The more enlightened (in my view) aid types have been wagging their fingers for decades, telling their colleagues to adopt more politically literate approaches to their work. Why isn’t everyone convinced? Neil McCulloch applies a bit of political economy analysis to the aid business.
Over the last fifteen years or more, a new approach to development assistance has been gaining ground in policy circles. Broadly entitled the “political 
economy” approach, it attempts to apply a more political approach to understanding development problems and, importantly, development “solutions”. In particular, a central tenet of the approach is that many development problems are fundamentally political rather than technical and that therefore solutions to these problems are most likely to come from inside a country’s polity than from outside. Perhaps the most famous recent example of this line of thinking is Acemoglu and Robinson’s 2012 book Why Nations Fail.
Acemoglu and Robinson conclude that if each nation’s fate depends primarily on its domestic political struggles, the role for external development assistance is minimal. However, the response of practitioners to this field is to turn this argument on its head i.e. that is, if indeed each nation’s fate depends primarily on its domestic political struggles, development assistance should be trying to influence these struggles in ways that make pro-development outcomes more likely. Yet despite more than a decade analysis, the political economy “approach” is still rarely used by donors in the field. Why? I think there are four reasons:
It’s too “political”. Perhaps the main reason why political economy approaches are not widely used is the (correct) perception that they are, in some sense, meddling in the politics of the country. Donors presence in a country is at the permission of the host government who, almost by definition, constitute the winning elite of the most recent political struggle within the country. Most governments are generally not sympathetic to the idea of foreign governments funding “political” activities in their countries and, knowing this, most donors emphasise the benign, technical and apolitical nature of their work. This is why the dominant form of political economy work is Political Economy Analysis. Donors like this because it provides them with some insight into the political dynamics of the countries in which they work so that they can assess the risks of their programs failing because they go against the interests of local political actors. Indeed, if it is appears at all, political economy considerations generally only appear in the Risk Assessment section of project concepts and designs.
It spends too little money. Although donors pursue particular development goals within the countries in which they work, they do so by spending public money. In practice, this means that each country is allocated a certain budget and most of the practical activity of donor staff is associated with the mechanics of spending this money in an accountable fashion. Moreover, more “important” countries are allocated larger budgets, in part because the politicians of donor countries use the size of the budget to signal to the government of the country the importance with which their country regards the bilateral relationship. Yet the “political economy approach” to assistance generally entails building networks and facilitating discussions across a range of local actors who then, themselves, push forward reform agendas. This requires a lot of time and effort – but it spends much less money than building schools and hospitals. Indeed it would be almost impossible for donors to spend the sums of money at their disposal simply with a political economy approach and yet scaling back the budget to cover only the amounts necessary would result in a budget for assistance which might be seen as derisory by the host government.
It lacks an operational evidence base. A huge amount has been written about the political economy of development. However, the vast majority of it has been descriptive or analytical – very little of it has been operational (an exception is ODI’s work on the political economy of service delivery). Therefore, although there are some promising examples of success (e.g. the Asia Foundation’s approach in the Philippines), there is currently little solid evidence that taking a “political economy approach” actually yields better and more sustainable outcomes than a more traditional approach. The Developmental Leadership Program is currently coordinating a set of case studies which aim to explore precisely this issue; but until we have clear evidence, it is not surprising that many donor staff are cautious about adopting what is seen by some as a risky and unproven approach.
There is no sanction for quiet failure. Donor projects sometimes fail. Most donors put in place a complex architecture of processes to try to minimise the 
probability of failure (e.g. rigorous, and lengthy, design processes, regular monitoring and independent evaluations). Yet despite this, it is extremely hard for most donors to determine the extent of success or failure of the portfolio of programs that they fund in a country. In part, this is because measuring success is difficult since the situation if the assistance had not been provided is often unknown. It is also because donor projects are often long (five years or more), whilst the tenure of donor staff in a country is generally short (three years or less), so few staff see projects through the entire cycle. And it is also because it is not possible (and probably not desirable) to have sanctions for failure. Unless projects “blow up”, it is perfectly possible for them to continue for years, delivering “results” by substituting for local capacity without achieving any sustainable change. Without a general sense that projects are failing to deliver sustainable change, there is little pressure for a new approach.
It is easy to see that an approach that seeks to tackle an unrecognised failure using a new, labour intensive method with little track record that spends small amounts of money and may get the donor into political hot water is unlikely to be embraced too enthusiastically by the senior management of most donors. Which is a shame – because it should. Contrary to popular belief, Aid has achieved a lot of good in the last 50 years (see Roger Riddell’s nuanced account); but where it has done so, it has often been because it has engaged “politically”, changing the incentives for local actors to deliver sustainable changes in the opportunities for and services to the poor. An approach that subordinates money to a thorough understanding of context and a desire for sustainable results will achieve more in the long-run than the current focus on “delivering” (i.e. buying) results. Sadly, the political economy of donor incentives means that it will probably remain a marginal pursuit.