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Poor Policy Management

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This page examines some "symptoms" of poor quality policy. The page draws from material prepared for the First Dusseldorf Seminar on the Centre of Government, 23-26 November 2000. Case studies on policy management reform within the core executive were prepared for the seminar and are available HERE.

It is obvious that, in a general sense, the quality of government policy matters for development and has a direct impact on the lives of the poor. Government policy that leads to inflation has a significant negative impact on the poor. Meanwhile, policies that support trade and openness are important to improving the incomes of the poor.

Policy quality has a further multiplier effect. In developing countries with weak economic policies, the provision of aid has not been associated with improved infant mortality rates. However, aid and a reduced infant mortality rates are associated in a good policy environment. Similarly, while there is some evidence that aid has a positive impact on growth in developing countries with good fiscal, monetary, and trade policies, in the presence of poor policies, aid has no positive effect on growth. In other words, not only are the policies themselves valuable, they also unlock the potential benefits from aid inflows. See the World Bank site on Aid Effectiveness).

Macroeconomic policy can be distinguished, roughly, from social and sectoral policy (click here for further details). As a working rule, the quality of social and sectoral policy can be measured in two ways:

  1. Is it technically correct? Have similar policies been shown to work in similar situations?
  2. Can it be implemented? Will the actors that must adopt the policy comply?

Every government makes mistakes, and proposes policies that cannot be implemented in practice. However, policy unreliability arises when the broad policy commitments made by government are infrequently implemented, or implemented only partially, within a reasonable time period. This policy unreliability cannot be measured in absolute or objective terms, but there are some symptoms to look out for.

Businesses and citizens find laws, regulations and directives introducing new policies to be arbitrary or incredible           

When businesses consider government rules and policies to be unpredictable, investment and growth are weak. Poorer persons attempting to establish small businesses may be particularly harmed, because with few assets other than their labor it is far more difficult for them to diversify across sectors of the economy — which is otherwise a rational response to unpredictable policies — than it is for the wealthy. Surveys can reveal business perceptions of government predictability. See details of various business surveys by clicking here.

Businesses and citizens find the signals sent by the government budget unreliable                                                              

Government can prepare such chaotic and fast-changing budgets that they lose their impact as signals of government policy intentions. A budget that varies tremendously from year to year in its inter-sectoral allocations is signaling to the business community that government has no coherent policy stance. Businesses that perceive this are less likely to heed the rules and regulations that governments issue on the basis that all are unstable and unlikely to be enforced.

Budgetary volatility is a useful measure as it is correlated with business perceptions of unpredictable policy. (A paper on this subject by Knack, Manning, and Dorotinsky will soon be available from this Web page.)

Public officials doubt the credibility of the laws, regulations and directives that they must follow or the policies that they are charged with implementing

Recent surveys of public officials have produced indicators of rule credibility and policy credibility for public officials. These show the degree to which officials believe it is worth attempting to implement policy or to follow basic procedures. The surveys are described in more detail here.

Public officials see budgetary funding as unpredictable and lacking in authority                                                                                  

Expectations concerning the future flow of budgetary and other resources are also significant determinants of behavior. Officials that doubt that the budget will be implemented as planned may have few reasons to implement policies vigorously and every reason to over-staff, as salaries will ultimately be paid even if progrm funds are reduced. The surveys are described in more detail here.

Recommended websites                                                       

Recommended readings                                                            

  • Brunetti, Aymo, Gregory Kisunko, et al. 1997. Institutional Obstacles to Doing Business: Region-by-Region Results from a Worldwide Survey of the Private Sector. World Bank Policy Research Working Paper No. 1759. Washington, D.C.: World Bank.
  • Brunetti, Aymo, Gregory Kisunko, et al. 1998. "Credibility of Rules and Economic Growth: Evidence from a World-Wide Survey of the Private Sector". World Bank Economic Review. 12 (3). 353-385.
  • Burnside, Craig, and David Dollar. 1997. Aid, Policies, and Growth. World Bank Policy Research Working Paper No. 1777. Washington, D.C.: World Bank.
  • Burnside, Craig and David Dollar. 1998. Aid, the Incentive Regime, and Poverty Reduction. World Bank Policy Research Working Paper No. 1937. Washington, D.C.: World Bank.
  • Dollar, David and Aart Kraay. 2000. "Growth Is Good for the Poor". unpublished World Bank paper. Washington, D.C.
  • Easterly, William, and Stanley Fischer. 2000. Inflation and the Poor. World Bank Policy Research Working Paper No. 2335. Washington, D.C.: World Bank.
  • Evans, Gord, and Nick Manning. 2001. "Policy Management at the Center of Government: Symptoms and Cures". Revised paper, first delivered at the First Dusseldorf Seminar on the Center of Government, University of Dusseldorf, November 23-26, 2000.
  • Frankel, Jeffrey A. and David Romer. 1999. "Does Trade Growth Cause Growth?" American Economic Review (June).
  • Wacziarg, Romain. 1998. "Measuring the Dynamic Gains from Trade." Unpublished World Bank Paper.
  • World Bank. 1997. World Development Report 1997 - The State in a Changing World. New York: Oxford University Press for the World Bank.

This page was developed by Gord Evans, at the Institute of Public Administration of Canada with Nick Manning of the World Bank. It was submitted on 3/29/01.

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