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5 Autonomy-Respecting Development Assistance Development Intervention as a Principal-Agent Relationship After our Cook’s tour of indirect autonomy-respecting methods across disciplines and across time, this chapter focuses on elaborating the ‹ve themes (the three Dos and two Don’ts) in the context of economic development. Direct quotations are gathered together in the appendix on the ‹ve themes by the eight thinkers: Albert Hirschman, E. F. Schumacher, Saul Alinsky, Paulo Freire, John Dewey, Douglas McGregor, Carl Rogers, and Søren Kierkegaard. The assumed setting is an external development organization (the helper) trying to help economic development in a less-developed country (the doer). I am concerned with development projects or programs that involve changing human institutions, not with physical construction projects. The standard implicit or explicit model of the relationship between the development organization and the client country is the principal-agent or agency relationship (e.g., see Killick 1998 or Gilbert, Powell, and Vines 2000). How can the development organization, as the principal, design a package of incentives—carrots and sticks—to induce the desired actions on the part of the client country as the agent? The economic theory of agency is one of the most sophisticated forms of the social engineering approach to human affairs, so it is 100 worthwhile to examine it in a development context. The terms principal -agent relation and agency relation have been imported into economics (see Ross 1973) from legal theory but are then used to denote contractual relationships that are not agency relations in the original legal sense. Agency relations tend to arise from large asymmetries in knowledge so the principal cannot contractually specify the detailed actions of the agent (e.g., doctor or lawyer). Instead the agent takes on a legal or institutional ‹duciary role involving the trust “to act for or in the interest of” the principal. Since information is always imperfect and each party to a contract would like to in›uence the behavior of the other concerning unspeci‹ed actions, economists have applied the “agency” phraseology to the general economic theory of contractual incentives. For example, Tony Killick applies agency language to the relationship between an international ‹nancial institution and a developing country where the IFI is the principal and the country is the agent (Killick et al. 1998). The ‹rst mistake in this approach is the model itself. In an agency relationship, “one person [the agent] acts for or represents another by [the] latter’s authority” (Black 1968, entry under “Agency”). Yet the client country has no such agency relationship to the development organization; the client country does not have a legal or institutional role to act for or represent the development agency. If we analogize with, say, the doctor-patient or lawyer-client relationship, then it is reversed. If the development organization is seen more as a “doctor for countries,” then it should be noted that the doctor is ordinarily considered the agent in the doctor-patient relationship,1 not the principal . The doctor or the lawyer is supposed to use specialized expertise and knowledge in the interests of the patient or client by the latter’s authorization. Leaving aside the tellingly mistaken characterization of the relationship , the development agency might be viewed as a doctor, therapist , or helper who would promote certain changes in the patient, client, or doer. The standard tools are economic incentives such as loans on favorable terms or grants, both only if certain conditions or “conditionalities” are satis‹ed. Here we see the second dubious assumption in the standard relationship between development agency and client country—namely that certain changes can be well implemented regardless of the source of the motivation. There are, of course, certain stroke-of-the-pen reforms that are within the domain of a governAutonomy -Respecting Development Assistance 101 ment’s deliberate action (e.g., setting exchange rates, reserve ratios, and other discretionary macroeconomic variables).2 But the hard part of development assistance is concerned with social and institutional reforms. Institutional reforms lie at the opposite end of the simplicity-complexity spectrum by comparison with currency devaluations: they are not for the most part amenable to treatment as preconditions; donor agencies are liable to have dif‹culties in keeping track of the extent of compliance ; and such reforms are often imperfectly under the control of the central authorities, take time, typically involve a number of agencies and are liable to encounter opposition from well-entrenched bene‹ciaries of the status quo. (Killick et al. 1998...


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