Article

Governance and the Development Process

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
January 1991
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While much debated, better governance is being seen by external agencies and domestic partners as essential for sustainable development

Pierre Landell-Mills and Ismail Serageldin

Governance—the exercise of political power to manage a nation’s affairs—is being increasingly identified as a critical determinant of the economic performance of developing countries. The dominance of quantitative economics in the development debate in recent years is seen as having led to the neglect of crucial issues of political economy and the role of institutions. An interdisciplinary approach may lead to a better understanding of the factors blocking development.

The upsurge of interest in governance reflects five reinforcing perceptions. First, the success of market economies is being contrasted with the failure of centralized planning. Second, in many countries, popular discontent at the abuses of authoritarian regimes is spurring a search for more democratic and responsive forms of government. Third, the inefficiencies of state enterprises and public agencies at a time of fiscal crisis have prompted a re-examination of the role of the state. Fourth, there is heightened concern that widespread corruption is siphoning away both domestic and foreign aid resources. And fifth, a resurgence of problems of ethnicity is greatly complicating the task of nation building.

In the World Bank’s 1989 report on Sub-Saharan Africa, “From Crisis to Sustainable Growth,” issues of governance were broached with unprecedented frankness. Governance was seen as encompassing a wide range of concerns: the effectiveness of a state’s institutional arrangements, decision-making processes, policy formulation, implementation capacity, information flows, and the nature of the relationship between rulers and the ruled.

The Bank’s report recognized two distinct but intimately intertwined dimensions of governance: one is political (related to the degree of genuine commitment to the achievement of good governance and the need to arbitrate equitably among competing interests), and the other is technical (related to issues of efficiency and public management).

State and society

The current widespread trend toward the disengagement of the state from productive activities, while re-emphasizing the state’s crucial responsibilities in providing public, social, and infrastructural services and creating an enabling environment for private operators, is having a major impact on issues of governance. Privatization and economic liberalization significantly reduces the power of state bureaucrats. So does the new popular policy of decentralization of governmental activities that “empowers” local communities (i.e., gives them more opportunities to decide on matters that affect them), who are then expected to assume greater responsibilities for delivery of public services.

But empowerment will not assure better governance unless the responsible public agencies are competent. This brings to the fore issues of technical management and acquisition of skills. It also highlights the need for institution building in the broadest sense and for adequate public investment in human resource development.

The state plays an indispensable and potentially creative role in establishing the environment for economic activity, thereby determining the distribution of assets and benefits. This role also implies the possibility that the apparatus of government may be captured by a self-serving elite to plunder a nation’s wealth, thus obstructing development.

In most societies, deep social divisions must be reconciled if the conditions for good governance are to be established. Governance often involves compromises and consequently even a competent and well-intentioned regime may not be able to fully achieve the conditions for good governance. Unfortunately, ethnic disputes are at times deliberately exaggerated to mask the rapacious actions of the ruling elite and their supporters. However, sheer lack of capacity also limits the ability of public authorities to fulfill their responsibilities, even when they are fully committed to the task of nation building.

Economic and social progress are not the only objectives of good governance. Civil liberty and the ability to participate in the political system can also be viewed as elements of a full and meaningful life that should contribute to the well being of individuals and the development of societies.

Sovereignty and interdependence

Although the quality of governance is a key determinant of a country’s development performance, donors have been reticent in the past to address issues of governance lest they be seen as interfering in a country’s internal affairs. However, in an increasingly interdependent world, no state can develop in isolation from the global order. Poor countries are particularly vulnerable to events in the rest of the world. Consequently, they have come to depend heavily on the international community for financial and technical assistance for their development. As donor governments and their publics are becoming increasingly aware that their assistance is greatly affected by the quality of governance in the recipient countries, they have become more and more concerned to promote better governance. This has raised the issue of sovereignty.

This article examines the nexus of governance and development from the perspective of two World Bank economists with many years of operational experience in Africa and else where. It does not necessarily reflect the views of the World Bank.

