The Good-Governance Trap

ROME – Development and improved governance have tended to go hand in hand. But, contrary to popular belief, there is little evidence that success in implementing governance reforms leads to more rapid and inclusive economic and social development. In fact, it may be the other way around.

The focus on good governance stems from the struggle to restore sustained growth during the developing-country debt crises of the 1980s. Instead of reassessing the prevailing economic-policy approach, international development institutions took aim at the easy targets: developing-country governments. Advising those governments on how to do their jobs became a new vocation for these institutions, which quickly developed new “technical” approaches to governance reform.

The World Bank, using well over 100 indicators, introduced a composite index of good governance, based on perceptions of voice and accountability, political stability and the absence of violence, government effectiveness, regulatory quality, the rule of law, and levels of corruption. By claiming that it had found a strong correlation between its governance indicators and economic performance, the Bank fueled hope that the key to economic progress had been found.

The case was flawed from the beginning. The indicators used were ahistorical and failed to account for country-specific challenges and conditions, with cross-country statistical analyses suffering from selection bias and ignoring the interlinkages among a wide array of variables. As a result, the World Bank badly overestimated the impact of governance reform on economic growth.

To be sure, governance that is effective, legitimate, and responsive provides untold benefits, especially when compared to the alternative: inefficient governance, cronyism, and corruption. But the focus on governance reform has not proved nearly as effective as promised in fostering development.

In fact, this governance-focused approach may have actually undermined development efforts. For starters, it has allowed international institutions to avoid acknowledging the shortcomings of the new development orthodoxy of the last two decades of the twentieth century, when Latin America lost over a decade, and Sub-Saharan Africa a quarter-century, of economic and social progress.

It has also complicated the work of governments unnecessarily. With good-governance reforms now a condition for international aid, developing-country governments often end up mimicking donor expectations, instead of addressing the issues that are most pressing for their own citizens. Indeed, such reforms can even undermine traditional rights and customary obligations worked out among communities over many generations.

Moreover, the required reforms are so wide-ranging that they are beyond the means of most developing countries to implement. As a result, good-governance solutions tend to distract from more effective development efforts.

Another problem with governance reforms is that, although they are formally neutral, they often favor particular vested interests, with grossly unfair consequences. Reforms aimed at decentralization and devolution have, in some cases, enabled the rise of powerful local political patrons.

The conclusion is clear: the development agenda should not be overloaded with governance reform. As Harvard’s Merilee Grindle has put it, we should be aiming for “good enough” governance, selecting a few imperatives from a long list of possibilities.

But selecting the most important measures will not be easy. Indeed, advocates of governance reform have rarely been right about the most effective approach.

Consider the unrelenting promotion of efforts to strengthen property rights. Absent alienable individual ownership of productive resources, it is asserted, there will be insufficient means and incentives to pursue development initiatives, and shared resources (the “commons”) will be over-exploited and used inefficiently.

In reality, the so-called “tragedy of the commons” is neither ubiquitous nor inevitable, and individual property rights are not always the best – and never the only – institutional solution for dealing with social dilemmas. The late Elinor Ostrom, a Nobel laureate in economics, showed that human societies have built myriad creative and lasting solutions to resolve a wide range of dilemmas involving the use of common resources.

The theme of good governance has special appeal to large bureaucratic organizations like multilateral development banks and UN agencies, which favor apolitical solutions to what are essentially political problems. In other words, good governance is an ostensibly technocratic answer to what donors and other well-meaning international groups consider bad policies and, especially, bad politics.

Herein lies the real problem with the good-governance agenda: it supposes that the solution to most policy and political dilemmas lies in compliance with a set of formal process-oriented indicators. But experience over two decades shows that such directives provide little practical guidance for solving the technically, socially, and politically complex real-world problems of economic development.

Recognizing that governance improves with development, the international community would be better served by pursuing reforms that directly advance development, instead of a broad agenda that may have, at best, a small indirect impact. Such a pragmatic approach to improving governance would be neither dogmatic nor pretend to universality. Instead, the major constraints would be identified, analyzed, and addressed, perhaps sequentially.

Many of the good-governance agenda’s key goals – empowerment, inclusion, participation, integrity, transparency, and accountability – can be built into workable solutions, not because outsiders demand them, but because effective solutions require them. Such solutions should draw from relevant experiences, with the understanding that they do not amount to “best practices.”

The blind pursuit of good governance has guided development efforts for too long. It is time to acknowledge what works – and disregard what does not.