Political Economy in Practice at the Bank

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Political Economy in Practice at the Bank

• Stephen Ndegwa
• AFTPR

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Why is political economy critical?

• A complete understanding of the governance
  environment in a given country must include an
  understanding of the political process, and not
  merely a better understanding of public
  administration
• What is the nature of the political seas and
  sea bottoms through which a country team seeks
  to navigate its ship of development assistance?
• CTs cannot devote all of their attention to their
  program of assistance narrowly defined, i.e. to
  the ship and what is inside it.
• CTs must also consider the relationship between
  the ship and the seas through which it sails.

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• The Banks work is embedded in a larger societal
  context that often affects its outcomes in
  unforeseen ways. These include
• The political process and the institutions within
  which that process plays itself out (arguably the
  most important dimension of this larger societal
  context)
• But also
• A countrys social structure -- especially the
  extent to which society is a peasant based
  agrarian society or urbanized one.
• The structure and configuration of cultures (i.e.
  ethnicity) and language.
• Informal practices (e.g. and especially
  clientelist networks and patronage) as well as
  formal ones.
• History
• Each society IS unique, and therefore one size
  does not fit all.

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Good governance has many dimensions entry
points

• Institutional Checks Balances
• Independent, effective judiciary
• Legislative oversight
• Decentralization with accountability
• Global initiatives OECD Convention, anti-money
  laundering, WCO

• Political Accountability
• Political competition, credible political parties
• Transparency in party financing
• Disclosure of parliamentary votes
• Asset declaration, conflict-of-interest rules

• Civil Society Voice Participation
• Freedom of information
• Public hearings on draft laws
• Media/NGOs
• Community empowerment
• Report cards, client surveys

• Competitive Private Sector
• Economic policies
• Restructuring of monopolies
• Effective, streamlined regulation
• Robust financial systems
• Corporate governance
• Collective business associations

• Public Sector Management
• Meritocratic civil service with adequate pay
• Public expenditure, financial management,
  procurement
• Tax and customs
• Frontline service delivery (health, education,
  infrastructure)

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Part IIIs Politics Bankable? Philip Keefers
PREM Learning PresentationAdapted
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Why do politics matter?

• Politicians are the ultimate arbiters of
  welfare-enhancing, growth-promoting, equitable
  policies.
• They are the ultimate arbiters of success of
  foreign assistance.
• The political economy question
• What are the incentives of politicians to pursue
  development-oriented policies?

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The paradox

• Efficient public goods and broad public policies
  (e.g. regulation) are critical to development.
• Government incentives are therefore more
  pro-development the more they favor these over
  rent-seeking and private good provision.
• The paradox when politicians prefer policies
  that benefit fewer people, when with the same
  resources they could choose policies that benefit
  more people.

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Priority questions for addressing the paradox in
development policy

• The primary development question what
  interventions improve political incentives to
  pursue development-oriented policies?
• The secondary question How can we design sector
  interventions to be compatible with political
  incentives?
• The tertiary question How can we build
  constituencies for reform?
• The quaternary question are key decision
  makers supportive of reform?

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Some reasons why politicians systematically
ignore reform information

• Political market imperfections information
• We cant expect political accountability for
  development outcomes when
• public doesnt know what political decisions were
  made
• public cant observe outcome of decisions.
• public cant observe the impact of decisions on
  their welfare.
• Most donor interventions do not increase citizen
  info others fail to provide the right kind of
  info.
• They should informed citizens (exposed to
  media) much more likely to receive transfers
  (India, US) (probably) more likely to demand
  public goods.

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Reasons why politicians ignore reform credibility

• Political market imperfections credibility
• Politics is not about policy/public goods in poor
  countries
• high tax/high redistribution vs. low tax/low
  redistribution competition in social service
  delivery versus no competition deregulation
  versus regulation.
• Why?
• Politicians cannot credibly promise high quality
  public goods, public policy to most citizens.
  Can sometimes credibly promise populist transfers
  (free power) to most citizens. Can usually
  credibly promise clientelist benefits (pork
  barrel, jobs in government) to a few citizens.
• Hence, few programmatic political parties in poor
  countries
• at best, we see populist reputations (e.g., free
  power) more often, purely clientelist
  (vote-buying/vote blocs/jobs in gov).

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Reasons why politicians ignore reform
polarization

• Political market imperfections social
  polarization
• Citizen polarization leads them to care more
  about who benefits from policy than the welfare
  effects of policy.
• Related to credibility and information in
  credibility- and information-free environments,
  promises to co-religionists most credible,
  easiest to monitor.
• Donors pay insufficient attention to how they
  might mitigate (1) the political factors that
  exacerbate polarization and (2) effects of
  polarization on implementation of reforms.
• But they should substantial evidence (Kenya, US,
  etc.) that public good provision suffers in
  multi-ethnic settings.

