Making sense of indicators and evidence on governance in developing countries –

1. Making sense of indicators and evidence on governance in developing countries – Jonathan Di John

2. Making Sense of State Performacce Indicators • I. Many recent indices: • BTI (Bertlesmann Transformation Index) • CPIA (Country policy and institutional assessment) • Mo Ibrahim Index of African Governance • State Fragility Index • Polity IV • II. Reasons for their emergence: • New Institutional Economics • Good Governance agenda • Transnational Security Threats (civil and regional wars, terrorism, organised crime) and concern over failed and fragile states • Academic and policy interest in classification, description, and understanding of state weakness, fragility, and collapse

3. Making Sense of State Performance Indicators • III. Common features • Recent (post-2005) • Count and verbal variables • Lots of variables (unlike the HDI) • Common themes behind State Failure: state unable or unwilling to provide public good, lack of monopoly over means of violence, lack of monopoly over taxation.

4. Some Problems with State Performance Indicators • Prototyping—gather common instances of failure and then trying to extract their common characteristics. • Problems: many SPIs include correlates of fragility (high infant mortality), possible causes (lack of democracy), and consequences (humanitarian disasters) • Too many variables in the index (so how can researchers empirically test what causes failure?) • Single definition of collapse or fragility misleading (e.g Soviet Union/Czech Republic in 1989 versus Somalia or DRC in 2000). More useful to think in terms of ‘how far and how quickly a state is moving towards or away from fragility.

5. Some Problems with State Performance Indicators • Differential state performance within countries underemphasized (e.g Zambia, Tanzania, Colombia, Botswana, South Africa) • Lack of historical perspective (e.g. Switzerland gets a perfect score on democracy in 1960s yet women were disenfranchised. • Interactions/Interdependencies of different dimensions of definition of ‘fragility’ (e.g. CPIA: weak institutions, poor governance, political instability, frequent large-scale violence

6. Some Problems with State Performance Indicators • Fuzzy/vague concepts (e.g. fragility defined in terms of ‘legitimacy’, which is itself hard to define, let alone measure; legitimacy for whom?) • Establishing Cut-offs/thresholds: (e.g. when is ‘crime out of control’ ?, how many ‘battle deaths’ constitute a civil war?) • Lingustic hedges/ambiguity: (e.g. USAID argues failure is related to the following circumstance: ‘the central government does not exert effective control over significant parts of its territory). • Marks without clear evidence: (e.g. USAID: vulnerable are unable or ‘unwilling’ to ‘adequately secure’ provision of security. • Quality of data • Combining Numerical and Linguistic Labels ( ‘exports’ versus ‘’limits on executive authority’

7. Some Problems with State Performance Indicators • Aggregation and Order • Aggregation is a rule that attributes to every vector of data a single number in the range (e.g. CPIA : a) sum of the values of the variables; b) all variables weighted equally) • E.g. Fund for Peace of Fragile States Index: (consider two variables) • A) ‘Brain drain of professionals, intellectuals, political dissenters fearing persecution or repression’ • B) ‘ Outbreak of politically inspired violence against innocent civilians’ • Would the repatriation of one scientist compensate for one massacre? • Implicit assumption of weighted averages means there is a substitution rule between variables.

8. Conclusions • Ignoring Issue of the preferences of coders in (over 15-50 variables) allows for many hidden biases that affect the orderings of countries • Few theoretical propositions behind the rankings • Policy Issues: • Reduce the number of variables • Increase the number of objective indicators (such as taxation) • Focus less on aggregation and examine differential scores within polities

9. Does ‘Good Governance’ Matter for Economic Development?

10. Key Definitions • Institutions—rules of the game that govern human interaction • Organizations- collective actors in pursuit of specific goals such as profit maximisation • Governance--the exercise of political authority and the use of institutional resources to manage society's problems and affairs. The set of institutions that regulate the relations between state and citizens.

11. Governance indicators (World Bank) •  voice and accountability • political stability and lack of violence • government effectiveness • regulatory quality • rule of law • control of corruption.

12. Divergent Paths (North, 1990) • Spain/L. America—centralized/authoritarian rule→monopolization of markets→arbitrary rule →fiscal instability and state appropriation→insecure property rights→relative economic stagnation • England/N. America—decentralized, democratic, liberal state→competitivemarket→stable and predictable fiscal policies→ secure property rights→economic growth.

