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Rethinking Governance: Empirical Lessons Challenge Orthodoxy

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by D. Kaufmann (2003) - Draft

We review key issues in worldwide governance, and present new empirical findings. On average, the evidence shows scant if any progress in good governance worldwide, in controlling corruption, and in improved institutional quality—although there is variance across countries. Further, the empirical findings and analysis point to the private sector as influencing public governance, thereby challenging traditional notions of the functioning of politicians, the public sector, and the determinants of the investment climate. These, in turn, argue for revisiting conventional approaches to promote institutional reform.

In particular, we propose that the usefulness of anti-corruption 'campaigns', creation of new institutions or passage of laws, as well as much of the traditional public sector management and legal reform approaches, may have been over-rated, particularly for many emerging markets. We argue that further focus on external accountability approaches is required, focusing on: i) transparency mechanisms; ii) institutionalizing the use of empirically-based monitoring tools; iii) participatory 'voice' and collective action approaches, and, iv) incentive-driven mechanisms at the systemic, organizational and individual level. If they will play a much larger role, at the expense of legal or related measures by fiat (or merely within the executive branch), progress could take place in: i) providing systems conducive to more effective checks and balances on traditional public institutions, ii) ameliorating the extent of capture of state institutions and policies by vested interests of the elite, and, iii) leveling the 'influence' playing field.

Thus, understanding particular political dynamics, which will vary from setting to setting, and whose manifestations may include particular forms of state capture, influence, and party finance, is now key to formulate realistic programs focused on the specific priorities identified within each country. Distilling the concrete implications of the 'influence institutions' within a country is key for formulating realistic reform measures. This requires probing deeper into the private-public sector governance links, as well as the unbundling governance and corruption so to understand the relative extent, costs, and implications of different manifestations in each particular setting.

Specific recommendations regarding governance strategies in the next stage are provided. Supporting these concrete implications, the paper features new data on governance, inequality of influence, corruption, and state capture, as well as their effects on economic outcomes.

This article draws from the author's contribution to the World Economic Forum's Global Competitiveness Report 2002-2003, Chapter 3.6: "Governance Crossroads".

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