Global governance of the aid system and the role of the European Union

Briefing papers
May 2010
Simon Maxwell, Mikaela Gavas, Owen Barder and Deborah Johnson

This paper is about governance of the aid system, with specific reference to the European Union. The EU makes a good case study, because all the global questions about governance of international aid also apply at the level of the EU. Is this a coherent and planned system, or more random and chaotic in nature? Is it capable of being governed and planned? Should it be governed and planned in its entirety? And assuming governance or architectural interventions are possible, should the aim be consolidation into fewer entities or cooperation among many?

Within the world of official aid, two views currently dominate the debate. The first celebrates diversity and concentrates on the coordination of collaborative networks. It focuses attention on shared goals, harmonisation of approaches, and better coordination of who does what. It finds its highest expression in the UN’s work on the Millennium Development Goals (MDGs), and in the aid effectiveness initiatives of the Development Assistance Committee of the OECD. In the European Union, the key instruments are the European Consensus on Development of 2005 and the Code of Conduct on Division of Labour, agreed in 2007.

The second view seeks reform of the aid ‘architecture’ in order to reduce the number of actors and rationalise the supply of aid. It focuses on the allocation of aid between institutions, transactions costs, multilateral effectiveness, and issues like governance reform of the Bretton Woods Institutions. Its ideal is captured in the phrase ‘don’t just harmonise, multilateralise’. In the European Union, a key issue is the share of EU aid channelled through the European Commission, currently only just over 20%.

Outside the official world, some have taken the idea of collaboration further, advocating market or network approaches, within a largely self-organising framework.

We begin (Section 2) by reviewing different concepts of governance and ‘good governance’ and by providing a framework within which to assess the governance of the aid system as it currently stands. We focus on five criteria of good governance: effectiveness; efficiency; legitimacy; accountability; and adaptability.

In Section 3, we describe the aid system as it currently exists: growing and diversifying, variously governed, and often described as an aid ‘non-system’.

In Section 4, we assess the governance of aid, finding that none of the DAC, UNDCF, High Level Forums, ad-hoc country-level coordination or multilateralism achieve full marks on our score-card (though multilateralism comes close and will score higher as a result of recent reform of Bretton Woods governance).

In Section 5, we turn to the EU. We summarise the role of the EU in global context and assess the current governance of EU aid, with special reference to the European Consensus on Development and the Code of Conduct on Division of Labour. The European Commission (EC) scores reasonably well on governance, not least because of the accountability mechanisms built into the Cotonou Convention with countries in Africa, the Caribbean and the Pacific.

Finally, we conclude with two paradoxes and four recommendations specifically for the European Union and the European Commission. The first paradox is that that although the system as a whole would work better if most aid was given through multilateral institutions, there are coordination failures which leave many countries preferring a large bilateral programme.

The second paradox is that there is a familiar trade-off between effectiveness and accountability with regard to some aspects of aid governance: the DAC, for example, scores highly for its work on statistics and reporting, but remains essentially a rich country club and, partly as a consequence, is largely ineffective in driving change rather than merely keeping score.

Multilateral space is competitive. The EU and the EC can boost their position by: maintaining the mutual accountability provisions of the Cotonou Convention, and widening their geographical reach; increasing transparency; Member States holding each other to account for existing and more demanding targets related to the Code of Conduct on Division of Labour; introducing new instruments, like the Vulnerability Flex (V-FLEX) and the Food Facility; continuing to strengthen collaboration in international fora like the UN, G8, G20 and the United Nations Framework Convention on Climate Change (UNFCC).