The puzzle of good governance

The puzzle of good governance

By Satish Mishra

JAKARTA (JP): The considerable literature on the role of
institutions in development suggests that we are far from being
able to define an ideal universal institutional structure or
incentive which helps define "good governance."

Finding the right mix of rules and institutional changes that
might suit a given society at a particular stage of their
development is perhaps the most critical challenge. Working out
the feasibility approximating a preferred set of institutions in
any particular setting is another.

Given that both market and political institutions have
developed in advanced market economies over decades, even
centuries, it is not immediately apparent that good institutional
structures, like good production technologies, might be adopted
at will. Is lateness in institutional reform an asset or a
liability?

Works such as that by Landes on technological dissemination,
and of Huntington on the changing patterns of identity and social
organization all suggest that establishing a structure of good
governance might not be as easy as it seems.

As Landes notes, "Good government is not there for the
wanting, or even for the knowing. It is not an act of will or
fiat. It will not come about because someone appoints good
counselors, even good economists."

He adds that it takes time to create an effective bureaucracy
and "to establish a commitment to a larger national identity and
purpose."

European countries took centuries to do this, Landes writes:
"New nations have tried to establish a whole panoply of
institutions in a matter of years or decades." It is no accident,
he says, "that the success stories of East Asia are of relatively
homogeneous societies with a strong sense of historical and
cultural identity".

Institutional reform is therefore riddled with uncertainties
and pitfalls. There is no clean slate. There are no ideal models.
There might even be active resistance to what is perceived as the
imposition of external cultural values and norms on an
economically weak trading partner.

Good governance and institutional reform by their nature go
beyond the competence of economists and technocrats. Often the
"right" answer is rooted not in the technical solution to an
allocation or a transaction cost problem, but in consensus
building.

This involves not being right, but making sure that the
community as a whole arrives at a shared common view of what
constitutes acceptable standards or ethics or probity.

What does all this imply for policy? First, there is a need to
recognize the limitations of governance related reform both in
terms of scale and timing. Second, one should avoid straining the
analytical link between specific institutional arrangements and
economic performance.

Certain types of institutions, such as democracy, can act as
both an ends as well as an instrument. One does not need to find
a fool-proof link between democracy and economic growth to be
able to support the creation of a democratic political system.

Third, attention needs to be paid to the sequencing problems
in institutional reform. Where interdependence of institutions
requires simultaneous changes in several bodies, an effective
state will still be needed to prevent coordination failure and
solve free-rider problems.

Thus even when the end point of institutional reform is to
promote private-public partnerships the state might still emerge
as a key facilitator of this reform.

Fourth, one should avoid overloading the governance agenda by
setting manageable priorities. In crisis situations this implies
focusing on those aspects of institutional reform where the
correlation with a given economic output is the strongest.
Corruption is one clear candidate.

Promoting and building consensus on an equitable sharing of
the costs of economic crisis and reform is another. Fifth, given
the fuzziness of the terrain, it is important to lower
expectations of immediate gains from governance reform on the one
hand and refrain from setting strong governance conditionalities
on the other.

Both these approaches are likely to be counterproductive by
setting up political resistance to institutional reform. This
will make the future task of searching for an appropriate
structure of governance even more difficult than it already is.

The writer is the chief economist of the United Nations
Support Facility for Indonesian Recovery (UNSFIR). The views
reflected in this article are strictly personal and should not be
attributed to UNSFIR or any of the UN organizations.