Political economy analysis has been a favourite instrument among donors of development aid since roughly the turn of the century. The usefulness of such forms of analysis has been emphasised because donors realised that their focus on formal aspects of the social and political organisation of countries caused them to overlook important elements of the ‘political economy’ of these countries. As a result of this, political and governance reform programmes, which had become part and parcel of the agenda of development under the Post-Washington Consensus, turned out to be much less effective than anticipated.
The call for donor agencies to ‘look behind the façade’ of formal institutions in developing countries has thus come as part of the aid effectiveness agenda. It was argued that the effectiveness of development assistance policies would be enhanced if the realities of social and political power structures in developing countries were mapped and fed into the design of governance reforms targeting those countries. A more or less tacit assumption in this approach was that political-economy analysis would enable donors to identify potential pockets of resistance against the reforms that donors were advocating – hence improving the chances of getting reforms accepted.
This report identifies three major problems with the way in which political economy analysis is used in donor agencies:
- The interests of and conflicts within donor governments need to be understood to see why the implications of political economy analysis are not likely to be followed to their logical conclusions. Essentially, this problem calls for a political economy of donors themselves.
- The specific nature of the relationship between donors and recipients, which has been defined by many as a situation of dependence, has a major impact on the ability of donors to influence the course of reforms in developing countries. dependence has been assumed too easily to imply a complete renunciation of recipient governments to the policy objectives of the donors. Such an interpretation of donor-recipient relationships does not pay sufficient attention to the tools that recipient government possess to serve their own interests.
- There is an assumption that development can be defined in terms of ‘public goods’ characteristics. The assumption seems to be that Pareto-optimal solutions can be found in development strategies if donors, in cooperation with recipient governments,apply the correct technical instruments to bring about development. this understanding of development is essentially a-political, and fails to recognise that development presupposes the existence of a particular institutional order, which benefits some social-economic groups more than others.