The concept of sovereign nations underlies all aspects of the present international order. Nonetheless, sovereignty is constrained by a web of international, multilateral, and bilateral agreements that create mutually binding obligations within an established system of international law. Since poor countries generally have fragile polities and weak systems of accountability, with few autonomous institutions and little countervailing power to that exercised by the government at the center, external donors and development agencies have the potential to exert considerable influence in promoting good or bad governance. This can embroil them in fundamental issues, such as the link between government and the governed, and between state and society, which are both culturally and politically sensitive.

Given the risk of ethnocentric and cultural bias, external agencies need to be extremely cautious in proposing specific solutions for improving governance. Through dialogue and analysis, options can be examined, but ultimately it must be the responsibility of the sovereign state to determine its own homegrown solutions. For their part, external agencies, within the legal limits of their statutes, have an obligation to judge whether those solutions appear credible, to assist and monitor their implementation, and to modulate their financial assistance accordingly.

Fostering better governance

Although there are many different views as to what constitutes good governance, some of which are ethnocentric or culturally determined, it is possible to specify a minimal core of characteristics that are generally agreed upon. These are discussed below. In large measure, these derive from, or are related to, the Universal Declaration of Human Rights, which can be viewed as representing the moral consensus of the international community of nations.

Political accountability. While there is no demonstrable direct correlation between development and democracy, to be effective agents of development, governments need to be perceived as legitimate through some form of political accountability. The classic mechanism for ensuring political accountability built into most constitutions is to subject the political leadership (and even other public officials at the national, provincial, and local levels of government) to a credible electoral process with limited periods in office. External agencies can assist, and indeed are currently assisting, in promoting political accountability in various ways. First, by helping to mediate conflicts and second, by helping to organize and monitor elections. Occasionally, donors have acted by withholding external financial support from governments that have clearly lost popular support to the point where they cannot govern effectively.

Freedom of association and participation. Closely allied to the preceding concern is the question of whether a country’s citizenry enjoys the freedom to organize according to specific interests. Institutional pluralism can be seen as an important mechanism for diluting and disseminating exclusive central political power. But it is not always conducive to stability, particularly where people have shown a strong tendency to organize along ethnic lines.

At the national level, freedom of association means the freedom to establish religious groups, professional associations, women’s groups, and other private voluntary organizations to pursue political, social, or economic objectives. Clearly, it is the latter three that would be of principal interest to external agencies concerned with assisting development. Donors can provide critical financial and technical assistance to such organizations, which can empower groups that are otherwise marginalized within the existing political and economic system. Surprisingly little has been done in this sphere, mainly because this aspect of institution building has not attracted significant donor attention.

The situation is different at the local level. Considerable assistance has been successfully provided by donors to grass roots community organizations and cooperatives, often channeled through nongovernmental organizations (NGOs). The involvement of foreign NGOs may reduce the risk of corrupt local counterparts, but ultimately systems of accountability must be built into the institutional design of each organization (e.g., the self-policing of cooperatives via cooperative unions, as happens in the Cameroonian credit union movement).

This leads to the broader role of external agencies in promoting the active participation of the ultimate beneficiaries of development projects and programs that they finance in both design and implementation. There is now a wide consensus in the development community on the desirability of such participation and few governments would openly oppose the concept. Nonetheless, even for regimes that were not notably repressive, such grass-roots “democratic” initiatives have frequently been regarded as potentially threatening.

A sound judicial system. There are few aspects of governance where consensus is more firmly established than on the need for an objective, efficient, and reliable judicial system. An essential concomitant is the creation of honest law enforcement agencies and a speedy and affordable court administration.

Some external aid agencies have been reluctant to assist in strengthening judicial systems because the link to development is seen as indirect. More particularly, it is feared that involvement in law enforcement will risk association with inequitable or unjust law enforcement. While very real, these risks can be exaggerated compared to the importance of instituting legal accountability. A sound judicial system is a prerequisite for effective political and bureaucratic accountability.

Bureaucratic accountability. To be fully effective, measures to achieve political and legal accountability need to be accompanied by additional arrangements to make bureaucracies more accountable. This requires monitoring the performance of public agencies and officials and an effective, and politically autonomous system dedicated to correcting bureaucratic abuses and inefficiencies.

