As the world grapples with COVID-19, governments face a daunting challenge: limiting the adverse impact of a pandemic that has ground economic activity to a halt, affecting people at a scale rarely seen before. More than 50 countries, including the United States, have announced some form of cash transfer or social assistance to help tide over the immediate challenges faced by their citizens. While many of these efforts are one-off measures to mitigate the immediate impact, some may turn out to be more long-term depending on how widespread the economic and human cost of the pandemic turns out to be.
Delivering on these promises will require an enormous increase in the capacity of states to make payments to their citizens, or government-to-people (G2P) transfers, as they are widely known. Every government transfers money to people in some form—public sector salaries, pensions, scholarships, grants and vouchers to the poor, and so on—so there is existing capacity, including delivery mechanisms, to draw upon. But in most countries existing systems will not be adequate, either in volume or coverage, to help those affected make it through the economic disruption. The immediate challenge is how to make G2P transfers efficiently, equitably, and at scale—and how best to use technology to do so. And once the crisis is passed, the development challenge remains: How can digital technologies help accelerate global efforts to achieve the Sustainable Development Goals (SDGs) and eliminate poverty?
Even before the onset of the COVID-19 pandemic, we have attempted to answer some of these questions in a three-year project at Center for Global Development (CGD), culminating in our newly launched Citizens and States report. It has taken us on a journey through three continents—Asia, Africa, and Latin America—to understand how digital technologies are shaping the future of governance.
Digital ID and payments improve state capacity
The potential of ID, mobiles, and payments to improve the capacity of governments to deliver more effective, inclusive, and accountable programmes is huge. This trinity has been termed “JAM” in India.
People in Indian villages receive food subsidies and pensions using the country’s biometric ID, Aadhaar. Community health workers in Bangladesh deliver maternal health services using their mobile phones. Agents in rural Kenya are at the frontlines of the mobile money revolution that is now a global phenomenon.
Governments are creating the infrastructure to harness the power of data to monitor the delivery of services and subsidies in real time, improving accountability of providers and voice of the citizens.
Developing countries are transforming their ability to deliver public services, subsidies, and transfers. Leveraging the almost-universal coverage of Aadhaar, bank accounts, and mobile phones, India now electronically transfers nearly $350 billion to over 800 million people every year. The just-passed US plan to give $1,200 to every citizen—including in some cases by check—will be far more logistically challenging for the US government than transferring the payment digitally, as India has been doing for government payments for the last seven years, and far more subject to errors and fraud. Many developing countries will similarly struggle to distribute payments, but others have built up robust systems that they can now leverage in a crisis.
Digital technologies are changing the lives of people in the developing world. With the spread of digital identification, access to financial accounts, and mobile phones, citizens increasingly demand the same convenience and responsiveness in dealing with their governments that they experience in their personal lives. In turn, governments around the world are moving rapidly to harness the power of technology to improve their ability to serve people—in other words, increasing state capacity in an increasingly interconnected, digital world.
Conceptual framework: SDGs as a measure of state capacity
Is a capable state a “good” state? The record suggests not necessarily. In developmental terms, state capacity can only be assessed relative to some specified objectives. For these, we can turn to the global development consensus, as embodied in the Sustainable Development Goals (SDGs). They represent an ambitious elevation of aspirations relative to the Millennium Development Goals, placing new emphasis on the nexus between the state and the individual.
In the current dynamic and evolving context, how can digital technologies play a positive role to achieve the ambitious objectives and targets embodied in the SDGs? What can we learn from the experiences of digital reform in developing countries? What can we say about the future trajectory of digital governance—the guiding principles, the harmonisation of policy design and technology, and the challenges going forward? Finally, how can technology both empower citizens and improve state capacity?
The SDGs recognise the importance of JAM; ID, mobile communications, and financial inclusion are intrinsic goals in themselves, in addition to being possible instruments to help achieve other goals and targets.
The objectives of SDGs should motivate governments to use digital technologies—especially ID and payments—to improve delivery of public services, subsidies, and transfers. Without an effective ID system, beneficiary lists are often replete with nonexistent individuals or “ghosts,” resulting in misuse of scarce public resources. Without increased access to financial accounts, it is difficult to pay beneficiaries electronically instead of in physical cash. Finally, without the capacity to gather feedback on the quality and timeliness of public services and payments, it is difficult to identify bottlenecks and improve the efficiency and accountability of service provision. Digital technologies, appropriately designed and implemented, can address these issues, improving the capacity of states to improve the efficiency and equity of delivery mechanisms over a broad range of public goods and services in developing countries.
Digital technology, including ID and payments and supported by mobiles (JAM), can enhance state capability to deliver a wide range of policies and programmes relating to multiple SDGs in the areas of sustainability, social protection, and governance. Improvements can include better accountability, service and user empowerment, greater equity, and sometimes fiscal savings. The latter can come mainly from three sources: lower transaction costs, eliminating ghost and duplicate beneficiaries (both within and across programmes), and reducing leakages in subsidies delivered through G2P and P2G payments as well as goods delivered through digitally controlled supply chains. Shifting from physical cash payments to financial transfers, for example, can ease the burden of managing cash on frontline service providers, such as teachers in the case of education supplements in Bangladesh.
Gains are not automatic, however. Technology is only a tool. Even as it opens up new opportunities, its impact will be shaped by institutional and economic conditions as well as the aim of the reforms.