13. Post-Washington Consensus: Getting Institutions Right/The Good Governance Paradigm Quotes from Stiglitz (reflecting on the shift in development thinking) --“The Washington Consensus held that good economic performance required liberalized trade, macroeconomic stability and getting prices right. Once the government handled these issues—essentially once the government got out of the way—private markets would produce efficient allocations and growth…But the policies advanced by the Washington consensus are hardly complete and sometimes misguided. Making markets work requires more than just low inflation, it requires sound financial regulation, competition policy, and policies to facilitate the transfer of technology, to name some fundamental issues neglected by the Washington Consensus.”

14. Growing List of Conditions (Rodrik, 2004)

15. Costs of Corruption • Insecure property rights (due to secrecy of the transactions). This makes corruption more of a distortion than taxation. • Waste of resources • Misallocation of resources • Generates legitimacy problems for government • Increases uncertainty

16. World Bank Anti-corruption strategies and diagnoses • Corruption increases when: • A) Higher “policy distortion index” • B) Lower opportunity cost of being caught in the act of corruption (low civil servant salaries) • C) less meritorcratic bureaucracy (leads to short-term time horizons for bureaucrats) • D) lower predictability of judicial system (lower probability of getting caught and getting penalised)

17. The Logic of Governance Reforms • Restrict Centralised Discretionary State Control over Resource Allocation WHY? • Rent-seeing, corruption, waste (Influencing) • Insecure property rights (Abuse) • Mechanisms to check the Predatory State • Economic Liberalisation (reduces possibility of state-created rents) • Democratisation, Decentralisation (introduces political competition, improves accountability and transparency which should reduce corruption)

18. Getting Prices and Institutions Right GOOD GOVERNANCE Secure Property Rights Increase Investment Increase Growth REDUCES POVERTY A RETURN TO THE PRE-REQUISITE VIEW OF DEVELOPMENT FREE TRADE “Getting Prices Right”

19. Assessing the Evidence • Liberalisation (and especially privatisation) has not reduced corruption • Higher salaries to bureaucrats not usually associated with declines in corruption • Decentralisation not generally effective in reducing corruption a) local politicians often lack resources to sanction bureaucrats b) local press less effective in magnifting corruption scandals • Democracy not correlated with lower corruption in LDC’s

20. Good governance, state capacity and capitalist transformation Rate of Growth 2. Small number of High-growth Developers Likely historical path of capitalist development 3. Most Industrialized Countries Regression Line 1. Most Developing Countries +ve Policy path suggested by the econometric relationship Governance Indicators -ve

22. Transformation Model of the State in LDC’s • State does not only provide services and social order • State active agent in the construction of capitalism in late developers • Transition to capitalism and primitive accumulation unjust, divisive, corrupt process • State needs to create rents/patronage to: • a) construct capitalism and subsidize late development • b) maintain political stability • Corruption likely to accompany this process. Why? 1) less legal rent-seeking in place 2) construction of capitalism arbitrary 3)| Demand for rights/rents much greater than supply 4) legitimacy crises add to the perception that corruption is widespread

23. Nature of Elite Bargains Matter. • The principal solution through history to the classic Hobbesian problem of endemic violence is the creation of what Nortth et al (2007) call limited access orders (as opposed to the much rarer, open access orders, which characterizes advanced market economies). • The limited access order creates limits on the access to valuable political and economic functions as a way to generate rents. • When powerful individuals and groups become privileged insiders and thus possess rents relative to those individuals and groups excluded (and since violence threatens or reduces those rents), the existence of rents makes it in the interest of the ‘privileged insiders’ to cooperate with the coalition in power rather than to fight.

24. Political Organisations and the Structure of Patronage • the degree of centralised rule and patronage matters for political stability • Here, a cursory examination of relatively peaceful polities (Tanzania, Zambia) and those where the state survived even during civil war (Mozambique, Colombia) suggests that: • the construction of political organisations, particularly political parties, has been central to providing the institutional mechanisms of distributing patronage to regional elites and to important political constituencies in ways that either prevent challenges to authority and/or maintain cohesion of the ruling coalition

25. National political organisations and the centralisation of patronage • Enables the executive to have an encompassing interest in the maintenance of political stability • Limits the extent to which the executive engages in predatory behaviour • Enables the creation of a loyal and unified military • Makes the cost of elite exit and rebellion higher • Allows for the management of adverse economic shocks and crises in ways that does not generate state breakdown

26. Aggregate Governance Indicators are Misleading in light of the Differential Capacity Across State Functions within Countries