Getting Governance Right

Economists used to tell governments to fix their policies; now they tell them to fix their institutions. While that's a welcome change, because good governance is inherently desirable, achieving faster economic growth requires a narrower focus on those institutions that are constraining it.

CAMBRIDGE – Economists used to tell governments to fix their policies. Now they tell them to fix their institutions. Their new reform agenda covers a long list of objectives, including reducing corruption, improving the rule of law, increasing the accountability and effectiveness of public institutions, and enhancing the access and voice of citizens. Real and sustainable change is supposedly possible only by transforming the “rules of the game” – the manner in which governments operate and relate to the private sector.

Good governance is, of course, essential insofar as it provides households with greater clarity and investors with greater assurance that they can secure a return on their efforts. Placing emphasis on governance also has the apparent virtue of helping to shift the focus of reform toward inherently desirable objectives.  Traditional recommendations like free trade, competitive exchange rates, and sound fiscal policy are worthwhile only to the extent that they achieve other desirable objectives, such as faster economic growth, lower poverty, and improved equity.

By contrast, the intrinsic importance of the rule of law, transparency, voice, accountability, or effective government is obvious. We might even say that good governance is development itself.

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