in “Handbook on Aid and Development” co-edited by Raj M. Desai, Shantayanan Devarajan, and Jennifer Tobin, forthcoming, Edward Elgar Publishing Ltd. The material cannot be used for any other purpose without further permission of the publisher, and is for private use only.
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Development outcomes are often affected by both accessibility to physical technology and the institutional structures through which aid is delivered. For the last two decades, vertical funds— development financing vehicles with a targeted programmatic focus and mixed funding sources— have been used in a number of sectors with mixed results. Informed by successful efforts in the health sector, we argue that institutions are most likely to be successful when focused on advancing the availability of relevant frontier technologies to help drive key outcomes directly. By articulating key design principles, we posit that such institutions can be structured to ensure transparent system learning. In particular, we argue that a new fund to end extreme poverty is now feasible technologically (thanks to new digital cash transfer options) and financially (thanks to the global reduction in poverty to date), informed by a growing body of evidence (thanks to new research approaches).
Nearly half a century ago, in 1977, Richard Nelson’s prominent book, The Moon and the Ghetto, framed a puzzle: why could the United States muster the pioneering ingenuity to send people safely to the moon and back at the same time as it was seemingly unable to solve chronic social problems like weak education for low-income children, or water pollution and drug addiction. He argued that constraints to progress were due less to politics and more to differences in technological innovation and a lack of obvious solutions. In 2011, Nelson stressed the ongoing persistence of the underlying issues to consider how innovation systems could be reoriented to meet pressing societal needs. He emphasized the difficulty of generating some forms of know-how and redesigning innovation systems in general (Nelson, 2011).
In the realm of development finance and development assistance, the evolution of problem-specific technology systems plays a first-order role in driving development outcomes – perhaps a much bigger role than is commonly realized. Bilateral and multilateral institutions can thrive or stagnate based not only on their ability to broaden access to technology, but also on their ability to serve as a fulcrum of applied research and learning for technological frontiers and outcomes at large scale. Since the turn of the millennium in 2000, the most successful international institutions – or institutional technologies – have been those that serve both purposes: enabling widespread access to crucial technologies while also promoting dynamic learning around changes in underlying technologies and related societal applications.
This notion of technology-driven implementation institutions differs from traditional conceptions of “vertical funds,” typically defined as international mechanisms for channeling official development assistance related to a specific issue or theme.1 Institutions are themselves a form of technology. Their organizational structures and operating modalities are just as important as their topical focus. The dynamism of an operative technology space needs to inform the design of a relevant institution towards a core purpose, such that it can continue to update its protocols and implementation strategies as the evidence base and opportunity set evolve, while remaining focused on a central mission and outcome.
The profound ongoing challenge of extreme poverty offers an important example of a mismatch between rapidly evolving implementation technology frontiers, fast-growing academic evidence, and current institutional technologies. Over the past decade, breakthrough digital technologies have dramatically lowered the cost and expanded the potential benefits of direct cash transfers as a highly efficient tool for reducing poverty. While experts reasonably differ over the extent to which such social assistance tools should form the core of global poverty reduction efforts, there is now considerable evidence regarding the poverty-reducing efficacy of such transfers amid limited adverse outcomes. So while Nelson’s original Moon versus Ghetto thesis hinged on shortfalls in relevant anti-poverty technologies, the experience with digital cash transfers shows that a technology for ending extreme poverty does indeed exist. Declining cost structures only increase the viability on a global scale. But the world’s existing institutional anti-poverty technologies have not kept pace with relevant implementation technologies.
This paper considers a new approach to institutional design that can leapfrog outmoded debates of “vertical” versus “horizontal” funding. We focus instead on the need for purpose-driven, dynamic approaches to marshalling technical, financial, evidentiary, and multi-stakeholder resources toward global challenges. These could be implemented through reform of existing multilateral institutions or through the creation of new institutions. By considering specific instances of global institutional innovation and stagnation in recent decades, we describe ingredients that could help drive a new approach. We focus on extreme poverty as a compelling global priority, but the conceptual points are more broadly relevant to other key issues too.
The paper proceeds as follows. We begin with a short history of vertical fund debates. We then present the idea of purpose-driven funds, anchored in key principles and informed by recent examples in the health sector. The following section considers how this idea relates to the specific challenge of extreme poverty, contrasting it with the World Bank’s existing approach to its own headline goal of ending extreme poverty by 2030. We conclude with brief discussion of broader implications for global policy efforts to support sustainable development.
- See, for example, a review in Gartner and Kharas (2013).