On Being *Specific* About What States Can Do

Why devote your energies to improving a state’s capacity to perform functions when instead you can manipulate the functions to make them easier to perform?

I’m thinking of developing countries, but the general issue is relevant to all countries. Although state functions which are most important may also appear to be the most difficult to perform, they can be made easier by simplifying rule-procedures. This line of thought began in the previous post. Now I approach it from a narrower angle -- the ‘specificity’ of state action. If you can clearly ‘specify’ what a state is doing in a particular field then its activity is more likely to be controllable and measurable, i.e. ‘doable’.

In the 1980s Arturo Israel at the World Bank created a ‘specificity index’ to measure the feasibility of governmental control. Some public service outputs are hard to measure and evaluate. The greater the specificity of activity in terms of objectives, methods, control systems, rewards, timing, or outcomes, “the more intense, immediate, identifiable, and focused will be the effects of a good or a bad performance”. Dispersed activity in which policymakers make many small decisions is not easy to specify. The operation of a central bank or army is highly specific, involving relatively few decisions and interactions, and thus is easier to control and evaluate. Social services such as education or health are oriented imprecisely to dispersed human behaviour rather than to numerical or technical targets, and require a higher volume of decisions and interactions to achieve their targets. If an activity is not easily monitored, the provider will be less accountable for performance. If an activity is not transparent it will be difficult to design and reform. Specificity is determined by the nature of the activity rather than by organisational management techniques applied to it. The degree of specificity appears to be beyond the control of policymakers.

Israel explored methods for dealing with specificity obstacles. Most important was “competition to create market-like conditions” as a mechanism to improve control and performance in low-specificity activities. Even in the state sector, competition can influence institutional performance positively regardless of the specificity of an activity. Competitive pressure might create specificity by forcing public organisations to creatively devise new ways of monitoring their own performance (think Google or Walmart). Israel observed substitutes for traditional state control mechanisms in the marketplace, and simulated market-equivalent “competition surrogates” where direct economic incentive might be infeasible. Public entities compete with private entities that produce similar goods and services. Or they subcontract. Public entities are privatised and exert competitive pressure on public entities. Public agencies are made accountable to clients or suppliers who demand performance. Public agencies can be pressured in the budget process if politicians and regulators act like clients or shareholders.

Not everybody agreed. Francis Fukuyama wrote a good book on the development of state capacity which nevertheless contains two questionable assumptions relating to specificity. Unlike Israel, he rejected “market-based solutions to public sector dysfunction” as “very controversial and not politically possible in most jurisdictions”. Having myself seen the legitimacy and relative success of privatisation and deregulation in Latin America, Asia, and the UK, I found this claim surprising. It marred my admiration for Fukuyama’s book.

Second, Fukuyama argued that states “get optimal performance out of low-specificity activities not by setting up elaborate systems of monitoring and accountability ... but rather by relying on [social] norms”. “Social capital substitutes for elaborate formal incentive systems”, and “organisational culture” matters more than “formal lines of authority”. Fukuyama offered the example of traditional East Asian social norms of authority helped neutralise risks of state discretion and were crucial to the success of the region’s growth-inducing industrial policies. At that time Fukuyama saw informal social norms as the main source of both administrative problems and solutions. I think I’m right in saying Fukuyama is now more accepting of the importance of formal institutions. Nevertheless, the original viewpoint remains influential, and I have criticised it in detail elsewhere.

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What are the consequences of these arguments? If one rejects the options for market competition or surrogate competition, and if in addition one is convinced that effective state action is conditioned by socialisation (i.e. informal norms), through this process of elimination one might be compelled to conclude that priorities or sequences of institutional reform are necessarily biased in favour of the high-specificity state activities and/or those that are susceptible to informal controls. 

In fact, few people these days are shocked by the idea of reducing, eliminating, or privatising state roles in second-tier public services like education, health, infrastructure. There is a large literature showing how private enterprise supports or substitutes for second-tier state services can succeed.

I will focus instead on the implications for the legal system. As I think I have said many times on this blog, law is the first and indispensable domain of state action, and the source of its legitimacy. Law is necessarily first among the first-tier state services.

Yet it is clear that legal systems involve many dispersed low-specificity activities, many decisions and interactions, many agents and clients, and extensive areas of enforcement. This is the point made by Fukuyama with regard to the poor prospects for legal reform in developing countries. Law is not susceptible to technocratic fixing or oversight in the way central banking or telecommunications might be. Fukuyama comes close to suggesting that legal reform will drop off the end of the priority list because it is a low-specificity activity resistant to effective manipulation through state action. And yet law is the very essence and foundation of state action! It’s a curious predicament to find oneself in!

Legal scholars and economists have pointed out an interim solution to fill the gaps that appear as underdeveloped legal systems transition into sophisticated systems. The approach is ‘bright lines’ or ‘rules-first’. Rules-first law is explicitly designed to increase the specificity of law in developing countries. One could even say it is especially suitable for countries where informal social norms are not reliable substitutes for formal law.

The legal scholar Richard Posner [pdf], who has advocated rules-first, suggests that when human capital and financial resources are scarce, the “trade-off is between making a modest investment in better rules and making a big investment in the judiciary”. Discrete tried and tested legal code can be imported from overseas. Key rules can be adapted to local conditions without the expense of foreign advisers. Hay, Shleifer, and Vishny [pdf] propose that reforms focus on eliminating bad rules and creating new rules rather than overhauling the whole system. Courts enforce contracts better with bright-line rules. Such rules lack completeness but are clearly specified and discourage political interpretation. With less room for discretion they reduce uncertainty and abuse, and they improve consistency and objectivity. Simplicity of rules and ease of enforcement encourages citizens to utilise the legal system. When vagueness of law is eliminated, courts and enforcement agencies becomes easier to monitor. An end result may be that a program of rules-first facilitates the evolution of functional social norms (call it ‘trickle down political sociology’ if you will).

Bright line rules simplify decision-making and monitoring, define unwanted conduct, reduce ambiguity, minimise costs, increase accuracy, and require less information processing. In other words, the criteria for specificity -- objectives, methods, control systems, rewards, timing, or outcomes -- can be met through this approach to law.

Law looks more ‘doable’ from a rules-first perspective. With a staged introduction of bright line rules, critical mass builds up. The inefficient social norms are bypassed. Rules-first is relevant in creating a level economic playing field for market growth with well-defined protection of property and contract, and penalties against fraud. Rules-first allows great potential to leapfrog the ‘opportunity gap’ between advanced and developing societies.

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The general point, which needs reinforcing from more angles than can be covered in this brief post, is that -- in many if not most areas of state activity -- reforming the specificity of action can improve state capacity. State capacity can be increased along tried and tested lines by replacing slow or dysfunctional ‘social capital’ or ‘politics’ with ‘rules’ if rules will strengthen the state and neutralise political obstacles. See this in the spirit of Judge Posner’s praise for rules-first: “It is more costly and time-consuming to create efficient legal institutions than to enact efficient rules for the existing inefficient institutions to administer”.

In addition, a state can’t be expected to be equally effective at doing everything society and politics demands of it. States and citizens should start by deciding which functions really are basic to the state. Focus on raising their procedural efficiencies. The more difficult method -- which unfortunately is the default -- is to prop up inefficiently specified or even superfluous state functions with ever more social capital and public resources. I look at it from the opposite end. Which state functions are really needed and worth having? If they are difficult to specify, how could they become better specified?

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