Governance: Emerging Issues in World Banks Work

1
Governance Emerging Issues in World Banks Work
Presented to 4th Danida Human Rights and Good
Governance Seminar Schaeffergaarden, 27-28
February 2006
Presented by Sanjay Pradhan Director Public
Sector Governance Board
The World Bank
2
The World Bank has come a long way in a brief
period of time
State in a Changing World (97)
O.P. Mainstreaming AC in CAS (99)
PSG Implementation Update (02)
Governance Pillar - CDF (98)
Strategic Compact (97)
Governance Strategy (00)

• Diagnostic/Data/ Monitoring Tools
• Public Financial Management and Procurement
• Administrative Civil Service Reform
• Civil Society Voice, Transparency, CDD
• State Capture
• Legal Judicial Reform

JDW Cancer of Corruption Speech (10/96)
WDR on Institutions 1982
Anti-corruption Strategy (97)
Gov/A-C Diagnostics start (98)
TI CPI (5/95)
Broadening Mainstreaming
The Prohibition Era
1st set of firms Debarred from WB (99)
Internal AC unit created in WB (98)
Board endorses Integrity Strategy (04)
Formalization of INT (01)
PDW Bank President (05)
1970
1980
1990
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
3
Emerging Issues

• Is Governance Key to Development?
• How to Improve Governance? Strategic Framework
  for Coordinated Donor Action
• How to Measure Governance?
• How can the World Bank support Human Rights?
• How to tackle the crucial issue of Leadership
  Ethics?

4
The Corruption-Growth Paradox

• Stylized version of paradox
• Insert your favorite country here is one of
  the most corrupt countries in the world and also
  one of the worlds fastest growing countries
• Is there really a paradox?
• Think about distinction between long and short
  run
• Think about types of institutions that matter
• Think about isolating causal effects

Source Aart Kraay, World Bank, Feb 14, 2006
5
Is There a Governance-Growth Paradox in the
Medium Run At Least?
Source Aart Kraay, World Bank, Feb 14, 2006
6
Corruption and Growth in Long Run
Source Aart Kraay, World Bank, Feb 14, 2006
7
BangladeshGovernance Growth Paradox

• Strong development outcomes coexist with high
  levels of corruption
• Need to unbundle governance not all bad news
• State allowed civil society to step in and
  deliver key services
• Is Bangladeshs governance good enough?
• Bangladesh needs to move to a higher growth path
  of 6-7 a year to achieve the PRSPs poverty
  reduction objectives and related MDGs
• Growth rates may not be sustainable growth is
  driven largely by garment exports and phase out
  of the MFA quota system puts this growth at risk
• Improving governance is key to unlocking other
  sources of growth
• According to the 2005 ICA, corruption is now the
  greatest obstacle to doing business, overtaking
  power
• FDI is very low (Bangladesh ranks 137 out of 141
  countries). Attracting FDI would require
  significant improvements in the investment
  climate
• Improving critical infrastructure, especially
  power and ports, requires solving fundamental
  governance problems in each sector

8
Good Governance matters for investment and growth
Income per capita Growth Rate
Investment share in GDP
20
15
10
Medium
Low
High
High
Medium
Low
Governance Quality
Governance Quality measured by perception of 4000
firms in 67 countries on (i) protection of
property rights (ii) judicial reliability (iii)
predictability of rules (iv) control of
corruption. World Development Report Survey 1997
9
The direction of causality
Growth causes governance to improve ...
and better governance causes growth

• Using measures of rule of law, bureaucratic
  quality and corruption, Chong and Calderon (2000)
  found significant causality from good governance
  to growth and vice versa i.e. good governance
  both contributes to and results from strong
  economic performance
• Other studies have dealt with the potential for
  reverse causation by using exogenous instruments
  for the governance indicators and concluded that
  good governance has a significant and strong
  causal impact on economic performance

• Burkhart and Lewis-Beck (1994) found that while
  higher per capita incomes foster democracy,
  democracy in turn does not foster higher incomes
• B. Friedman (2005) argues that higher living
  standards encourage more open, tolerant and
  democratic societies

but the debate on causality continues
10
Inequality of Influence Poor Governance
Governance Growth

• In societies with weak institutions, small elites
  purchase state policies for their own benefit
• With state capture, regulations, taxes,
  procurement deals benefit elites, and competition
  is suppressed