A critical dimension of bureaucratic accountability is transparency. This implies, for example, making readily available for public scrutiny all public accounts and audit reports (including those of all parastatal organizations), a practice that many public officials strongly resist and donors increasingly demand. So basic is this to the concept of good governance that the question of sovereignty should not arise. Every citizen, as well as every donor, has a right to expect transparency in the management of public funds.

At the core of bureaucratic (and political) accountability is the need for rigorous systems of financial management and procurement, with swift and tough penalties for malfeasance. Sound methods of accounting and auditing, and of customs duty and other revenue collection, are readily available. The same is true for procurement. External aid agencies have been too often tolerant of financial abuse and indeed have at times indirectly shown complicity in corrupt practices by responding to improper pressures from their own suppliers. The financing of unwarranted “commissions” by export credit agencies is but one example.

Fostering markets and helping to create quasi-market mechanisms (e.g., contracting out the provision of services such as refuse collection or road maintenance, through competitive bidding procedures) is also a useful way to foster accountability, and donors can usefully support such initiatives. Other instruments that can be considered include the appointment of ombudsmen and watch-dog committees, holding public hearings, and conducting opinion polls. In addition, loosening administrative controls and simplifying the regulatory framework may facilitate competition and reduce the opportunities for corruption.

Freedom of information and expression. Openness is crucial for accountability. The need for the free dissemination of information goes well beyond facilitating accountability. Efficient markets depend on good information as does the exercise of freedom to participate in economic and political decisionmaking. Unfortunately, vital data such as that relating to national accounts, trade, balance of payments, employment, cost of living, household expenditures, and the like are frequently withheld by governments from their citizens, and yet openness is essential for a soundly based public debate of the performance of a government and its agencies. Informed policy discussions are at the heart of a healthy political process. Moreover, good social and economic data are important for business planning, while their absence is a hindrance to development.

There are many ways for external agencies to assist in the collection and dissemination of economic and social data and other information needed for informed public debate. Yet, their efforts in this field so far have been slight. The need is for sustained and coordinated programs to assist in building national capacities for data collection and dissemination, as well as to encourage public debate by financing seminars and public information programs. It is not enough for the information to be available; analysis and research are also needed, and this should not be a monopoly of the state. Donors can contribute to this process by funding independent research organizations and by supporting the autonomy of the universities.

Capacity building. Good governance requires not only political commitment and systems for ensuring accountability, the sound administration of justice, and freedom of information, but also competent public agencies. This is an area where external agencies have been active for many years, but still with poor results.

The failure of external assistance for public management is partly because political commitment was lacking, but it is also due to the poor design of the interventions. Two underlying features merit attention: first, capacity building is a long-term venture and external agencies need to evolve approaches that will enable sustained long-term support programs to be adopted. Second, external agencies cannot be fully effective unless they adopt a collaborative approach in partnership with the governments concerned. Much is to be gained from a more concerted effort to help governments define clearly a single comprehensive program of administrative reform and capacity building that all concerned can support. Examples of such programs abound—including in Ghana, Gambia, the Central African Republic, and Madagascar, to name but four in Africa supported by the World Bank. The African Capacity Building Initiative—to build a critical mass of African policy analysts and economic managers and to set up or rejuvenate local management institutions—recently launched by a group of donors is a good example of what can be done.

Roles of external agencies

There are many different categories of external agencies and each has its distinct role in fostering better governance depending on its mission and mandate. External agencies generally can more easily address the technical aspects of governance, but by no means exclusively so, depending on their nature.

International and multilateral institutions. Since, except in the case of the newly created European Bank for Reconstruction and Development, the statutes of international and multilateral institutions expressly rule out political considerations, the focus of their action must be on the technical aspects of governance. Thus, the World Bank and UN Agencies have been active in assisting countries in strengthening their public administration (including the administration of justice), reforming public enterprises, and building institutional capacities. This is entirely the right focus, though much more could be done to improve the effectiveness and sustainability of technical assistance in this area. In addition, there has been increasing effort to promote institutional pluralism by fostering local government, NGOs, and grassroots organizations with the objective of mobilizing local human and financial resources in the provision of community services. This support for institutional development can usefully be extended to assisting the growth of other private voluntary organizations, such as professional associations and chambers of industry and commerce.

