Attempts to transfer Western institutional models from rich to poor countries often fail because the required institutions operate in such a different social and political context. Instead, Sue Unsworth and Mick Moore propose taking an ‘upside-down’ view of governance
Imagine a scene in Beijing in 1978. A Western economist has been invited to advise the Chinese leadership on ways of promoting economic growth. She advocates liberalisation of crop prices, privatisation of land, tax reform, corporatisation of state enterprises, trade liberalisation, financial market reforms, and safety nets for laid-off workers – all at once. The Chinese government would neither have accepted this advice, nor been able to implement it effectively – all at once. It has however implemented all of these reforms, and many others, over a longer timescale. And the reforms were often routed through so-called ‘imaginative shortcuts’ – relatively small, unorthodox processes of experimentation that addressed constraints to investment and economic growth that were specific to particular contexts.
Similar lessons to these can be learned from India, Indonesia and Vietnam. Essentially, in the long term, it is hard to attain prosperity within a global economy without establishing strong formal institutions similar to those found elsewhere in the world. But trying to move immediately to ‘best practice’ can be counter-productive. (The subject is eloquently explored in Dani Rodrik’s work In Search of Prosperity: Analytic Narratives on Economic Growth, Princeton University Press, 2003.)
Contrast this pragmatism with the rather inflexible notions of ‘good governance’ that Western aid donors continue to promote. Their prescriptions mostly imply reforms that would align the institutions of poor countries more closely with those found in an OECD country. Aid donors now spend over $10 billion a year supporting a range of measures designed to strengthen formal, rules based arrangements, including public sector reform, independent judiciaries, democratic elections, effective legislatures, legal frameworks to enforce contracts and protect property rights, anticorruption commissions – and, of course, stronger civil society organisations able to demand accountability from governments.
Yet there are nagging, growing doubts about the effectiveness of this explosion of activity. Research and donors’ own evaluations show that many of these governance programmes have limited impact, and they emphasise instead the importance of local ‘ownership’ of reforms. Moreover, increasing preoccupation with security and development challenges in so-called fragile states (such as Afghanistan, Democratic Republic of Congo, Somalia and Sudan) is highlighting the fundamentally political nature of state-building. One response has been an upsurge of interest among donors in political analysis, as they struggle to understand more about the underlying causes of corruption, weak governance and disappointing development outcomes in some of the world’s poorest countries.
Such analysis has awkward implications for Western policy-makers, and especially for aid agencies. It underlines the point made by Rodrik and others in relation to China: that effective institutions able to deliver a broad range of public goods emerge through local political processes of bargaining, experimentation and interaction between state and society, public and private actors, and formal and informal institutions. Attempts to leapfrog this process by transferring Western institutional models from rich to poor countries often fail because these institutions operate in an entirely different social and political context.
Political analysis shows that the symptoms of bad governance – corruption, lack of accountability and weak ‘political will’ for reform – are deeply rooted in the history, social and economic structures, informal institutions and personal relationships that shape the behaviour and interests of powerful actors. This underlines the limited ability of outsiders to directly shape governance and development outcomes through technical or financial aid programmes. It also challenges the assumption that Western experts have the answers, and need to take the lead in finding solutions – often to problems that they themselves have identified.
The temptation for OECD governments, especially when public finances are under pressure, is to retreat towards familiar ground. They need to be able to reassure their own hard-pressed taxpayers that aid really does offer value for money, and that there will be ‘zero tolerance’ for corruption. So they instinctively play down the scale and complexity of the governance and development challenges facing poor countries, and focus on interventions aimed at achieving measurable, short-term results, with the implication that development is something that donors can deliver rather than something that needs to be negotiated through local political processes.
New research from the Institute of Development Studies (IDS) at the University of Sussex argues against both a ‘good governance’ model and a reversion to aid-centric, donor-centric approaches. An Upside-Down View of Governance (IDS, 2010) offers aid donors a different way of thinking about the messy, complex reality that confronts them. It suggests that they should stop analysing development and governance challenges in poor countries in terms of deficiencies when compared to an ideal ‘developed’ state and society (implicitly ‘we want Zambia to look more like Denmark’). They should focus less on a specific destination, and more on the process of getting there; and be more open-minded about what that process might look like, rather than starting with a list of policy and institutional reforms they believe are needed. Perhaps most importantly, they should stop seeing local politics as an obstacle to be circumvented, and start looking for ways of working with it.
