Transcript Typology Governance Systems

World Bank – 17 June 2008
« Governance and Growth: Shifting paradigms »
Institutions and Development
New Data, New Results
Nicolas Meisel ([email protected])
Research Department - French Development Agency (AFD)
Jacques Ould Aoudia ([email protected])
Treasury Directorate - Ministry of the Economy
REFERENCES
N. Meisel and J. Ould Aoudia (2008), ‘‘Is ‘Good Governance’ a Good Development
Strategy?’’, AFD Working Paper No. 58.
http://www.afd.fr/jahia/Jahia/home/publications/documentsdetravail/pid/4434
N. Meisel and J. Ould Aoudia (2007), ‘‘A New Institutional Database: ‘Institutional
Profiles 2006’ ’’, AFD Working Paper No. 46.
http://www.afd.fr/jahia/Jahia/lang/en/home/documentsdetravail/pid/3430
N. Meisel (2004), Governance Culture and Development: A different Perspective
on Corporate Governance, OECD Development Centre Study, Paris.
http://www.oecdbookshop.org/oecd/display.asp?CID=&LANG=EN&SF1=DI&ST1=5LMQCR2JCWKG
« INSTITUTIONAL PROFILES 2006 » DATABASE
http://www.cepii.fr/anglaisgraph/bdd/institutions.htm
CONTACTS
Nicolas Meisel : [email protected]
Jacques Ould Aoudia : [email protected]
An Intense International Debate
• What is the relationship between Governance and
Growth?
• What institutions matter to trigger and sustain
growth?
• How to measure institutions and governance? No
common conceptual framework; many disciplines;
measurement difficulties; normative assumptions.
• How to use Governance Assessments? What
legitimate operational and political uses?
Our Approach
 What institutional factors do support growth?
 Context: « Good Governance » has been given a
prominent place in the development agenda.
 Empirical investigation: What are the institutional features
characterising high-growth experiences? Case studies +
Cross Country analysis
 Results:
• Different governance capacities required depending on
the needs of the economy
• Interdependence between economics and politics illunderstood
• Need for new concepts and further empirical testing
Presentation Outline
1. A New Database: Institutional Profiles 2006
2. Empirical Investigation: What Institutions for Growth?
3. Interpreting results: Working Hypotheses
A new Database: “Institutional Profiles”
• Research departments of French MINEFE & AFD
• Surveys: 2001, 2006 (85 countries, 90% of World’s
GDP and Population), 2009 (120 countries)
• Broad definition of Institutions (polity, administration,
regulations, transaction security, social cohesion, public
order, coordination and anticipation, openness)
• ‘De facto’ rather than ‘de jure’ approach (Doing
Business) and Growth oriented
• Aggregation of 356 institutional variables into 71
indicators (possibility to build many other indicators)
“Institutional Profiles” covers a much wider
spectrum of institutions than WBI’s Indicators
Projection of the IP and WBI datasets onto the circle of correlation (PCA)
I.P. Database indicators
WBI Governance indicators
Presentation Outline
1. A New Database: Institutional Profiles 2006
2. Empirical Investigation: What Institutions for Growth?
3. Interpreting results: Working Hypotheses
Statistical Tools Used
• A family of powerful statistical tools:
Exploratory Data Analysis (EDA) = refined
descriptive statistics (principal component
analysis, canonical variate analysis, …)
• Why?
– multi-criteria analysis
– no model linking Institutions to
Development  “let the data speak for
themselves”
Empirical Investigation: Two Steps
STEP 1: What is the relationship between
growth and governance?
STEP 2: Uncovering probable « missing
factors »
= Governance capacities left aside by the
« good governance » agenda but that might still
be important for growth.
