Revisiting Institutional Strengthening and Rethinking Governance

Revisiting Institutional Strengthening and Rethinking Governance Daniel Kaufmann, World Bank Institute www.worldbank.org/wbi/governance Background material slide material for session on Strengthening African Institutions, at Africa Economic Summit, Durban, South Africa, June 12 th 2003

Governance and Anticorruption in the World Bank: Evolution WDR on Institutions 1982 JDW joins WB (7/95) TI CPI (5/95) The Prohibition Era Power of Evidence: Development Impact JDW Cancer of Corruption Speech (10/96) WDR 97 Public Sector Anti-corruption Strategy (97) Legal & Judiciary Reforms 1 st Participatory & Action- Oriented A- C Core Program (Africa 7 countries) 1999 Broadening & Mainstreaming 1st set of firms Debarred from WB projects Governance Strategy (00) Budget, Procurement & FM Reforms Diagnostic/Data/ Monitoring Tools Administrative & Civil Service Reform Civil Society Voice, Accountability, Media & Transparency Mechanisms Judicial/Legal Reform State Capture/Corporate Governance WB INT created (3/01) 1970 1980 1990 1995 1996 1997 1998 1999 2000 2001 2002 2003 We have traversed and progressed yet

Examples of programs of support by the World Bank in many countries Albania (public admin.) Latvia (anticorruption) Ukraine (tax admin) Russia (customs/treasury) Kyrgyz Republic (governance reform) Jordan (civil society) Cambodia (PE; forestry) Guatemala (diagnostic to action program) Colombia (diagnostics & civil society) Bolivia: (public admin.) Ghana (PE accountability) Gabon (water/electricity) Uganda (PRSC; education) Tanzania (PSR) Pakistan (devolution) Ethiopia (decentralization) Bangladesh (civil society) Philippines (transport) Indonesia (local governance) India Andra Pradesh (power; e-gov); Karnataka (right to info)

Some Key Issues and Challenges 1. Data Power : Governance can be measured & Matters 2. Progress on Governance? -- Sobering Reality, although some countries have done well, and the World Bank has been involved/supportive 3. Under-estimated centrality of: i) Politics; ii) role of the Private Sector; iii) Participatory Collective Action, Voice & Democratic Accountability 4. Misdirected Approaches to Technical Assistance and Capacity-Building: Revisit in light of evidence 5. Broader Implications on Governance

Empirical Approach to Governance 1. Macro : Worldwide Aggregate Governance Indicators: 200 countries, 6 components, periodic it permits broad proxy of capacity enhancement 2. Mezzo : Cross-Country Surveys of Enterprises 3. Micro : Specialized, in-depth, in-country Governance and Institutional Capacity Diagnostics: Includes surveys of: i) user of public services (citizens); ii) firms, and iii) public officials

Governance: A working definition Governance is the process and institutions by which authority in a country is exercised: (1) S -- the process by which governments are selected, held accountable, monitored, and replaced; (2) E -- the capacity of gov t to manage resources and provide services efficiently, and to formulate and implement sound policies and regulations; and, (3) R -- the respect for the institutions that govern economic and social interactions among them

Operationalizing Governance: Unbundling its Definition into Components that can be measured, analyzed, and worked on Each of the 3 main components of Governance Definition is unbundled into 2 subcomponents: Voice and (External) Accountability Political Instability and Violence Regulatory Burden Government Effectiveness Corruption Rule of Law We measure these six governance components

