Recasting governance in Asia

David Bloom, David Steven and Mark Weston, Project Syndicate

Governance -- the way in which decisions that affect the public interest are made -- has emerged as a key factor in determining a country's pace of development. Successful governance brings purposeful change. Failure is punished by unrest, disaffection, and stagnation. On April 18, a conference in Bangkok will dissect the prospects for improved governance in Asia.

Today's Asian policymakers confront a very different environment from that faced by their predecessors fifty years ago. Asia's population has more than doubled since 1950, with most of that growth coming in its poorest countries. The political systems of these countries were tailored to small, static, rural populations. Now these societies must cope not only with vast urban centers, but also with the very different talents and demands of urbanized people.

The global economy has changed dramatically, too. Increased flows of goods, money, and knowledge around the world mean that foreign organizations and individuals become more influential, making it increasingly difficult for national governments manage their countries by themselves. For example, international bodies such as the WTO have changed the framework within which economic decisions are taken.

Local economic change has been equally dramatic. In parts of Asia, living standards have skyrocketed. Foreign investment from within and outside the region has altered the structure of domestic economies. Old models of economic growth, however, such as export orientation and selective use of import restrictions that worked well for East Asia in the last century, are less feasible under today's global trade rules.

So new rules of the game are needed. In most Asian countries, formal rules need to be simplified and applied more fairly.

A "back to basics" approach is vital in three inter-linked areas, in which national governments must take the lead: Minimizing corruption, enforcing property rights, and consistent application of the rule of law. Few countries score strongly here.

Close links between business and governments were blamed by many for the financial crisis that struck Southeast Asia in 1997. In parts of South Asia, violent conflict and the power of vested interests threaten the rule of law. The result of such failures is that small elites benefit while the majority suffers.

A clear structure of formal rules is the best antidote to these flaws, for they bolster the informal customs on which so much in society depends. Most business is not conducted in courts but in meetings where trust and reputation are essential. As the social theorist Robert Putnam has explained, "social capital" -- the networks, norms, and social trust that facilitate cooperation and coordination for mutual benefit -- is as much a determinant as it is a result of economic growth.

Empowering as many members citizens as possible is likely to instill a widespread sense of purpose into efforts to move countries forward. Government, the private sector, and civil society all have a role to play in strengthening social capital. But successful interactions between these sectors cannot be wished into existence, and it is essential that the role of each is clearly defined.

Many Asian governments recognize the need to define their roles more clearly. Following the 1997 crisis, the state withdrew further from markets, acknowledging the limits to what it can achieve and the importance of allowing private enterprise to flourish. But governments retain a role in fostering an enabling environment within which markets operate. Monitoring rules and enforcement are important, but different ways of working -- say, through public-private partnerships -- are also increasingly being considered in many innovative Asian economies.

The valuable role of civil society in giving voice to communities that governments cannot reach is also recognized, but its relationship with government and business is often characterized more by conflict than cooperation. The private sector's role in decision-making, too, often needs to be clarified -- where businesses have too much influence over government, their need to operate profitable may lead to policies that favor the few over the many.

The metaphor of a game -- with rules and participants -- leads many to think in terms of a competition between nations. This is not entirely healthy, as our interdependent world is not a zero- sum game, where one country's gain is another's loss. Indeed, countries do not compete against each other in the way that firms do. Trade is potentially a positive-sum game, with all countries benefiting by exploiting their areas of comparative advantage. Good governance can enhance this positive-sum game, and ensure that companies and individuals within countries partake of the benefits.

In another sense, however, it is valuable to think of governments as being in competition -- providing a more effective service to their people than other governments. International comparison of systems therefore plays an important role.

In this spirit, this month's UNCTAD-UNDP conference -- "Governance in Asia: Underpinning Competitiveness in a Global Economy" -- will bring together policy-makers from across Asia to discuss the governance challenges that Asia faces.

The role of government -- the only actor possessing the legitimacy of a popular mandate -- is fundamentally important in steering a society forward. The private sector and civil society are, of course, increasingly important partners for governments. How relationships among these stakeholders function will powerfully influence Asia's future development.

David Bloom is Professor of Economics and Demography at Harvard University; David Steven is a policy/strategic consultant who founded River Path Associates, a UK-based knowledge consultancy; Mark Weston researches and writes on policy issues for a variety of organizations.