Causality between inequality and injustice runs
in both directions initial inequality leads to
subversion of institutions, but weak institutions
allow only those who can protect themselves to
become rich (Glaeser, Scheinkman, Shleifer, 2002)
11
Good governance is pro-poor
Governance Growth
Source Knack, 2002
12
Corruption poses three significant risks
Development Effectiveness Risk
That poor governance-corruption will undermine
the impact of development efforts in general and
in donor-supported projects
Reputational Risk
Fiduciary Risk
That large amounts of aid in countries with
corrupt leaders will tarnish donors reputation
That donor resources will not be used for the
purposes intended
13
Emerging Issues

• Is Governance Key for Development?
• How to Improve Governance? Strategic Framework
  for Coordinated Donor Action
• How to Measure Governance?
• How can the World Bank Support Human Rights?
• How to tackle the crucial issue of Leadership
  Ethics?

14
Governance Corruption Not the same thing!
The manner in which the State acquires and
exercises its authority to provide public goods
and services
Governance
Corruption
Using public office for private gain
Corruption is an outcome a consequence of the
failure of accountability relationships in the
governance system
15
Governance Systems Supply and Demand

• Supply-side Capacities and organizational
  arrangements leadership, skills, human resource
  and financial management systems embodied in
  state institutions to deliver public goods and
  services
• Demand-side Institutions and accountability
  arrangements elections, political parties,
  parliaments, judicial systems, free press, civil
  society organizations, accountable local
  governments that enable citizens and firms to
  hold state institutions to account

16
Governance Systems Actors, Capacities and
Accountability
Citizens/Firms

• Political Actors Institutions
• Political Parties
• Competition, transparency

Executive-Central Govt

• Civil Society Private Sector
• Civil Society Watchdogs
• Media
• Business Associations

• Check Balance Institutions
• Parliament
• Judiciary
• Oversight institutions

Cross-cutting Control Agencies (Finance, HR)
Citizens/Firms
Citizens/Firms
Service Delivery Regulatory Agencies
Subnational Govt Communities
Outcomes Services, Regulations, Corruption
Citizens/Firms
17
Governance Systems When Accountability Breaks
Down
State Capture
Citizens/Firms

• Political Actors Institutions
• Political Parties
• Competition, transparency

Patronage nepotism
Executive-Central Govt

• Civil Society Private Sector
• Civil Society Watchdogs
• Media
• Business Associations

• Check Balance Institutions
• Parliament
• Judiciary
• Oversight institutions

Cross-cutting Control Agencies (Finance, HR)
Citizens/Firms
Citizens/Firms
administrative corruption
Service Delivery Regulatory Agencies
Subnational Govt Communities
Outcomes Services, Regulations, Corruption
Citizens/Firms
18
Good Governance has many dimensions
Citizens/Firms

• Political Accountability
• Political competition, broad-based political
  parties
• Transparency regulation of party financing
• Disclosure of parliamentary votes

• Effective Public Sector Management
• Ethical leadership asset declaration, conflict
  of interest rules
• Cross-cutting public management systems
  meritocracy, public finance, procurement
• Service delivery and regulatory agencies in
  sectors

• Checks Balances
• Independent, effective judiciary
• Legislative oversight (PACs, PECs)
• Independent oversight institutions (SAI)
• Global initiatives UN, OECD Convention,
  anti-money laundering

• Civil Society Media
• Freedom of press, FOI
• Civil society watchdogs
• Report cards, client surveys

• Private Sector Interface
• Streamlined regulation
• Public-private dialogue
• Extractive Industry Transparency
• Corporate governance
• Collective business associations

Citizens/Firms
Citizens/Firms

• Decentralization and Local Participation
• Decentralization with accountability
• Community Driven Development (CDD)
• Oversight by parent-teacher associations user
  groups
• Beneficiary participation in projects

Citizens/Firms
19
World Bank operations focus only on some --
hence the imperative of partnerships
Citizens/Firms

• Political Accountability
• Political competition, broad-based political
  parties
• Transparency regulation of party financing
• Disclosure of parliamentary votes

• Civil Society Media
• Freedom of press
• Freedom of information
• Civil society watchdogs
• Public hearings of draft laws
• Report cards, client surveys
• Participatory country diagnostic surveys

• Effective Public Sector Management
• Ethical leadership asset declaration, conflict
  of interest rules
• Cross-cutting public management systems
  meritocracy, public finance, procurement
• Service delivery and regulatory agencies in
  sectors

• Checks Balances
• Independent, effective judiciary
• Legislative oversight (PACs, PECs)
• Independent oversight institutions (SAI)
• Global initiatives UN, OECD Convention,
  anti-money laundering