Inputs for Governance Indicators 2002 Publisher Publication Source Country Coverage Wefa s DRI/McGraw-Hill Country Risk Review Poll 117 developed and developing Business Env. Risk Intelligence BERI Survey 50/115 developed and developing Columbia University Columbia U. State Failure Poll 84 developed and developing World Bank Country Policy & Institution Assmnt Poll 136 developing Gallup International Voice of the People Survey 47 developed and developing Business Env. Risk Intelligence BERI Survey 50/115 developed and developing EBRD Transition Report Poll 27 transition economies Economist Intelligence Unit Country Indicators Poll 115 developed and developing Freedom House Freedom in the World Poll 192 developed and developing Freedom House Nations in Transit Poll 27 transition economies World Economic Forum/CID Global Competitiveness Survey 80 developed and developing Heritage Foundation Economic Freedom Index Poll 156 developed and developing Latino-barometro LBO Survey 17 developing Political Risk Services International Country Risk Guide Poll 140 developed and developing Reporters Without Borders Reporters sans frontieres (RSF) Survey 138 developed and developing World Bank/EBRD BEEPS Survey 27 transition economies IMD, Lausanne World Competitiveness Yearbook Survey 49 developed and developing Binghamton Univ. Human Rights Violations Research Survey 140 developed and developing

Overall Evidence is Sobering: Progress on Governance is modest at best, so far Evidence points to slow, if any, average progress worldwide on key dimensions of governance This contrasts with some other developmental dimensions (e.g. quality of infrastructure; quality of math/science education; effective absorption of new technologies), where progress is apparent At the same time, substantial variation crosscountry, even within a region. Some successes. And it is early days.

3 High Inflation Significant Decline in Inflation Rates Worldwide TRANSITION 1.5 EMERGING (avg. in logs) Low OECD+NIC 0 1984-1988 1989-1993 1994-1998 1999-2001 Source: Rethinking Governance, based on calculations from WDI. Y-axis measures the log value of the average inflation for each region across each period

Quality of Infrastructure (Regional Averages of High/Low Quality every year, GCR 1997-2002) High 6.5 OECD 4 East Asia Industrialized Sub Saharan Africa Low Eastern Europe 1.5 1997 1998 1999 2000 2001 2002

But by contrast. Rule of Law and Corruption have not improved recently 1.00 Good Control of Corruption Rule of Law 0.75 0.50 0.25 Poor 0.00 1996 1998 2000 2002 Why should we be concerned?

6.5 Independent Extent of Independence of the Judiciary (Regional Averages of Extent/Lack of Independence every year) OECD East Asia Industrialized Middle East 4.25 East Asia Developing Eastern Europe Latin America Non- Independent Former Soviet Union 2 1998 1999 2000 2001 2002

Control of Corruption, Selected Countries, KK 2002 2.5 Good 0 Poor -2.5 EQUATORIAL GUINEA HAITI IRAQ Congo, Dem. Rep. (Zaire) MYANMAR AFGHANISTAN NIGERIA LAOS PARAGUAY TURKMENISTAN SOMALIA ZIMBABWE INDONESIA ANGOLA BANGLADESH CAMEROON SUDAN AZERBAIJAN TAJIKISTAN KAZAKHSTAN KENYA UZBEKISTAN BURUNDI CHAD ECUADOR ETHIOPIA Source: Governance Research Indicators, KK 2002. Units in vertical axis are expressed in terms of standard deviations around zero. Country and regional average estimates are subject to margins of error (illustrated by thin line atop each column), implying caution in interpretation of the estimates and that no precise country rating is warranted. MALI LESOTHO SWAZILAND MEXICO SENEGAL BRAZIL BURKINA FASO MOROCCO ERITREA NAMIBIA CAPE VERDE SOUTH AFRICA SEYCHELLES MAURITIUS GREECE HUNGARY BOTSWANA URUGUAY ITALY COSTA RICA SLOVENIA CHILE UNITED STATES NORWAY CANADA SWEDEN DENMARK NEWZEALAND SINGAPORE FINLAND

Governance World Map : Control of Corruption, 2002 Source for data: http://www.worldbank.org/wbi/governance/govdata2002 ; Map downloaded from : http://info.worldbank.org/governance/kkz2002/govmap.asp Colors are assigned according to the following criteria: Red, 25% or less rank worse ( bottom 10% in darker red); Orange, between 25% and 50%; Yellow, between 50% and 75%; Light Green between 75% and 90% ; Dark Green above 90%

