Over the past couple of years there has been a growing consensus that conditionality does not work. Anti-capitalist Western NGOs like War on Want have claimed that conditionality was forcing developing countries to follow “dangerous” free market ideas. Anti-capitalist NGOs are wrong to oppose free-market policies, but our view here is that conditionality is not a very effective instrument. It has failed because imposing good policies on countries that don’t want to do them just results in countries taking the cash and then not doing the agreed policies. (The view of groups like War on Want that conditionality is forcing countries to do bad policies is wholly warped.)

Developing countries have been very good at sweet talking World Bank executives. When they Bank comes back and asks why the conditions have not been met, the receipients say, “Well, it wasn’t possible to do X for political reasons, but we did Y instead.” The World Bank then hands over more cash. Or a country can “do a Tanzania”: it takes the big bundle of cash that’s conditional on using a private sector provider, and after the cheque clears, it knifes the private company and renationalises.

Instead of conditionality, the approach should be to set minimum levels of governance and anti-corruption that countries must attain before receiving budgetary support - those countries are likely to absorb the money well and pursue good policies, thereby not needing the conditionality. This is the approach the Millennium Challenge Account takes in the US. DFID currently pays lip-service to governance, but in practice just writes the cheque. In countries where money is likely to be misspent by government, that is a mistake. Instead money should be spent through local, domestic NGOs, and through other bottom-up mechanisms like aid vouchers.