Dear Administrator Smith,
In addition to the initiatives you hope to institutionalize in the next 10 months, we hope you’ll also seize the opportunity to put USAID in the forefront of testing a new approach to delivering aid.
The approach reconciles the view, taken for example by Michael Gerson and Rajiv Shah in the second edition of Moneyball for Government, that US foreign assistance should focus on measurably improving people’s lives in the short term with the view, espoused for example by John Norris of the Center for American Progress, that development is also about the long, slow slog of institution building.
The two approaches look to be at odds. Focusing on securing easily measurable results, for example in health and education, would seem to distract USAID experts and recipient country actors from the nitty gritty of building sound and effective country programs and institutions, for example in tax revenue capacity needed to fund government services.
But in fact development as institution building is a long, complex process; and the reality of complexity provides a powerful reason for pursuing short-term results. Aid programs that focus on the first approach are likely to help local actors achieve the second.
That’s the idea of Cash on Delivery Aid. USAID would pay recipient governments on the basis of a reported and verified outcome. Other bilateral donors are trying it. (The hard work is defining an appropriate outcome and a “price” for a unit of outcome.) USAID has financing tools and know-how; it already pays host governments for outputs through Fixed Amount Reimbursement Agreements (FARAs) and disburses funds to local NGOs for achievement of specified milestones through Fixed Obligation Grants. Moving from those programs to paying governments for a single outcome is a small step.
Cash on Delivery Aid builds in the critical benefit of putting development progress firmly in the hands of recipient governments, encouraging system reform and innovation on the part of local actors, who can take the lead in iterating toward locally efficient solutions. The role of USAID field staff is then to work closely with counterparts (when asked), bringing technical ideas and expertise as well as knowledge of the country context (exploiting well the autonomy their field positions encourage).
Finally, paying for measurable and verified outcomes is likely to encourage accountability of governments to their own citizens — a possible democracy bonus.
Pursuing locally efficient solutions will ensure more sustainable, long-run systems. We think paying for outcomes in health and education will help build local systems and institutions for the long term while improving lives in the short term. USAID should try it.