Governance World Map : Voice and Accountability, 2002 Source for data: http://www.worldbank.org/wbi/governance/govdata2002 ; Map downloaded from : http://info.worldbank.org/governance/kkz2002/govmap.asp Colors are assigned according to the following criteria: Red, 25% or less rank worse ( bottom 10% in darker red); Orange, between 25% and 50%; Yellow, between 50% and 75%; Light Green between 75% and 90% ; Dark Green above 90%

Governance World Map : Africa and Middle East, Government Effectiveness, 2002 Source for data: http://www.worldbank.org/wbi/governance/govdata2002 ; Map downloaded from : http://info.worldbank.org/governance/kkz2002/govmap.asp Colors are assigned according to the following criteria: Dark Red, bottom 10 th percentile rank; Light Red between 10 th and 25 th ; Orange, between 25 th and 50 th ; Yellow, between 50 th and 75 th ; Light Green between 75 th and 90 th ; Dark Green above 90 th.

Governance World Map : Africa and Middle East, Regulatory Quality, 2002 Source for data: http://www.worldbank.org/wbi/governance/govdata2002 ; Map downloaded from : http://info.worldbank.org/governance/kkz2002/govmap.asp Colors are assigned according to the following criteria: Dark Red, bottom 10 th percentile rank; Light Red between 10 th and 25 th ; Orange, between 25 th and 50 th ; Yellow, between 50 th and 75 th ; Light Green between 75 th and 90 th ; Dark Green above 90 th.

Governance World Map : Africa and Middle East, Rule of Law, 2002 Source for data: http://www.worldbank.org/wbi/governance/govdata2002 ; Map downloaded from : http://info.worldbank.org/governance/kkz2002/govmap.asp Colors are assigned according to the following criteria: Dark Red, bottom 10 th percentile rank; Light Red between 10 th and 25 th ; Orange, between 25 th and 50 th ; Yellow, between 50 th and 75 th ; Light Green between 75 th and 90 th ; Dark Green above 90 th.

In emerging economies, while on average little progress, there are excellent examples, and possible to learn from variation In Africa, Mauritius, Botswana, Mali, and also countries like Madagascar, Mali, and some others making progress in some dimensions Slovenia, Hungary, Costa Rica, S. Korea The case of Chile Learning from the world over.rethinking capacity building.

Governance Indicators: Chile 1998 vs. 2002 Source for data: http://www.worldbank.org/wbi/governance/govdata2002 ; Colors are assigned according to the following criteria: Dark Red, bottom 10 th percentile rank; Light Red between 10 th and 25 th ; Orange, between 25 th and 50 th ; Yellow, between 50 th and 75 th ; Light Green between 75 th and 90 th ; Dark Green above 90 th.

Governance Indicators: Indonesia Note: the thin lines depict 90% confidence intervals. Colors are assigned according to the following criteria: Red, 25 th percentile; Orange, between 25 th and 50 th percentile; Yellow, between 50 th and 75 th percentile; Light Green between 75 th and 90 th percentile; Dark Green above 90 th percentile.chart downloaded from : http://info.worldbank.org/governance/kkz/.

Institutional Capacity: From revisiting Capacity Building to Measuring and Diagnosing Capacity Enhancement Institutional Capacity unbundling into 3 dimensions: 1. Physical capital and hardware (physical infrastructure, computers, etc.) (K); 2. Human and knowledge capital (including organizational & administrative capital, i.e. the institutional software ) (HK), and, 3. Governance and political capital (GPK). Capacity Enhancement = Changed capacity over time

Why is attaining progress in Governance so important? Crucial determinant of socio-economic development For higher incomes, poverty reduction, less income inequality, more investment Security considerations, peace, stability

Parliamentary Strength & Public-Private Transparency Matters for Development and Anticorruption 5 Annual GDP Growth (%) Transparent Information by Government Effective Parliamentary Oversight Corporate Ethics 3 1 Low Middle High Extent of Transparency Source: Annual GDP growth over 1999-2001 is taken from WDI 2002; GDP is computed in PPP terms. The various transparency / governance variables drawn from Executive Opinion Survey, 2002.

