World leaders concluded three large agreements last year. Each represents a vision of how to change the world. The Addis Ababa Action Agenda on financing for development agreed to move from “billions to trillions” of cross-border flows to developing countries. The agreement on universal sustainable development goals (SDGs) sets out priorities (albeit a long list) for what needs to change. The Paris Agreement on climate change endorses a shift to low-carbon (and ultimately zero carbon) economic growth trajectories.
There is a common thread to these agreements. They each reflect a new theory of how to change the world that is not made explicit but has evolved as a matter of practice. Understanding this new theory is crucial to successful implementation strategies of the three agreements.
In the past, when governments have wanted to change the world, they negotiated intergovernmental agreements. Sometimes these were legally binding (as in various rounds of trade liberalization); sometimes they were voluntary (as in the development sphere). In both cases, however, the theory was that governments could determine change through their policy actions and their investments. The process of global change was to conclude a “grand bargain” among governments.
The Millennium Development Goals (MDGs) can be interpreted in this light. There was no formal legally binding document, but there was a clear sense of a bargain between developing and developed countries. Developing country governments agreed to prioritize investments in a number of social areas (like poverty reduction, gender equality, and maternal and child mortality), while developed countries agreed to provide additional aid. There was, of course, much more to the MDGs than this simplistic description, but this was the essence. Success in implementation depended on each government doing its part. Developing countries set up plans, strategies, and public investments to make progress on the agreed-upon targets; developed countries provided funds and created new agencies to give focus, technical assistance, and other support.
None of the agreements last year would succeed if this theory of change continued to be the basis of implementation. Business is needed to channel the trillions of dollars of new investments called for by Addis. Civil society and local communities are needed to advocate for the SDGs, build and implement local solutions, and review and monitor progress. Scientists and engineers are needed to introduce the innovations that could reduce climate change (and indeed to achieve many of the other SDGs). In short, governments might lead, but they must mobilize others to join in and provide a framing to ensure that the collective effort is moving in the right direction. Governments should provide a suitable policy framework, as well as targeted public investments and public goods, including investments in science, but these should catalyze change, not always deliver change.
The new theory of how to change the world can be stripped down to three elements.
- Use market forces to drive business towards scalable investments that simultaneously generate sustainable solutions to development challenges;
- Create more data from more sources with more disaggregation, and make these more easily transparent and accessible, to drive towards evidence-based reforms and accountability;
- Encourage innovations (technical, organizational, and business-model) to drive the world away from business-as-usual.
It’s a relief that many governments realize they are not omnipotent. It shows we have not forgotten the 12th century lesson of King Canute. But don’t underestimate how hard it will be to actually apply these principles of change.
Think about markets. Thanks to mobile money and the phenomenal reduction in the unbanked (700 million more people with a bank account in 2014 compared to 2011), there are ways of extending markets everywhere. With digitization of information, payments technology, and logistics, goods can be delivered affordably to most people on earth. If they have money, households can choose what to buy and from whom. But few development agencies encourage this. Instead, they deliver goods and services directly. They are monopoly providers with all the issues that entail for quality, volume, and customer satisfaction. Michael Faye, of GiveDirectly, has advocated using cash transfers as a benchmark against which to measure many development interventions. That’s the kind of innovation that would truly extend markets.
Business can do a lot to contribute to sustainable development, and a new Global Commission on Business and Sustainable Development has set out to do just that. In their own words, “The commission aims to explore disruptive models that can lead to new and expanding market opportunities while making communities more sustainable.”
In some areas, like education, water, or to a lesser degree health, it is still anathema to talk about markets. Governments are supposed to finance and deliver for all its citizens. That’s the old theory of change and it isn’t working well in many developing countries. Let’s experiment with the new theory and see if faster progress can’t be achieved.
Next, think about data. There is an explosion of information, and not just from monitoring cellphone, SMS, and internet access use. Orbital satellites are revealing more about our earth, and Moore’s Law is evidently at work. We could have 50 times as much geospatial data as today in 10 years’ time. Machine-recognition algorithms now do better than humans, so cost is plummeting and quality improving. But few development agencies or policymakers are investing in improving or acting upon such data. Instead, there is a push-back to rely only on official government statistics and statistical agencies, and these, outdated and imprecise as they are, are still the evidence on which strategies, reforms, and academic research are largely based. Some governments, as well as companies, resist providing more information on the grounds that it simply provides more ammunition for critics. A large shift is required to build a culture of real transparency.
Last, reflect on innovation. Everyone wants more and it is clear that without significant technical change and rapid adoption of new technologies it will be impossible to meet many of the global goals. But there is much less acceptance of the risk that inevitably accompanies innovation. Business is prepared to take risk, especially if it can be priced and allocated in the most efficient way. The public sector, and the development agencies they control, tries to minimize it. Public sector risk aversion leads to cumbersome regulations and procedures. There are large costs of compliance and lack of timeliness. Different views on risk hamper the kind of public-private partnerships that could foster real innovation. Only one global body, the Global Innovation Fund, explicitly focuses on innovation and scaling up.
These cautionary notes suggest it is easier to express a new theory of change than to act upon it. There will be doubters. Clearly the old theory will work better in some circumstances, perhaps in conflict-affected states where government must be strengthened and where monopoly on the use of force must be established. But the new theory offers opportunities that must be grasped. Yes, there is uncertainty; there is no guarantee that private investments will actually flow to all countries, or that business will adopt sustainable practices. Research and innovation are in short supply, and where they are disruptive, adoption must cope with vested interests.
Yet we must try as hard as we can. Markets, data, and innovation can change the world.
I think blended finance, development finance, is what’s needed, is the future. The U.S. is using a model that was created 40 years ago and I think it’s way past time for modernizing our capabilities.