Governance Matters

Recent research in economics emphasizes the importance of the quality of public governance, not only for its direct effects on the welfare of the population, but for its general impact on growth and economic development. The quality of public governance is a key input into the overall investment climate in any country. Developing effective institutions of public governance has been a particular challenge in countries undergoing economic transition since the 1990s. Now that most of these countries have achieved the creation of basic market institutions, more attention has concentrated on reforming and improving government administration, regulation, and budgeting in line with world best practices. Russia is no exception: public administration and budgetary reform have been near the top of the government's agenda for several years.

Helping to improve public governance is also a high priority for the World Bank in most of the countries where it works. In addition to specific programs and projects, the World Bank actively monitors indicators related to the quality of governance, which allow countries to benchmark themselves both against other countries and relative to their own past. In addition, every year, the World Bank compiles a report: Governance Matters: Worldwide Governance Indicators. This report, which was released on XX for 2007, aggregates a number of indicators and rankings of various world organizations and agencies related to public governance in six dimensions: voice and accountability, political stability, government effectiveness, regulatory quality, rule of law, and control of corruption. The ratings in the 2007 Governance Matters place Russia as above 20-30 percent of the 20X countries surveyed by most of these indicators, although higher (close to 40 percent) for “government effectiveness.” Furthermore, these rankings have not changed much since the first Governance Matters was released in 1996.

It is important to note that the rankings implied by these indicators represent aggregate indicators produced by a number of different world organizations. The rankings are not meant to represent the World Bank's view, yet they arguably give as much information about the world image of a country as about the quality of governance per se. In recent years, Russia has become increasingly concerned about its world image, which is often more positive among foreign and other businesses actually working in the country than among outside foreign observers. Indicators produced by the World Bank for Russia based on survey data and interviews within Russia would seem to support this conclusion.

The Business Environment Enterprise Performance Survey (BEEPS), produced jointly by the World Bank and EBRD every three years since 1999 for almost all European transition countries, documents important progress made in Russia along a number of dimensions related to governance. These conclusions are also supported by the regular Monitoring of Administrative Barriers that was set up in support of the government's debureaucratization campaign in 2001, and has since been taken over by the Center for Economic and Financial Research. Particularly, between 1999 and 2003, Russia made important progress in reducing the harassment of businesses from various inspections, and eased the processes for registration, licensing, and certification. Firms also complain less about taxation and political instability than they had in the past. Progress is also visible in the battle against corruption. According to the BEEPS data, if 50 percent of Russian firms cited corruption as a major obstacle to business in 1999, only 29 percent made such a complaint in 2002. A recent Investment Climate Assessment, carried out by the World Bank in cooperation with the Moscow Higher School of Economics, indicates that Russia might compare quite favorably to several other medium income countries, including China and Brazil, with respect to many investment climate indicators related to governance.

Nevertheless, there remains much room for progress in improving the quality of governance in Russia. Relatively high administrative barriers and costs remain a thorn in the side of the business climate. The most recent BEEPS data from 2005 suggest that some of the rapid progress during the campaign against administrative barriers may have only been temporary. The number of Russian firms complaining about corruption increased again to 39 percent in Russia in 2005 at the same time that this number fell in most other Eastern European or CIS countries. Progress in other areas related to administrative barriers has also been more gradual and ambiguous since 2004. Hopefully, the current initiative for reforming the state administration in country at the federal, regional, and local levels will have a measurable impact on improving governance in Russia.