Transcript Institutional and Governance Reviews and the Role of

Institutional and Governance
Reviews and the Role of Political
Economy Analysis in Operations
Philip Keefer
DECRG
Flagship Course on Governance and Anti-corruption
1 December 2004
Political economy and the
operational challenge
We would like to persuade politicians
» to allocate funds to pro-poor activities;
» to demand effective policy implementation;
» to improve the investment climate;
» to refrain from rent-seeking/ corruption (to
improve governance).
Political economy and the
operational challenge
We would like civil servants
» to implement programs effectively;
» to exercise discretion fairly;
» to refrain from corruption/rentseeking
generally (to improve governance).
Understanding political/bureaucratic
incentives informs donor response to
all development challenges
•
•
•
•
•
•
Insecure property rights
Corruption
Schools without teachers
Highways without maintenance
Clinics without medicine
Failed loans/stalled disbursement
Puzzle 1: Low educ. spending, high
public invest. spending, Dom. Rep.
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
m
o
D
p.
e
.R
p
C
%
a
%
c
A
l
/
a
L
th
P
r
u
u
D
r
yo
G
e
e
e
m
m
m
Sa
Sa
Sa
Puzzle 2: Democracy reduces
peceptions of honesty/integrity,
Indonesia
4
3
Suharto
falls
2
1
0
1995
1996
1997
1998
1999
2000
2001
Solving the puzzles: how politicians get
votes, make credible decisions
100 countries used competitive elections to elect
their leaders, up from 60 in 1990.
Even in the least institutionalized democracies,
politicians care about elections (e.g., Pakistan,
Indonesia).
When does voter pressure lead to
better/worse outcomes?
Reforms don’t work if people don’t believe them.
What institutions improve credibility?
Sources of distortion in voterpolitician relationships:
information
Lack of voter information about:
»
which politicians are responsible for a
policy;
»
their actions;
»
their contribution to voter welfare.
Consequences of distortion:
information
Politicians:
» under-provide goods that are difficult to attribute to
their own actions or that contribute only indirectly to
citizen welfare;
» cater to special interests, extract personal rents.
» centralization, parliamentary slush funds
Examples of policy distortion from
information
» School buildings, yes; education quality, no
(most of our client countries)
» Road construction out of PM’s/Prez’s office,
yes; road maintenance, no (Pakistan under
Sharif).
» Special exemptions from regulations, yes;
rule of law, no (Peru, Indonesia).
Political market imperfections since 1990:
Information
Rule of Bureau- Gross
Law
cratic
secondary
Quality school
enrollment
Newspaper Yes 4.8
4.4
91%
circulation
greater than
2.7
42%
the median? No 2.9
Sources of distortion in voterpolitician relationships:
CREDIBILITY
Voters cannot believe pre-electoral
promises of political competitors
because:
» political parties/candidates have no
reputation for policy or competence;
» voters have no information about
performance.
Credibility-induced distortions
Politicians
» Under-provide public goods
» Over-provide non-public goods.
» Extract large personal rents.
Examples -- same as information, plus:
» Civil service reform, no; political appointments of
high quality officials, yes (maybe).
Political market imperfections since 1990:
pre-electoral credibility
Rule of Bureau- Gross
Law
cratic
secondary
Quality school
enrollment
Yes 4.8
4.6
90.4%
Years of
continuous
elections
greater than No 3.5
median?
Age of
Yes 4.6
political
parties
greater than No 3.8
median?
3
59%
4.5
88.5%
3.3
62.8%
How to diagnose information/credibility
problems: examples
• How do legislators spend their time?
Pakistan: almost all time spent doing favors
(“homestyle”). UK: 6 hours/week.
• Significant policy differences between parties?
US, UK, FR, DEU: Yes
IDN, PAK, BNG, ECU, ARG: No
• Are political campaigns expensive?
DR: campaign costs = 10x per capita US
campaign $
What to do about
information/credibility problems
• If politicians care only about targeting, do not rely
on the government to improve quality, reduce
corruption.
• Use politician interest in targeting to structure
sector programs (Foncodes, Peru).
• Structure public sector reforms to give politicians
opportunities to extract politically relevant rewards.
• Structure reform to address underlying problems
(e.g., use them to build party reputation for policy
reform; use them to increase voter information
about who is responsible for reform and what
reform is accomplishing).
Post-election credibility – the other
big political economy distortion
• Absent political checks and balances,
governments can act opportunistically
(promise one thing, deliver another).
Checks and balances dramatically
improve the rule of law (reduce
opportunistic behavior) and bureaucratic
quality (oversight of executive branch
performance).
Checks are not a panacea if conflicts of
interest among politicians not resolved
Consequences:
• Centralization – presidents/PMs do not trust
civil servants nor cabinet to implement
programs.
• Low budgets: legislature does not trust
executive branch, especially when it has little
control over budgets.
Examples of distortions from conflict
of interest
• Public spending in Dominican Republic
– well below the LAC average.
• Reformist administrations do not invest
in education (Peru).
• Pakistan motorway
• Centralization in Ministry of the
Presidency (Peru)
• Cronyism (Indonesia)
Checks and balances are not a panacea:
if low political payoff in blocking actions
against the public interest
• Absence of electoral imperatives for political
veto players to act in the public interest
undermines the value of checks.
Checks have a negative effect on rule of law,
school enrollment when elections are less
competitive, since they increase the
“common pool” problem.
Where legislator incentives are weak, checks
evaporate: “Urgency” decrees in Peru
250
200
150
Urgency Decrees
100
Laws
50
0
1994 1995 1996 1997 1998 1999 2000 2001
How to assess “good” checks and
balances
Are there checks and balances?
• In presidential systems, look at legislative
authority of president and budget power.
• In parliamentary systems, look at party
fragmentation in cabinet; whether coalition
partners can block budgets they don’t like;
whether coalition partners are likely to retain
posts in a new cabinet if vote of confidence
succeeds.
Budget authority – proposal and
amendment power
• Only the executive can propose? Peru,
Bolivia, etc. and all parliamentary
systems.
Or only the legislature? (US)
• Only amendments to reduce spending?
Dominican Republic, Peru, Colombia,
Chile)
Or unrestricted authority? (US, Brazil,
Costa Rica, Ecuador)
Budget authority: what happens if no
budget is approved?
Does spending
• drop to zero (Pakistani local
government)?
• follow last year’s budget (Brazil)?
• follow president’s proposed budget
(Peru)?
Budget authority: implications
Without compensating credibility
mechanisms (strong parties with wellestablished policy reputations), more
executive power over spending, fewer
checks and balances overall, leads to
less rule of law
less spending.
What to do about absent or badly
functioning checks and balances?
Don’t exacerbate the problem by
cooperating with ministers who
circumvent checks. . . But
Raise the political price for ministers/
legislators who exercise blocking power
irresponsibly (through the provision of
information about consequences of
decisions) (example: Nepal).
Help ensure the credibility of interpolitician agreements.
Conclusions
Institutional/Political economy analysis (e.g.,
through the IGR instrument) can shape
country and sector strategy:
• Identifies what can work/what is sustainable
• Provides framework for
o packaging diverse programs/projects to
enhance sustainability.
o introducing information/consultation into
program design in meaningful ways.
o structuring priorities (infrastructure vs. public
sector reform or with public sector reform).