The 1997 World Bank Development Report argues that states need strong institutions to meet people’s needs effectively, reports Madeleine Wackernagel
THE World Bank is not known for advocating intervention – thus, its World Development Report 1997, released this week, which takes the role of the state as its theme, could be seen as something of a departure.
But, says Brian Levy, one of the report’s authors, the issue is not about the relative merits of democracy versus autocracy in boosting economic development, but the effectiveness of the state. Its role should be to “let markets flourish and people lead healthier, happier lives”, according to the report.
For some time the orthodoxy has been that less is more, with greater emphasis on downscaling the size and influence of governments. Markets, ran the argument, could do everything better. But curtailing the extent of state intervention has not necessarily proved effective in meeting public needs. So the emphasis has shifted from “the qualitative to the quantitative, from the sheer size of the state and the scope of its interventions to its effectiveness in meeting people’s needs”.
With the collapse of the command economies of the former Soviet Union and Central and Eastern Europe; the crisis of the welfare state in many western countries; the crucial role of governments in the “miracle” tiger economies of East Asia; and the collapse of states and explosion in humanitarian emergencies in several countries, the importance of creating effective governance is taking on a new urgency.
The report advocates a two-pronged strategy: matching the state’s role to its capability and improving those capabilities by re-invigorating public institutions.
When governments try to do too much with too little, they can end up doing more harm than good. Thus the state must refocus its role on what it does best: performing the public tasks not provided by markets and voluntary groups. And public institutions must be strengthened to enhance the state’s capabilities.
Levy points to a survey of local entrepreneurs in 69 countries (see graphs), which illustrates the link between credibility and investment. Firms were asked to rank indicators on a scale from one (extreme problem) to six (no problem). The results, when normalised to the Organisation for Economic Co-operation and Development countries, show sub-Saharan Africa and the Commonwealth of Independent States faring worst, because states were failing in their core functions of ensuring law and order, protecting property, and applying rules and policies predictably.
In an ideal world, three mechanisms to enhance the capability of the state would apply: effective rules and restraints; greater competitive pressure; and increased citizen voice and partnership. But even two out of three ain’t bad.
“Consider Japan after World WarII. The Ministry of International Trade and Industry gathered together industrial associations, big business and public officials to work out a comprehensive plan to develop the machinery, steel, shipbuilding and coal industries.
“Then, once the Japan Development Bank had taken the lead, providing finance at moderately subsidised interest rates, Japan’s largest banks joined in. The result was an industry that played a significant role in Japan’s post-war recovery.”
In another example, the report highlights the impact of participation on project performance, using data from 121 rural water supply projects in 49 countries in Africa, Asia and Latin America. Participation was measured on a continuum ranging from information-sharing through in-depth consultation to full control over decision-making. The result should come as no surprise – a strong correlation between high levels of beneficiary participation and the success of a project. Of the 49 projects with low levels of participation, only 8% did well, while of the 42 projects with active participation, 64% were successes.
There is no blueprint for improving the state’s effectiveness; each country’s institutional and political framework demands different strategies. Sub-Saharan Africa is singled out for the most severe deterioration in the state’s effectiveness – “the result of eroding civil service wages, heavy dependence on aid, and patronage politics”.
Thus, says the report, “A sharp refocus of the state’s priorities is badly needed . An institutional vacuum of significant proportions has emerged in many parts of sub-Saharan Africa, leading to increased crime and an absence of security, affecting investment and growth.”
Reform, such as it is, has been “limited to tinkering around the edges and to promulgating reforms on paper… Most countries will need to redirect existing, misallocated resources to raise real public wages (more than proportionately to any savings from further retrenchment), increase spending on social services, and undertake vast investments in personnel management, retraining, and accountability.
“It is difficult to imagine how reform of the role of the state and improvement in its capability can be realised in most African countries without . more competitive pressure, greater voice and transparency, and rules and restraints including the rule of law.”
Much of the bank’s advice may seem like common sense but that doesn’t stop it from hammering its message home: “Where governments lack ways to listen, they are not responsive to people’s interests, especially those of minorities and the poor,” says Ajay Chhibber, the report’s team leader.