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Program design implications

• Information components already in some
  programs/projects citizen report cards, PETS
  dissemination, media outreach
• Often fail to provide information crucial to
  political accountability
• outcome info (benchmarking of school/health
  performance) info on decision process (e.g., how
  much money approved, by whom).
• Cutting-edge PMI analysis identifies nitty-gritty
  design elements that make the difference between
  no impact and substantial improvement
• Education services in Uttar Pradesh no impact of
  best practice interventions to encourage
  better-informed participation in public services.
  New PMI-informed design being tested in
  Karnataka decentralization operation.
• Use PMI analysis to turn impact evaluation from a
  device by donors to hold governments and
  themselves accountable to a device that allows
  citizens to hold governments accountable.

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Program design implications

• CDDs rely on local governance to improve
  service delivery.
• PRSPs build local ownership for reform agenda.
• However, PMIs need not be fewer at the local
  level (Khemani, et al.).
• Most successful CDD KDP-Indonesia. Donors
  participate in ongoing governance, however. CDD
  approach usually seen as a substitute for donor
  oversight.
• PRSPs have no/limited effect on PMIs, but these
  determine who owns what. Uninformed citizens
  in non-credible environments cannot own reform.
  
• CDDs and PRSPs need to focus on credibility,
  information.
• E.g. Directly, CDDs do nothing for credibility
  of national policy makers may help indirectly by
  building up credible local challengers to
  national politicians.

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Implications for monitoring

• Track whether politicians are investing political
  capital in promises to provide public goods.
• Track whether citizens have info. to monitor
  these promises.
• Use supervision strategically to improve
  credibility of governments to citizens to
  substitute for accountability where PMIs are high
  and citizen leverage over government officials
  low.
• Increase supervision budgets where
  accountability is low reduce where high.

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What Donor Role?

• Donor conditionality and support to specific
  leaders can be counter-productive it can
  undermine leaders credibility to their own
  citizens.
• In the extreme case what should we advise
  military-led governments who get rid of corrupt
  political parties?
• Currently we hope that economic reforms are
  self-sustaining.
• Problem Chile is rare.
• Instead, more country-specific analysis needed on
  dynamics of political parties, and how
  reputation-building for public goods can be
  supported.
• Assist non-democratic governments (that are so
  disposed) to lay the groundwork for or at least
  understand the importance and characteristics of
  accountable political parties.

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Part III Brief Examples

• Analysis, Advice, Action

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Morocco Summary of Results

• Current Outcome indicates the results of the
  anticipated stakeholder dynamics on the issue
  given model results and analysis.
• Opportunity for Reform indicates changes in
  approach and strategies to overcome
  implementation challenges given model results and
  analysis.

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Utility of the general findings

1. () Need to change our partnership strategy!
2. () Reform is more/less difficult than we thought
   depending on the issue!
3. (-) Some specific results did not make sense!
4. (-) Pool of experts too limited!
5. (-) Potential courses of action unclear

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Overall lessons

1. Stakeholder analysis should come at early stage
2. Enlarge the circle of champions beyond line
   ministry (focus on Ag Ministry big mistake)
3. Get to understand the dynamic rather than the
   static reform process
4. Pro-reformers use the radical Bank position to
   help craft a compromise
5. Better to train Bank staff to conduct the
   analysis rather than having consultants carry the
   task (skill mix and relation with client) .

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Laos

• Primacy of Political Order, Fragility, State
  weakness
• Monolithic vs. fragmented state -- state as arena
  of negotiation esp. at realigning moments
• Incomplete state formation nationalism, economic
  prosperity/hemmed in, capacity
• (soft state)
• Coming transition
• unraveling regime consistency for several reasons

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Three Bank Choices

• a) Muddle through status quo
• Perfectly legitimate/reasonable in public
  management
• NPEP a muddle through script not necessarily bad
• b) Selective-strategic reform areas
• Two track problem service delivery and
  institutional change
• 1. Public resource management
• 2. Capacity Enhancement
• gtgt Find Constituency for reform Need for
  unequivocal preference for reform

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c) Positioning for State Transformation

• Disturbing Query why are we in Laos?
• change to how we do business differently
•  Beyond 3-4 Year CAS, beyond NPEP
• Absence of Governance and macro-political reforms
  (transparency, accountability, citizen tests of
  accountability) in CAS would miss opportunity
• Creative use of AAA to affect agenda
• Access to where power resides, building trust
  (less leverage) to move macro-political reform
  information, SE Asia models bottom wont fall

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Ethiopia

• Post-election violence, threats donor withdrawal,
  WB CAS budget support
• Review team to examine appropriate of strategy
• Deep divisions, swing to single party dynamic,
  party businesses, weak parliament
• Move to ISN, move to PBS Protection of Basic
  Services, via decentralization

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Kenya

• New government, Anti-corruption, uneven
  performance
• Anglo-leasing scandal a less than savory
  kitchen cabinet
• What else to do, other than rant rave?
• Rapid response note on wounded executives
  code of ethics work
• Result leadership code for new cabinet,
  integration of leadership/code in Bank TA

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Overall Lessons

• Not so much whether to do, but how and do well
  (integration)
• Not so much smart production but smart
  consumption (management)
• Incentives staff vs. managers
• Retail/country case driven vs. wholesale/framework
  driven
• Resources exist, other donors keen