12
income
level
y = 0,2665x + 7,9346
If ‘Good Governance’ is
linked to the LEVEL of
income…
R2 = 0,7126
11
NOR
USA
Level of development (log GDP per capita 2004)
JPN
ITA
KWT
SGP
HKG
ESP
10
PRT
TAI
SAU
NZL
GRC
GBR
IRL
SWE
CAN
DEU
ISR
KOR
MEX
FRA
CZE
HUN
9
LBN
MUS
GAB
RUS VEN
PER
GTM
KAZ
IRN
DZA
SYR
EGY
CHN
MAR
UKR
CIV
MRT
PAK
YEM
NGA
ZWE
VNM
MLI
BFA
BGR
PHL
LKA
IND
6
GHA
BEN
LTU
COL
7
SEN
POL
ARG
ZAF BRA
KEN
BGD
UZB
8
DOM
IDN
BOL
CMR
MYS
TUR
ROM
CUB
JOR
BWA
TUN THA
EST
CHL
MDG
KHM
UGA
MOZ
TCD
NER
5
'good governance'
ETH
4
-9
-4
1
6
11
Degree of depersonalisation / formalisation of rules (values along Axis 1 of the PCA)
10
y = 0,0861x + 1,9816
CHN
economic
performance
R2 = 0,0522
It is NOT linked to
income GROWTH
(policy-makers’ concern)
Growth in GDP per capita (1990-2004)
8
IRL
VNM
6
KHM
TAI
DOM
MOZ
UGA
MLI
EGY
HUN
GRC
YEM
GTM
KAZ
ETH
BEN
UZB
BFA
MAR
NGA
CMR
-7
TUR
PHL
BOL
SEN
JOR
-3
SAU
ROM
MEX
DZA
-5
NOR
HKG
PRT
IDN
PAK
2
CZE
THA
GHA
PER
-9
CHL
MYS
IRN
SYR
MRT
CUB
BGD
TCD
SGP
POL
MUS
TUN
4
LKA
IND
LBN
EST
KOR
BWA
-1
ARG
BRA
ESP
LTU
SWE
DEU
JPN
ZAF
2
FRA
ISR
GBR
CAN
ITA
BGR
COL
NZL
USA
4
6
8
10
GAB
-1
RUS
KWT
KEN
NER
VEN
CIV
MDG
ZWE
'good governance'
-3
Degree of depersonalisation / formalisation of rules (values along Axis 1 of the PCA)
12
10
R2 = 0,0522
8
Growth in GDP per capita (1990-2004)
Governance
and Income
Growth
y = 0,0861x + 1,9816
CHN
economic
performance
IRL
VNM
6
KHM
TAI
DOM
MOZ
HUN
GRC
YEM
SYR
GTM
KAZ
UZB
ETH
BFA
MAR
NGA
CMR
-7
TUR
PHL
BOL
DZA
JOR
-3
SAU
ROM
MEX
SEN
-5
NOR
HKG
PRT
IDN
PAK
BEN
CZE
THA
GHA
2
-9
MYS
IRN
PER
MRT
CUB
CHL
BGD
TCD
SGP
POL
MUS
TUN
UGA
MLI
EGY
LKA
IND
LBN
4
EST
KOR
BWA
-1
ARG
BRA
ESP
LTU
SWE
DEU
JPN
ZAF
2
FRA
ISR
GBR
CAN
ITA
BGR
COL
NZL
USA
4
6
8
10
GAB
-1
RUS
KWT
KEN
NER
VEN
CIV
MDG
ZWE
'good governance'
-3
Degree of depersonalisation / formalisation of rules (values along Axis 1 of the PCA)
How to explain that countries with similar
levels of « bad governance » exhibit such
different growth records? (Khan, Rodrik)
12
What are the explaining factors?
7%
5%
3%
y = 0,0009x + 0,0163
R2 = 0,061
performance économique
Performance économique (croissance du produit par travailleur)
CHN
2
KAZ
RUS
HKG
VNM
IND
THA
SGP
MYS
MUS
BGD
KHM
KOR
EGY
ETH
MOZ
CMR
BEN
TCD
-9
IRN
SYR
GHA
PER
MAR
BOL
MEX
SAU
-4
CIV
LBN
-3%
MDG
NER
-1%
1
UGA
SEN
GTM
HUN
PRT
CUB
COL
PHL
NZL
ISR
NOR
GBR
CAN
ESP
GRC
3
FRA
ITA
DEU
SWE
JPN
ZAF
ARG
1
KEN
USA
CHL
ROM
TUR
TUN
BGR
NGA
YEM
CZE
POL
DOM
PAK
UZB
IDN
UKR
BFA
MLI
1%
IRL
LTU
LKA
MRT
EST
TAI
BWA
6
11
BRA
JOR
GAB
DZA
VEN
ZWE
KWT
"bonne gouvernance"
Niveau de formalisation des règles (coordonnées de l'axe 1 de l'ACP)
3 Groups built according to their level of income growth (Khan)
Statistical Tool = Canonical Variate Analysis
 Which institutional characteristics differentiate the 3 groups?