Good Controlling Corruption and Voice and Accountability 80 Control of Corruption 40 Poor 0 Low Average High Voice and Accountability

Good Freedom of the Press to improve Rule of Law and Controlling Corruption 80 Rule of Law Control of Corruption Percentile Rank 40 Poor 0 Not Free Average Free Sources: Freedom House, 2002 and KK2002

Citizen Voice Helps Control Bribery in Bolivia 50 40 Bribery 30 20 10 Low Moderate_Low Moderate_High High Voice / External Accountability Based on 90 national, departmental, and municipal agencies covered in the Bolivia Public Officials Survey.

Transparency within Government Agencies Prevents Purchase of Public Positions 18 15 Job Purchase 12 9 6 3 Low Moderately Low Moderately High High Internal Transparency Simple Average Association Margin of Error Based on 90 national, departmental, and municipal agencies covered in the Public Officials Survey.

Women Rights and Corruption Control Corruption Index (ICRG, 1990s) 10 9 8 7 6 5 4 3 2 1 0 PAK YEM R 2 = 0.38 Source of Women s Right Variable: Stohl, Michael (Convenor) Global Studies Program, Global Governance of Human Rights GNB EGY IND SDN ARE SAU MLI BGD IRQ SLE TGO NER NGA GTM KWT SEN MAR TUN COG DZA DOM MEX SYR IRN CIV LBY JOR BHR GIN GAB IDN MMR HTI BOL ECU ZMB TZA BFA LKA GRC PRY PAN HND PHL KEN CMR AGO VEN YUG GHA ARG CHL MYS ISR ZWE ITA CHN BWA ESP KOR CZE BEL IRL PRT HUN USA GBR AUT CRI JPN AUS POL FRA NZL CHE NLD URY COL THA SWE CAN DEU NOR 4 4.5 5 5.5 6 6.5 7 Women Social and Economic Rights, 1990s FIN DNK RUS

Globalization and Governance: On Average, globalization is associated with better governance Alta 2 High Globalization Low Globalization Gobernance Baja -1 Governance Effectiveness Rule of Law Control of Corruption Fuente: 2003 Globalization Index, Foreign Policy Magazine

Unbundling Corruption [Regional Averages] Preliminary results 2002, View of the Firm, 80 countries 70 Extent of Bribery for: Access Public Utilities Procurement Capture of Laws & Regulations 35 0 Latin America Former Soviet Union Eastern Europe Subsaharan Africa Middle East East Asia developing South Asia OECD East Asia Industrial % of firms rating type of corruption as high/very high

Most Detrimental Type of Corruption? Worldwide Internet Results, 2050 respondents - by Region of Expertise Corrupt leadership Corrupt privatization Budget leakages OECD Emerging Africa Elite bribes to shape laws Bureaucratic corruption Patronage and nepotism 0% 5% 10% 15% 20% 25% 30% 35% 40% % Respondents Who Selected Type of Corruption As Most Detrimental Source: http://www.wbigf.org/hague/hague_survey.php3 ; Number of respondents in each category: Emerging - without Africa (1379), OECD (358), Sub-Saharan Africa (309).

Most Important Role for Donors in Helping Countries Fight Corruption? Worldwide Internet Results, 2032 respondents - by Region of Expertise Pre-Conditionality Collaborate w/ Country Awareness & Education OECD Emerging Africa 0% 20% 40% % Respondents who Selected Choice as Most Important Source: http://www.wbigf.org/hague/hague_survey.php3 ; Number of respondents in each category: Emerging - without Africa (1365), OECD (347), Sub-Saharan Africa (309).

Best Equipped Group to Formulate a National Action Program to Control Corruption Worldwide Internet Results, 2028 respondents - by Region of Expertise National anti-corruption programs not helpful Broad coalition NGOs Oversight committees Various executive OECD Emerging Sub-saharan Africa Anti-corruption commission Enforcement agencies 0% 30% 60% % Respondents who Selected Group as Best-equipped Source: http://www.wbigf.org/hague/hague_survey.php3 ; Number of respondents in each category: Emerging - without Africa (1371), OECD (349), Sub-Saharan Africa (304).