The change of approach is difficult because political systems in poor countries tend to be heavily influenced by informal institutions and personalised relationships. Donors mostly see these as governance problems, and focus on the negatives: the way ‘informality’ contributes to corruption, or to exclusive benefits for a small elite, or to repression of less powerful groups. All of this happens, but it does not follow that the solution lies in trying to jump to more formal, legal arrangements. The search for better governance, stronger economic growth, and better services needs to start by looking at the interests and incentives that underpin existing arrangements and behaviour, and at how to shift them over time in more progressive directions.
How these relationships play out varies from country to country, and between different regions and villages within a country. But the research identifies a set of questions that are likely to be relevant in a great variety of different contexts.
The overall message is that Western policy-makers should stop seeing themselves as bringing solutions. They can, at best, be facilitators of local development processes
They include: What informs the interests of political elites in poor countries? What shapes relationships between politicians and investors, and how might they have shared interests in supporting more productive investment? What might stimulate and sustain collective action by social groups to demand better services? What informal, local institutions are at work, and how do they affect development outcomes? Where does government get its revenue from, and how does that shape its relations with citizens?
These questions point to some operational priorities. For example, in an increasingly globalised world, political elites in poor countries have unprecedented opportunities for personal enrichment, whether from controlling the export of natural resources (oil, minerals, gas) or from participation in global criminal networks, and they find it easy to transfer their assets abroad. This, along with aid, has significantly weakened their need to bargain with citizens over taxation, and helped to create perverse incentives that have contributed to state fragility and conflict.
Much more priority could be given by donors to international action to tighten global financial regulation, reduce opportunities for corruption, increase the transparency of oil revenues, and reform the international regime on narcotics. They could also use market pressures more strategically to provide positive incentives for better governance in poor countries. An example is the recent changes in EU and US legislation, requiring importers of timber and timber products to ensure that their sources of supply are legal. This is significantly changing the interests of governments and timber merchants in producer countries, and creating incentives and pressures to reduce illegal logging.
The interests of business tend to be ignored, and yet relations between politicians and investors are critical for creating and sustaining both social stability and political authority, and for providing the conditions for productive investment. Research in Egypt, Indonesia and China shows how informal relationships based on common interests between politicians, policy-makers and business can boost investment in the short to medium term, even where legal and regulatory frameworks are weak. This suggests that donors could focus less on how to strengthen the formal investment climate, and more on the scope for productive bargaining between public and private interests.
Donors spend a lot of time thinking about how to ‘strengthen civil society’, but much less time thinking about how to design public programmes or aid mechanisms in ways that could provide opportunities and incentives for collective action by poor people, or groups working for them. Donors could try to understand the interaction between state institutions and civil society groups, instead of simply hoping that, in some ill-defined way, programmes to strengthen state capacity on the one hand, and civil society pressure on the other, will somehow come together.
Finally, donors should give more priority to helping poor countries strengthen and reform tax administration and public expenditure management, with a focus on increasing equity and transparency of tax relationships, not just the amount of revenue collected. There is good potential for productive political bargaining around taxation, building on: shared interest in the need for more revenue (not least to get donors off their backs); business interest in better infrastructure and more predictable taxation; and taxpayer and civil society interest in better services.
The overall message is that Western policy-makers should stop seeing themselves as experts bringing solutions, based on their own institutional and policy models. They can, at best, be facilitators of local development processes. The search for improved aid effectiveness needs to start with a better understanding of local social, political and institutional dynamics, rather than with new aid procedures. Donors should also think beyond aid, and be much more alert to the ways in which the behaviour of rich country governments and businesses influences the opportunities and incentives for productive political bargaining in poor countries. That, rather than the transfer of formal institutions mimicking those in OECD countries, is the path to better governance.