Discovering the Growth-enabling
“Governance Capacities”
Method: Capturing the most discriminating variables between
groups
• Group 1 (diverging) vs Group 2 (converging)
– Coordination and strategic vision
– Quality of basic public goods
– Security of agricultural property rights
• Group 2 (converging) vs Group 3 (developed)
– “Good governance” = Security of transactions & PR + control
of corruption + Administration efficiency + transparency
– Openness of social orders (economic, social and political)
• Group 1 (diverging) vs Group 3 (developed)
– In fact, almost everything opposes the two groups
Croissance du PIB par tête / Growth in GDP per cap
Institutional Change:
A more Realistic Path?
performance
économique /
economic
performance
y = 0.0861x + 1.9816
R2 = 0.0522
CHN
IRL
2
VNM
KHM
TAI
DOM
LKA
IND
MUS
TUN
CUB
MLI
THA
GHA
MAR
NGA
GTM
PAK
ETH
BFA
UZB
PRT
IDN
KAZ
BEN
TUR
JOR
ESP
LTU
ISR
COL
ZAF
KWT
KEN
NER
NZL
FRA
BGR
GAB
RUS
NOR
CZE
HKG
USA
ITA
PHL
SEN
ARG
BRA
BOL
DZA
SAU
ROM
MEX
CMR
1
HUN
IRN
YEM
MRT
MYS
GRC
PER
SYR
POL
BGD
TCD
3
SGP
CHL
LBN
UGA
EGY
EST
KOR
BWA
MOZ
VEN
CIV MDG
ZWE
"bonne gouvernance" / "good governance"
JPN
GBR
CAN
DEU
SWE
Conclusion: « Good Institutions » depend on the
developmental needs of the country
CHN
Growth in GDP per capita (1990-2004)
economic
performance
y = 0.0861x + 1.9816
R2 = 0.0522
2
IRL
CATCH-UP:
Openness of Social Regulation
System (economic, social, politic)
TAI of and Compliance
Formalisation
withKOR
Rules
VNM
KHM
ECONOMIC
TAKE-OFF:
Strategic Vision of Development,
DOM
Co- BWA
MOZ
ordination of Private and Public Actors IND
LBN
UGA
+ Basic Eduction and Healthcare
TUN
CUB
MYS
+Security of Agricultural Property Rights
EGY
POL
HUN
GRC
IRN
YEM
BEN
KAZ
GTM
PAK
ETH
BFA
MAR
UZB
NGA
PRT
IDN
TUR
PHL
LTU
ISR
FRA
SWE
BGR
JOR
CMR
1
DEU
ITA
SEN
SAU
GBR
CAN
USA
ARG
BRA
BOL
DZA
NZL
ESP
ROM
MEX
NOR
CZE
HKG
THA
GHA
PER
SYR
3
SGP
CHL
MUS
BGD
MLI
TCD
MRT
LKA
EST
COL
ZAF
JPN
GAB
RUS
KWT
KEN
NER
VEN
CIV MDG
ZWE
'good governance'
Degree of depersonalisation - Formalisation of rules (values along Axis 1 of the PCA)
Presentation Outline
1. A New Database: Institutional Profiles 2006
2. Empirical Investigation: What Institutions for Growth?
3. Interpreting results: Working Hypotheses
What is Institutional Change?
•
•
•
A great transformation from predominantly relationshipbased regulation systems to impersonal institutions and
formal rules creating trust at systemic (vs idiosyncratic)
levels and allowing huge reductions in individual marginal
transaction costs (NIE).
A shift from a universe of permanent risk diversification
(because of very high levels of individual risk) to a universe
of profit maximisation (institutions for risk-sharing at a
systemic level decrease individual risk and allow longer
time horizons) (Polanyi).