New Diagnostic Tools permit measuring important dimensions of capacity illustration #1 from Bolivia diagnostics: How Politicized Agencies exhibit Budgetary Leakages 20 15 10 5 0 Low Moderately Low Moderately High High -5 Politicization Yellow columns depict the unconditional average for each category. Blue line depicts the controlled causal effect from X to Y variables. Dotted red lines depict the confidence ranges around the causal effect depicted by the blue line.

Illustration #2: Link between meritocracy and institutional integrity Public Officials Survey: Meritocracy in the Public Service Can Help Reduce Corruption 5 High 4 3 Prov. Council Electoral Supreme Tribunal Undersec. Of Gov't Congress Comptroller Undersec. Of Social Welfare National Council of Transit Telephone company M of Fin - Budget Courts M of Energy and Mines Universities and schools y = -0.05x + 6.05 R 2 = 0.50 r=-0.71 Low 2 1 Real Estate Bank Attorney General M of Fin - Income M of Fin - Treasury Municipality Presidency National Fin. Corp. Cent. Bank Electricicy company Public Prosecutor 40 50 60 70 80 90 100 Meritocracy in Hiring and Promotion Source: Ecuador Diagnostic

No Evidence to support some popular notions 1. Constant drafting of new A-C laws/regulations 2. Creating many new Commissions & Agencies 3. Blaming Globalization 4. Blaming (or stopping) Privatization 5. Cultural Relativism (Corruption is culturally-determined ) 6. Donors reactivity to Governmental preferences? 7. Capacity Building as divorced from governance by contrast, what may be particularly important (cont )

In sum, what may work 1. Transparency Mechanisms (e*governance, data) 2. Voice & Democratic Accountability 3. Collective Action (Judcry, Legislative, Exec, Private, CS) 4. Judicial Independence (& good rule of law institutions) 5. Parliamentary Integrity & Efficacy 6. Meritocratic Public Sector 7. Focus on Prevention & Incentives 8. Political Finance Reform 9. Private Sector & MNCs Corporate Ethics 10. IFI, G-7, OECD Responsibility (Global Compact)

Summing Up more broadly: External Accountability (1) Corruption within broader Governance framework (2) The Power of Data (transparency, diagnostics, indicators) (3) Localize Know-how (diagnosing, tailoring to country) (4) Revisit traditional PSMngmnt & Legal advise (5) Rethinking T.A./Cap.Building: Governance is key (6) Understanding Institutions of Influence & Politics s (7) Politics Matter, private-public link & party finance (8) External Accountability key: Voice & Transparency

But far from simple the challenge ahead Need to revisit some notions from the past Country needs to take the lead Less emphasis in future?: pure technocratic solutions; traditional Public Management, laws More: Politics, Voice, issue of Private Influence Challenge of Localization for each country reality (with in-depth diagnostics) Modesty on our side & learning from mistakes Collective Responsibility and Action

Illustration of Concrete Projects and Measures promoting Transparency and Accountability Transparency & reform in political/party finance: e.g. new methods for disclosure (expenses), etc. E*disclosure (web) of votes of parliamentarians Public Disclosure of Assets/Incomes by public officials and legislators and their dependents E*procurement; e*data.governance; diagnostics PET diagnostic for budgetary transparency Civil society involvement: voice/feedback is key

Data for Analysis and informing Policy Advise, not for Precise Rankings Data in this presentation is from aggregate governance indicators, surveys, and expert polls and is subject to a margin of error. It is not intended for precise comparative rankings across countries, but to illustrate performance measures to assist in drawing implications for strategy. It does not reflect official views on rankings by the World Bank or its Board of Directors. Errors are responsibility of the author(s), who benefited in this work from collaboration with many Bank staff and outside experts. www.worldbank.org/wbi/governance