• Private Sector Interface
• Streamlined regulation
• Public-private dialogue
• Break-up of monopolies
• Extractive Industry Transparency
• Corporate governance
• Collective business associations

Citizens/Firms
Citizens/Firms

• Local Participation Community Empowerment
• Decentralization with accountability
• Community Driven Development (CDD)
• Oversight by parent-teacher associations user
  groups
• Beneficiary participation in projects

Primary focus of WB operations in governance
Citizens/Firms
20
Major governance programs launched
with some evidence of success
Russia (customs/treasury)
Ukraine (tax admin)
Albania (public admin.)
Kyrgyz Republic (governance reform)
Jordan (civil society)
Cambodia (PE forestry)
Ghana (PE accountability)
Guatemala (diagnostic to action program)
Gabon (water/electricity)
Colombia (diagnostics civil society)
Pakistan (devolution)
Tanzania (PSR)
Ethiopia (decentralization)
21
Lessons learned Deeper challenges in high-risk
countries
Strong on PFM diagnostics
Emphasis on core public management reforms
Good at technocratic solutions and design

• These appear to be working when the underlying
  environment is conducive
• Committed leadership
• Coalition for reform
• Capacity

• State capture and corrupt leadership in
  clientelistic states
• Powerful vested interests and political obstacles
• Weak demand pressures for reform limited
  voice, media freedoms, civil rights, etc.
• Political drivers of corruption (e.g., lack of
  political competition, party financing)

Deeper underlying challenges
22
Reducing corruption in high-risk countries
Priorities for action in the next stage

• Better understand and manage political economy of
  reforms drivers of change

• Partnerships and new instruments to support
  demand-side initiatives working with civil
  society, media, parliamentarians

• Tackle governance challenges in sectors (e.g.,
  power, ports, extractive industries)

• Tackling political corruption (e.g. party
  finance, electoral corruption, etc. ) with
  partners

• Develop operational strategies to engage with
  corrupt leadership in clientelist, captured states

23
Philippines Procurement ReformMobilizing Public
Support
Transparency and Accountability Network (20
member groups)
Walang Ku-Corrupt Movement
(Youth)

• Drew other civil society groups
• into the advocacy efforts and
• coordinated the activities

PAGBA AGAP (w/in Govt)
CBCP (Church)
Philippine Contractors Association (private
sector main stakeholder)
Local chambers of Commerce (Private
sector)
24
The Media CampaignThe Communications Strategy
Reaching Out
25
Civil Society Monitoring for Improved Service
Provision Bangalore
 
Source Public Affairs Center, India
26
BIR Officials Amass Unexplained Wealth By
Tess Bacalla , Philippine Center for
Investigative Journalism
Media,Transparency, and Combating Corruption
Owner Regional Director in the Bureau of
Internal Revenue forced to resign currently
facing corruption charges other officials
suspended, also facing charges
27
Coordinated Donor Strategy on Anti-Corruption
Donors
28
Corruption is not just a developing country
problem
Percentage of firms that pay public procurement
kickbacks by country of origin of foreign direct
investment
Source Are Foreign Investors and Multinationals
Engaging in Corrupt Practices in Transition
Economies? by Kaufmann, Hellman, Jones, in
Transition, May-June 2000. Note Survey Question
was How often nowadays do firms like yours need
to make extra, unofficial payments to public
officials to gain government contracts? Firms
responding sometimes or more frequently were
classified as paying kickbacks. These figures are
subject to significant margins of error and thus
should be regarded as approximate.
29
Emerging Issues

• Is Governance Key to Development?
• What to Improve Governance? Strategic Framework
  for Coordinated Donor Action
• How to Measure Governance?
• How can the World Bank support Human Rights?
• How to tackle the crucial issue of Leadership
  Ethics?

