Download Applied a governance and political economy perspective in growth

Applied governance and political
economy perspectives for
growth analysis
Course on Applied Inclusive
Growth Analytics
Joint Vienna Institute
July 2, 2009
Verena Fritz
Governance Specialist
PREM Public Sector
Governance
World Bank
The big-picture debate about governance and
growth interactions
Interactive relationship:
• Governance matters for growth
• Growth/increasing wealth (and possibly also the distribution
of wealth) matter for governance
The search for priorities:
• The need to prioritize growth strategies for specific contexts,
e.g. through an analysis of the constraints to growth
• The need to prioritize efforts to improve governance
– Not all potential governance improvements are affordable for poor
countries (Khan/Grindle)
– Some governance improvements may matter more for enabling
growth than others (Meisel & Ould)
Why GPE for growth analysis?
• Develop a sharper diagnostic lens on ‘government failures’,
and of GPE dimensions of other constraints to growth
• ‘Growth therapeutics’ :
– treating constraints to growth requires attention to technical (& fiscal)
as well as governance and political economy dimensions
• Donor efforts based purely on technical analysis & bestpractice approaches have often proven unsuccessful
• Donors are often ‘surprisingly’ surprised by policy decisions
(or non-decisions) in client countries
• How to do GPE for growth analysis? – Need to stretch
ourselves beyond a pure ‘common sense’ approach to political
economy
– To understand the complex motivations of stakeholders rather than
relying strongly on individual ‘reform champions’
– To understand the interplay between formal and informal institutions,
and the motivations of stakeholders
HRV: governance as direct and indirect
constraints
GPE for inclusive growth
• Achieving inclusive growth is likely to pose
greater governance challenges than ‘just growth’
– Inclusive growth involves greater activity by the public
sector: providing education for all, wider coverage of
health services etc.
– Establishing and protecting the rights of a larger share
of the population (not just the well-connected)
– Providing good enough governance and effective
government action not only in main centers, but also
in more remote regions
Complementing constraints to growth and
governance in country analytic work
• Translating identified constraints to growth into
feasible policy solutions
• Using governance and political economy analysis to
understand
– governance arrangements associated with constraints to
growth and
– underlying political economy drivers
With the aim of identifying feasible policy options
 These may be ‘unorthodox’ or ‘second best’, e.g. selective
property rights enforcement (Haber/Rodrik/Khan); partial
rather than wholesale reforms of tariff structures, etc.
(highly case & issue specific)
Complementary analysis
Vulnerability/ problem:
identified constraints to
growth
Technical diagnostic: what
changes would have what
effects on relieving
constraints to growth?
dialogue
Governance and political economy
diagnostics
Identification of governance
arrangements and underlying
political economy drivers
Context informed, feasible options
for WB policy advice to government/
engagement with local stakeholders
and for
WB programming/operations
Doing things differently to overcome constraints
to growth in a feasible and effective way
Example: infrastructure
• Infrastructure is the most frequently diagnosed constraint to
growth
• Lack of fiscal and other funding resources & weak technical
planning capacity as important reasons for an inability to address
the constraint
• Technical diagnostic: what size & type of power plant? What type of
transport infrastructure (road, rail, port, etc.) & where? Costing and
returns of these options?
• But: governance and PE dimensions also need attention because
poor use of existing resources is part of the problem
– Poor public investment planning ; including low expenditures on
maintenance
• Capacity constraints + governance weaknesses and PE incentives
– Weak aid coordination
– Failure to mobilize private resources (especially energy)
– Project execution:
• Funds lost due to kickbacks/corruption & subsequent ‘savings’ made by
contractor to re-coup those costs; selection of incompetent firms; disputes
over actual costs (start/stop), etc.
Infrastructure – cont’d
• Potential feasible solutions (case specific!):
– Promote focus on maintenance spending
– Pay attention to the political dimensions of
investment planning – e.g. by developing cabinetlevel discussions
– Support public debate on who can pay for what
(implicit or explicit subsidies are often regressive)
– Explore options for social monitoring of project
execution
A basic structure for GPE analysis: Three layers of
problem-driven GPE analysis
Evidence of poor
outcomes to which
GPE issues appear to
contribute
E.g. repeated failure to develop
solutions to lack of results in
sectors. Infrastructure is constraint
to growth but is not being
improved
Institutional/
governance
arrangements
& capacities
What are the
institutional
arrangements & are
they capable, effective
& efficient?
Mapping of institutions: laws,
regulations; responsible public
bodies; formal and de facto rules
of the game; analysis of
integrity/corruption challenges
Why are things this
way? Why are policies
or inst. arrangements
not being improved?
Analysis of stakeholders,
incentives, rents/rent-distribution,
historical legacies & earlier reform
experiences; social trends & forces
and how they shape stakeholder
actions
Problem driven
Vulnerabilities
& concerns
Political
economy
Structural
Examples
Historical legacies, economic base and
level of development, commodity
prices; population dynamics;
Constitutional set up, electoral rules;
policy and budget processes,
Institutions
Set-up of government; ministries and
their roles and mandates
Informal: rules of patronage networks
Actors/
stakeholders
Political leaders; political parties,
(organized) interest groups; heads of
SOEs; external stakeholders
Influence political and public sector action and
policies and their implementation
Variables
Outcomes
(growth, poverty reduction, human development,
dealing with development challenges – pollution,
(social) conflict, etc.)
A basic structure continued: 3 sets of variables,
interactions & effects on policies & outcomes
Operational value:
Defining how to proceed to make reforms happen
Seeking to expand
reform space
pro-actively
Selecting operations
given existing
reform space
Zambia telecoms:
focus on local
winners
India power:
reform sequencing
Mongolia Mining:
TA with local think
tank for public
debate
Paraguay &
Ethiopia PBS to mitigate
Bangladesh roads:
reputational risk: support external
subnational service
monitoring by
delivery with participation stakeholders
Philippines public
procurement reform
– pro-active coalition
building to combat
entrenched
corruption networks
Governance and growth in resourcerich countries
• Resource rich countries have less need for good enough
governance to generate growth during boom price (= high
prices for resources)
– E.g. recent GDP growth: Zambia: 5-6.5% p.a. 2004-2007 (2009:
4%); Mongolia: 8.5-10.2% (2009: 2.7%), Kazakhstan : 10% 20012007 (2009: -2%)
• BUT: poor governance is a key factor for the ‘resource
curse’ – re-enforcing negative effects during downturns &
hindering the translation of resource wealth into long-term
development
• Some key mechanisms:
– Wasteful expenditures & public investments during boom times
– Focus on rent-seeking rather than profit seeking among elites
– Failure to manage macro-economic and fiscal risks
Indirect governance failures (especially RR
countries)