Democracy, accountable and transparent government, low levels of corruption, the rule of law, stable property rights, pluralism: we tend to think that these are all highly desirable in any society.
In poor countries, they are often absent, but at least some of them are present in many rich ones. It seems to follow that they should be encouraged in the former as a way to encourage development. After all, if richer countries have these characteristics, they may be part of the development process.
This wishful thinking provides a foundation for the ‘good governance’ agenda propagated by the World Bank and other international institutions during the 1990s and into the 2000s. It was argued that domestic political reforms in the direction of good governance in poor countries would provide the institutional environment conducive to the efficient working of markets and thereby promote development.
In fact, a close examination of the historical evidence, rather than a reliance on econometrics, shows that while the above political conditions are clearly desirable, they are not universally achievable by poor countries in which efforts are being made to promote development.
The historical evidence shows that, generally, a certain degree of development preceded rather than followed the achievement of good governance, which requires particular capacities on the part of the state. These capacities are not usually achievable or sustainable in poor countries.
The ideal of good governance has been constructed from a static view of modern ‘Western’ values and experiences. While many or most of the Western developed nations have achieved this ideal, they were not like this during the initial phases of their development.
Further to this, certain aspects of this ideal, such as democratisation, have provided an excuse for the retreat and weakening of state capacity, making development and the delivery of public goods in poor countries harder in the long run. Moves to increase the power of ‘civil society’ and economic liberalisation are also along these lines. In fact, a democratic, pluralistic society may not be compatible with the requirements for rapid growth at early stages of development.
If this thesis is correct and states in poor countries lack the capacity to enforce and sustain all the aspects of good governance that it has been argued they should, then this agenda is overambitious. It is therefore likely to lead to failures which could demoralise policymakers and create reform fatigue and disillusionment. The best of intentions, with its faulty analysis, could be damaging for poor countries and their development prospects.
In some cases, rich country aid donors have made the availability of funds conditional on the achievement of good governance. If the latter is not possible until much later in the development process, such conditionality will be equally damaging.
As argued persuasively by Mushtaq Khan, the econometrics (statistical analysis of economic relationships) which purports to show a link between good governance and economic growth is at odds with the historical record of comparative country case-studies.
When aspects of good governance are plotted against growth episodes for a cross-section of poor, middle-income and rich countries, there seems to be a positive, albeit weak, relationship between the two. However, the data points can be divided into three groups: slow-growing countries with poor governance, faster-growing rich countries with stronger governance indicators, and a small group of the fastest-growing countries, also with relatively poor governance.
A historical and comparative case-study analysis of the data tells a quite different story to the econometrics: the countries that have been successful in growing fast and catching up with the rich countries generally had poor governance even during their fast growth phases. As they made the transition to richer country status, they were able to improve their governance according to the conventional measures.
In other words, it is necessary to look elsewhere for the political and institutional context that is required for successful development to take place. Development ‘take-offs’ in countries such as South Korea, Taiwan, China and Vietnam did not require conventional good governance.
China and Vietnam, both countries with authoritarian, ostensibly communist states, scored poorly on good governance, but have managed to sustain rapid growth rates and a substantial reduction in poverty.
It seems that apparently deficient institutions may encourage rapid growth, and this may then make possible pragmatic institutional reforms which move a country towards better governance.
So what are the alternatives to good governance reforms in poor countries? Khan argues that, instead of what he calls ‘market-enhancing governance’ reforms, what is required is ‘developmental governance’. There are substantial market failures and other bottlenecks in poor countries which need to be overcome to encourage economic transformation and more rapid productivity growth.
The priority for policymakers in poor countries should be addressing specific obstacles to growth and transformation, both experimentally and incrementally. This approach can focus on sectors where there are already some capabilities, and state support can help firms move up the value chain and increase productivity. Developmental governance capabilities should be improved on a small scale, taking account of the political and institutional context and initial conditions.
Effective policies are those which encourage learning among firms with the greatest potential for technology acquisition and productivity growth. These in turn require compulsions and incentives for such learning to take place, without the rents generated by policymakers being captured by vested interests which end up negating the process.
This is one of the main lessons that we can take from the experience of industrial policies in the North East Asian ‘developmental’ states. While the political and institutional context was unusual in South Korea and Taiwan during their growth take-off phases, and the exact policies used may not be replicable in today’s poor countries, they can perhaps be applied on a smaller scale initially.
It is also vital that state interventions such as industrial and technology policies have an exit strategy in the case of failure so that they do not become value-destroying. Support for firms and sectors which are sometimes known as ‘infant industries’ may fail to help them ‘grow up’ and thus becomes economically damaging and a drain on state resources.
In sum, the conventional aspects of good governance are expensive to enforce and require significant state fiscal resources and capabilities which are simply not available in many poor countries. Some degree of development and economic transformation will ultimately lead to the creation of incomes as a source of such fiscal resources which can be used to improve governance over time.
Governance conditions that ensure a rapid and successful economic transformation are the key to developmental governance, rather than conventional good governance, which tends to be an outcome of development rather than its cause, at least during the early stages of development.
Jomo, K.S. and Anis Chowdhury (eds) (2012), Is Good Governance Good for Development? Bloomsbury
Khan, Mushtaq H. (2012), ‘Governance and Growth: History, Ideology and Methods of Proof’ in Akbar Noman, Kwesi Botchway, Howard Stein and Joseph E. Stiglitz, Good Growth and Governance in Africa, Oxford University Press, 51-79
Khan, Mushtaq H. (2012), ‘Governance and Growth Challenges for Africa’ in Akbar Noman, Kwesi Botchway, Howard Stein and Joseph E. Stiglitz, Good Growth and Governance in Africa, Oxford University Press, 114-139