30
Two Approaches to Measuring Governance

• Broad and Aggregated Broad measures to measure
  governance at more aggregated levels. Help
  reveal systematic patterns and basis for
  monitoring trends over time.
• Specific and Disaggregated Specific measures of
  quality of key governance subsystems, including
  using actionable indicators to benchmark and
  track reforms.
• Way Forward Match the governance indicator with
  the purpose of measurement and monitoring

31
Control of Corruption one Aggregate Indicator
(selected countries from 204
worldwide, for illustration, based on 2004
research data)
Margins of Error
Good Governance
Governance Level
Poor Gov-ernance
Source for data 'Governance Matters IV
Governance Indicators for 1996-2004, D.
Kaufmann, A. Kraay and M. Mastruzzi,
(http//www.worldbank.org/wbi/governance/govdata/
) Colors are assigned according to the
following criteria Dark Red, bottom 10th
percentile rank Light Red between 10th and 25th
Orange, between 25th and 50th Yellow,
between 50th and 75th Light Green between
75th and 90th Dark Green above 90th.
32
PEFAs Performance Measurement Framework on PFM
33
The Bribe Fee List Unofficial payments by firms
in Ukraine
Enterprises Type of License/Service/Favor
Average fee required admitting need to pay
(1996) unofficially
Enterprise registration 176 66 Each visit by
fire/health inspector 42 81 Tax inspector (each
regular visit) 87 51 Telephone line
installation 894 78 Lease in state space
(square ft. per month) 7 66 Export
license/registration 123 61 Import
license/registration 278 71 Border crossing
(lump sum) 211 100 Border crossing (percent of
value) 3 57 Domestic currency loan from bank
on 4 81 preferential terms (percent of
value) Hard currency loan on preferential 4 85
terms (percent of value)
34
Citizen Report Card of Government ServicesLatvia
Post Office
State Educational Institutions
Office of Social Benefits
Polyclinic/Health Services
Agency of Immigration Citizenship
Prosecutor
Customs Service
Courts
Local Housing Authority
Police
0
10
20
30
40
Percent giving favorable rating
35
Choose Indicators to Match Purpose of Monitoring
36
Emerging Issues

• Is Governance Key to Development?
• How to Improve Governance? Strategic Framework
  for Coordinated Donor Action
• How to Measure Governance?
• How can the World Bank support Human Rights?
• How to tackle the crucial issue of Leadership
  Ethics?

37
Interconnections of Development, Human Rights and
Security Two Perspectives
38
Areas of Interface
Poverty reduction Growth Trade Environment
39
Partnerships are Crucial

• While the Bank has lead role in development and
  post-conflict reconstruction, other actors take
  the lead on human rights and security, given
  their mandates, strengths, capacities The UN,
  Bilateral Donors, NGOs, regional organizations.

40
Example Multidonor Approach in Ethiopia

• Recent political crisis and development impact
• Underlying dynamics and implications for reform
• Strategic Priorities
• Short-tem political dialogue on human rights and
  conflict resolution
• Longer-term institutional reform
• Key Implications
• Governments broad-based governance program to
  underpin predictable aid
• Multidonor program to support governance
• Implications for the World Bank

41
Emerging Issues

• Is Governance Key to Development?
• How to Improve Governance? Strategic Framework
  for Coordinated Donor Action
• How to Measure Governance?
• How can the World Bank support Human Rights?
• How to tackle the crucial issue of Leadership
  Ethics?

42
Leadership Ethics

• Leaders play a vital role in improving governance
  --- and in deteriorating systems (Uganda,
  Ethiopia)
• Leaders set standards for integrity, catalyze
  politically difficult change
• Way forward is to empower and recognize critical
  mass of reform-minded leaders committed to
  integrity (e.g., John Githongo)
• Global Integrity Alliance Peer support network
  of public officials committed to integrity
  (Oxford 06)
• Graceful Exit Institution for outgoing leaders
• Innovative pilots in transformational leadership
  to engender paradigm shift Madagascar, Burundi
• How to reverse eroding public service norms?

43
Strengthening Public Service Ethics5 Cs to
Counter Corruption
Connectedness
Care Compassion
Creating a sense of belonging to society
Creating a sense of Compassion to care for
the more needy in society
Strengthen Values Ethics Counter Corruption
Cosmology
Courage
Overcoming insecurity incessant quest for
material acquisitions
Broaden vision by seeing life in the context of
the huge universe
Commitment to Contribute
Creating a commitment to public service to
give v/s take
Source H.H. Sri Sri Ravishankar (Founder, IAHV)
_at_ The International Anticorruption Conference,
Korea
44
Coordinated Donor Actions to Tackle Governance in
High-Risk Countries

• How to identify high-risk countries of mutual
  concern?

Coordinated donor strategies how to avoid
mixed signals?
How to extend the progress in PFM-PEFA indicators
to other areas of governance (civil service,
checks balances)?
How can donors collectively tackle political
governance and human rights within a multidonor
approach?
How to set up financing window and governance
mechanisms to support coordinate demand-side
interventions?
How to support leadership and ethics network and
capacity building initiatives in high-risk
settings?
45
QA