Shah’s Modern Development Enterprise Presents Opportunities and Challenges

Yesterday, CGD was honored to host USAID administrator Raj Shah for a major speech outlining what he and USAID have accomplished over the past year and plans in the works for further changes to the business model.  He ambitiously seeks to transform the way USAID operates by injecting an entrepreneurial business model within the agency.  Shah’s general approach and specific proposals need to be supported, even while recognizing the challenges.Shah has invested a lot of thought and hard work on attaining greater efficiencies and effectiveness, incorporating rigorous evaluation in every major project, creating a culture of innovation throughout the agency, and being more selective in what USAID does and where.The overarching message of the speech was that USAID needs to conduct itself as a modern development enterprise:

We are seeking to build something greater:  a modern development enterprise.  Like an enterprise, we are developing and executing more innovative and more focused strategies across each of our areas of excellence.

For me, building a modern enterprise means articulating goals, identifying comparative advantages, and creating focused strategies for meeting those goals, much like any successful business does.There are opportunities and challenges in trying to inculcate an entrepreneurial culture in a government agency.  Shah is clearly trying to make decisions based on the agency’s primary goal of improving the lot of the desperately poor in developing countries, that at the same time serves the national security interests of the United States.  Being clear on the mission is essential.  Making the agency more accountable to its shareholders – the American public, Congress, global partners – through better transparency and more robust engagement is perfectly reasonable and doable.But, there are challenges ahead that could potentially derail or undermine a modern development enterprise.  The greatest challenges will come if and when USAID (and the State Department) begin to identify “more focused strategies across each of our areas of excellence.”  This implies that there may be some areas in which the United States phases out or reduces assistance.  The FY2012 budget submission will tell us more on this front.  Suffice it to say that there is always pushback from those quarters that see their areas of interest affected.  In the aid community and in Congress, there are champions of this or that approach, sector, or region that will rally against any change in the status quo.  Government and bureaucracies are change-averse.The second challenge to trying to run a government agency more like an enterprise is the reams of government regulations and legislative limitations that reduce USAID’s flexibility and responsiveness.  A former administrator has referred to this stranglehold of regulation as a Gordian Knot.  There may be room to untease part of the knot through a review of internal, outdated, and unnecessary regulations, but the only way to really solve the problem is with a sharp knife.  Congress holds that knife.  Writing a new Foreign Assistance Act could go a long way toward providing USAID with the legislative backing of clear objectives, the means to achieve them, and clearing away the detritus that has accumulated since 1961.  At the same time, the aid community must unite around these reforms.  Parochial squabbling over resource allocation will not be productive and could set back what the vast majority of observers view as necessary reform.Shah spent a good amount of his speech talking about the role of rigorous impact evaluation.  My colleague, Bill Savedoff, has more to say on Shah’s announcement of USAID’s new evaluation program.  The only perspective I can add is that evaluation results must not just be published (the promise is that they will be within 3 months of completion), they must be used to inform decision-making.  That means that when programs or approaches are identified as not working, or not being as productive as anticipated, the programs need to be ended and the resources shifted to better performing activities.  Some programs can be fixed to make them more productive investments, but this requires knowing what aspects of a particular approach are contributing to less than stellar performance.  From an evaluation perspective, this is a difficult proposition because of often multiple and conjunctional causation.What were your thoughts on Shah’s speech?  Do you think this new business model will resonate with the aid community and Capitol Hill?