An asymmetric process: depersonalisation is
unavoidable (demographic pressure exogenous to
institutions) and undermines relation-based regulation
systems. YET building and enforcing impersonal regulation
systems is far from automatic (high costs and resistance)
What is Institutional Change: An Uncertain Process
Rules enforcement
Relationship-based
Social Regulation
System
- Ascribed relations
(Fukuyama)
Impersonal Social
Regulation System
- Voluntary relations
HIGHER
UNCERTAINTY
Size of population / markets
Transition highly uncertain due to huge social costs
and rational resistance by insiders and societies
Insider Networks
• Insiders: people controlling access to power, information
and wealth (Bayart, Haber, Khan, North, Olson...)
• Insider networks:
– Public and private-sector elites (national and
international) tend to control and protect each other
through informal means (mutual capture)
– A way to restrict and control access to valuable
resources (Limited access order, North et alii)
– Pervasive throughout societies (at all levels)
– Both rigid and fragile, thus creating instability
– Risk of countries being caught in a political economy
trap: Entrenchment and mutual capture of corporate and
public sector elites
Implications of insider networks
• Resistance of insiders is rational in order to
preserve their privileged access to resources
• Good Governance reforms (i.e. rules guaranteeing
universal rights) represent a threat to their rents,
and therefore tend to be adopted only ‘on paper’
• Governance is a political issue, not a technical
one
• Political economy analyses needed to
understand these key obstacles to development
How to escape this political economy trap?
• LESSON LEARNT FROM
– Country case studies (Amsden, Evans, Haber, Khan, Meisel, Rodrik,
Wade…)
– Cross country analyses (Institutional Profiles…)
= Governance Capacities for Economic Take-Off are Endogenous :
• STRATEGIC VISION: mobilise society and curb uncertainty during
transition (stabilize expectations; lengthen horizons)
• COORDINATION ORGANISATIONS: Make convergence of interests
between insiders predominate over conflicts of interests in order to
implement the vision
• PUBLIC INCENTIVES AND DISCIPLINE (carrot & stick):
– rents targeted on priority activities & technology absorption
– temporary and conditional to achievement of performance
objectives (productivity, international competition…)
= GOVERNANCE FOCAL POINT
How to escape this political economy trap:
Strong governance focal points may
overcome resistance for a low cost
 Make up for the destabilisation of the social
order in the institutional transition towards
impersonal universal rules systems
 A power structure that allows state to grant
AND withdraw support
 Align individuals’ private returns on social
returns
Conclusion
‘Good Governance’ cannot be transplanted in developing
countries: high costs + elites and societies’ resistance
(risks of destabilisation of social orders)
Countries that succeeded in their economic take-off used
specific governance capacities (governance focal point)
Catching-up countries need to go forward with
formalisation of rules and opening of their social orders
Going ahead:




Country case studies (growth diagnostics);
Modelling the relationship btw institutions and development;
Ideas for Institutional Profiles 2009 survey;
Open to collaboration
REFERENCES
N. Meisel and J. Ould Aoudia (2008), ‘‘Is ‘Good Governance’ a Good Development
Strategy?’’, AFD Working Paper No. 58.
http://www.afd.fr/jahia/Jahia/home/publications/documentsdetravail/pid/4434
N. Meisel and J. Ould Aoudia (2007), ‘‘A New Institutional Database: ‘Institutional
Profiles 2006’ ’’, AFD Working Paper No. 46.
http://www.afd.fr/jahia/Jahia/lang/en/home/documentsdetravail/pid/3430
N. Meisel (2004), Governance Culture and Development: A different Perspective
on Corporate Governance, OECD Development Centre Study, Paris.
http://www.oecdbookshop.org/oecd/display.asp?CID=&LANG=EN&SF1=DI&ST1=5LMQCR2JCWKG
« INSTITUTIONAL PROFILES 2006 » DATABASE
http://www.cepii.fr/anglaisgraph/bdd/institutions.htm
CONTACTS
Nicolas Meisel : [email protected]
Jacques Ould Aoudia : [email protected]