Bilateral agencies. Such agencies may choose to use their influence to promote political accountability and respect for human rights. This would be most effective if it were focused particularly on encouraging the rule of law. Helping to organize fair elections by furnishing both resources and observers is another possibility. The practice of supporting particular political parties, however, clearly undermines good governance by distorting the political process.

Important opportunities exist for bilateral donors to promote honest government by channeling funds in ways that reduce the chances of corruption. This could be done by untieing aid from procurement restricted to the donor country, by insisting on open competitive procurement procedures, and by outlawing bribery or the payment of excessive “commissions” by their suppliers. The United States has taken the lead on this, but other members of the Organization for Economic Co-operation and Development have so far been reluctant to follow.

Nongovernmental organizations. There are two special contributions that industrial country NGOs can make to promote better governance. One is to support developing country NGOs and hence foster pluralism. The second is to campaign against human rights abuses in a manner that is seen to be completely apolitical. Amnesty International’s efforts in this area are well known.

Another category of activities where NGOs can play a key role is to foster twinning arrangements or networks between groups in different countries with common concerns or shared missions—this could cover professional associations, trade unions, chamber of commerce and industry, and other special interest groups.

Pierre Landell-Mills

British, is Senior Policy Advisor, Africa Technical Department of the Bank.

Ismail Serageldin

Egyptian, is Director, Technical Department in the Africa Region of the Bank.

Persuasion not coercion

While recognizing that the world order remains strongly anchored to the principle of the sovereignty of nations, external agencies can contribute significantly to fostering good governance in those countries seeking their assistance. Their role in this regard is likely to generate much debate internally and in the countries that they seek to help. As a general principle, institutional reforms are unlikely to be sustained unless they are home-grown and underpinned by a genuine political commitment. Thus, it is self-evident that a collaborative approach is likely to be more effective than coercion over the long run. To be sustainable, reforms cannot be imposed. However, as has been the case in the context of structural adjustment lending, to overcome inertia, it is sometimes useful to set a timetable for specific agreed actions (considered to be crucial for the achievement of program objectives) linked to the release of external funds. Moreover, in certain instances, the weight of the donor community may be needed to counterbalance the private agendas of the ruling elites.

The effectiveness of external interventions will be a function of their sensitivity to local conditions and the degree of popular local support that is engendered. Although close coordination among agencies is a prerequisite for a coherent approach, the success of external interventions is likely to depend mainly on persuasion and on the progressive evolution of internal power structures brought about by education, income growth, and pluralistic institutional development.

The many facets of good governance are not all conceptually independent nor are they invariably complementary. Conflicts may easily arise, at least in the short run. If open and participatory processes are pursued, for example, government policies may temporarily become less predictable and efficiency can be reduced. Over the longer term, however, most links may be mutually reinforcing.

The pace of change is likely to be strongly influenced by economic circumstances. Economic crisis can precipitate radical political change and lead to a rapid change in the perception of what is and what is not possible. It can also provide an opportunity for bold and rapid transformation of societies. A number of developing economies have begun to take that opportunity. Their experience may serve to guide others along the path to good governance.

• NEW FROM THE INTERNATIONAL MONETARY FUND•

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The growing integration of capital markets has strengthened incentives for greater international coordination of economic and financial policies. Structural changes in these financial markets, however, may have undermined the effectiveness of monetary and fiscal policy and complicated market access by developing countries. These are among the findings of this study of capital flows in the 1970s and 1980s, which is Number 77 in the IMF’s Occasional Paper series.

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A detailed paper on this topic was presented by the authors at the World Bank Annual Conference on Development Economics in April 1991 in Washington, DC. The proceedings of the conference will be published in a supplement of the World Bank Economic Review and the World Bank Research Observer in 1992.

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