Technology amplifies the power of data, and its impact on development depends on how this power is used. States can use data to improve service delivery, but they may not be benign users of data. The rapidly evolving tools available to governments also have the potential to leave marginalised groups behind, or to further isolate them. New checks and balances will be needed to ensure that digital technology serves the needs of all citizens.
JAM is a flexible platform, and it is being applied in different ways. The principles that follow are based on cases to date, but there is still a great deal to learn about the introduction of digitised service programmes.
Principles for policy
Universal access to well-functioning ID, connectivity, and financial inclusion has to be a first principle when considering moving citizen–government interactions in this direction.
The primary aim of reform should be to improve quality and inclusion, with fiscal savings a secondary objective, to be obtained from efficiency gains.
Digital approaches can open the door to new ways to approach targeting. Because they enable benefits to be provided accountably to well-identified recipients, governments can invoke “soft targeting” through moral suasion and other indicative approaches.
Incentives throughout the delivery chain are a critical counterpart to accountability and need to be factored into rollouts and reforms. If digital reforms eliminate avenues for diversion and corruption, margins for service providers will probably need to be increased to compensate for reduced opportunities to exercise their discretion.
It is essential to have effective policies and procedures in place to monitor technology failures and grievances and to resolve them, especially as reforms move important elements of delivery out of the hands of local officials and towards more remote systems and data.
Even programmes seen as “good” by the majority of beneficiaries and customers can increase the marginalisation of vulnerable groups. For this reason, there needs to be a special focus on such groups when assessing the impact of changes. This can include technological challenges—for example, to provide alternative options for authentication through an ID system.
Reforms can also involve transitional frictions such as reconciling data errors and inconsistencies as previously manual or scattered systems are integrated. These problems will be more serious for groups with less capacity—the poor, elderly, or women—who are frequently the most dependent beneficiaries of public programmes.
Choice and Voice
Digital technology should empower citizens by increasing agency, expanding choice, and strengthening voice through better and more effective use of feedback systems.
Digitised delivery systems generate enormous quantities of data, much of it in real time, which can provide critical feedback to programmes and transition towards a system of real-time governance.
Because benefits are personalised and attached to the beneficiary, they can be made portable, subject to logistical constraints. The exercise of choice by users provides a second important real-time feedback signal to program administrators.
User responses can provide a third feedback loop, operating in almost real time. This can include star ratings of distributors and beneficiary surveys through robocalls as well as phone-based systems for filing complaints.
Although elements of the approach could be included in many programmes, not all jurisdictions will have the motivation and capability needed to operate a full real-time governance feedback system.
Ensuring the long-term political sustainability of real-time feedback systems is difficult, but transparency can help build citizen demand and buy-in. The results generated by feedback systems will need to be readily available and easily accessible to the public to establish it as a citizen expectation and a useful tool for civil society.
Cross-cutting goals: Gender equity and financial inclusion:
Even as digitising programmes can contribute to more effective service delivery, it can support women’s empowerment and provide a stimulus to financial inclusion. These are useful steps towards the goal of changing gender norms, although this is a much longer-run proposition.
A growing body of evidence shows that women and other marginalised groups such as ethnic and linguistic minorities, as well as differently abled persons, face extra structural barriers to adopting the JAM components.
Surveys paint a broadly favourable picture in most cases but point to the need for attention to the constraints on women that limit their agency. This can dilute the gains from digitising programmes or even cause more difficulties.
The road from digital transfers to full use of financial accounts is long, but specific measures can help. By and large, very few of the women receiving transfers into bank or mobile money accounts are doing more than cashing them out. They are financially included, but more in a formal sense than in a real sense.
There is a large unfinished agenda to extend JAM access and use. JAM cannot be used as a delivery platform for services unless it is widely accessible. While there has been spectacular growth in coverage, the cross-country picture is uneven, including in reaching the poor and vulnerable groups who are often the highest priority for service. Similarly, the wide gap between leading use cases and others indicates how much further there is to go in using JAM to reform citizen–state engagement. Addressing this challenge will require strategic approaches that build on natural synergies, especially since ID systems, mobile communications, and payment systems are multi-use platforms that can be applied to many programmes and services.
Governance will need to evolve as citizens increasingly adjust to—as well as demand—”digital first” interactions with the state. There are still many questions around the longer-run implications of digitisation. While digitisation of government payments has been motivated largely by the objective of governments to improve the efficiency of public expenditure, we have yet to see its impact on revenue mobilisation, especially in developing countries. To what extent ubiquitous citizen–state digital payments (both G2P and P2G) would lead individuals to change their preferences for cash versus financial transactions is also an open question. The impact of digitisation is complex—for example, the trade-offs between greater transparency and accountability of transactions enabled by digital ID and payments on the one hand and the incentive to deliver better services by those who benefited from the previous system on the other. digitisation would entail significant realignment of incentives between the government, its intermediaries, and citizens.
More monitoring and research are needed as the use of JAM extends to more countries and programmes. While this report has sought to build on available evidence, this is still sparse. Few system reforms are adequately monitored, so provision for this—including client surveys—should be built into their design at the start. There is also a need to better understand how the shift towards digital mechanisms influences social and gender norms over the longer run.
Alan Gelb is a senior fellow at the Center for Global Development (CGD); Anit Mukherjee is a policy fellow at the CGD; and Kyle Navis is policy analyst at CGD.
This article is an edited excerpt from the authors’ report ‘Citizens and States: How Can Digital ID and Payments Improve State Capacity and Effectiveness?‘, released by the Center for Global Development. Read the full report here.