What The Aid Industry Can Learn From Venture Capitalists


Bali is a place most Australians are familiar with. If you haven't visited yourself, chances are you have friends who have. For Australians, Bali is a place to unwind and have fun in the resorts, beaches, bars and clubs of Kuta and Seminyak. Maybe, if we crave a more "authentic" cultural experience of peace, and serenity, our visit will involve climbing into the verdant forests and terraces around Ubud.

It’s to these terraces that Ben Ramalingam takes us first in his new book, Aid on the Edge of Chaos. They hint at the remarkable history of the island and how its people have managed water, a precious and scarce resource, for a thousand years.

Bali’s terraces are managed with a system of farmer cooperation unique to the island, called the subak, which has developed over centuries. An irrigation network distributes water from the rivers all the way to the farthest terraces. This is vital for cultivation; without adequate water making it to each terrace, pests would multiply and spread, decimating the crops.

The subaks operate through the agrarian, legal and religious functions of a network of hundreds of beautiful water temples. As a result, Bali achieves the highest rice yields in the Indonesian archipelago. Today, the system is recognised with UNESCO World Heritage Status.

In the 1970s, an intervention by the Asia Development Bank threw the intricate system off balance with dramatic results. In an attempt to modernise Bali’s agriculture with central management, the bank introduced a program called (you couldn’t make this up!) Massive Guidance. The result was plummeting rice yields for a decade.

The release of Aid on the Edge of Chaos this November is timely for anyone who takes an interest in Australian overseas development funding. How can it be harnessed more effectively to bring about change? For Australia, this question is now wide open with the new government’s emphasis on the non-aid aspects of development policy. Practitioners and public alike need to consider what shape Australia’s aid should now take.

Ramalingam argues that we must “improve aid rather than increase it”, placing him somewhere between Jeffrey Sachs and Bill Easterly. Tapping deeply into cutting edge research and the policy application of complex adaptive systems theory, he offers us a fascinating new lens through which to view the shifts in Australia’s aid and development policy, and the challenges facing the aid sector globally.

The experience of Bali’s rice farmers is not an isolated one. In 'Coping with Tragedies of the Commons' the Nobel Laureate economist Elinor Ostrom showed how self-organised governance systems could often be more effective than centrally directed policies at managing common resources such as fisheries and irrigation networks. She argued this was because common resource pools are complex adaptive systems, which are by their nature unpredictable.

A good approach is to experiment and tinker with rules and practices, which evolve in response to the feedback from the system. Local governance structures, Ostrom says, are in a better position to respond and adapt to the system’s feedback. In Bali, a realisation that the subaks were successful and sustainable precisely because they had evolved resulted in their reinstatement and the end of Massive Guidance.

Aid on the Edge of Chaos is divided into three sections. The first gives an overview of how the aid industry currently operates, finding it process-oriented and innovation shy. The second looks at complex systems theory, and its application in other fields. Finally Ramalingam discusses a range of examples where thinking about complex systems is beginning to inform aid and development practice.

While he doesn’t give us any easy prescriptions for improving aid, Ramalingam does compel us to think differently about what it is meant to achieve. The aid industry needs to adopt a modus operandi of “best fit, not best practice”, he writes, because bringing about change in a complex world requires a posture of experimentation, of searching for approaches that work. However, we cannot know what is going to be successful with any certainty, and this means we need to be more accepting of failure.

What might this look like in practice? One approach could be to use "evolutionary strategies" that identify successful development programs through a process of differentiation, selection, and amplification. Eric Beinhocker, from the Oxford Institute for New Economic Thinking, argues that in economies selection occurs between business plans (the "units of selection") in the market, on the basis of profitability and growth.

Venture capitalists have distilled this into an applied evolutionary strategy which mimics the economic system. They provide seed funding to a set of nascent enterprises with a diversified range of business plans and risk, and then monitor their performance. After data collection, they rapidly scale up the successful enterprises and wind back support to those that fail to meet benchmarks.

The aid sector could try to adopt aspects of the venture capitalists’ approach. Using appropriate criteria, philanthropic foundations, international NGOs and government agencies could experiment with locally emergent approaches from partner-country NGOs. In fact, some organisations such as Oxfam are already starting to experiment with this in their programming.

This strategy will not be easy to adopt. When I speak with people about donating to aid NGOs, a familiar issue that always arises: "how can I be sure they aren’t just wasting the money I give them?" Politicians and NGOs want to tell success stories to taxpayers and donors – and we want to hear them. The disincentives associated with failure are high. But we have to recognise that sticking with "safe" approaches bears an "impact risk" – the risk that under-ambition leads to under-delivery, and the persistence of poverty.

In contrast to governments and NGOs, private philanthropy has more freedom to support risky and experimental initiatives. Individual philanthropists and charitable foundations could play a vital role by supporting innovation and experimentation funds. In parallel, DFAT’s aid program and especially the major NGOs must go beyond telling good news stories and work to deepen the donor public’s understanding of the complexity of development challenges.

Donors must be prepared to expect some of their funds to be directed to experimentation before it can happen, and Ramalingam's case studies – like the Balinese subaks – are a fascinating insight into where the aid industry might learn lessons. Australians interested in development need to engage with the idea of complex systems, as we try to adapt our aid to make an impact in a complex world.

Launched in 2004, New Matilda is one of Australia's oldest online independent publications. It's focus is on investigative journalism and analysis, with occasional smart arsery thrown in for reasons of sanity. New Matilda is owned and edited by Walkley Award and Human Rights Award winning journalist Chris Graham.