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Governance issues

The discourse on governance being pushed mainly by International Financial Institutions (IFIs) has one major shortcoming – it is apolitical in nature. The cherished goals of rule of law, transparency, accountability, effectiveness of the state, and the ability of the state to deliver social services are often not achieved according to the de-jure criteria as they are negotiated politically through the citizens’ interaction with the state.

The political economy of governance is about patron-client relationships and the politics of patronage. Any program on governance needs to take into account the ground realities of real politik in developing countries.

The World Bank came out with Worldwide Governance Indicators (WGI) in 2010, which include ‘voice and accountability’, ‘political stability’, ‘government effectiveness’, ‘regulatory quality’, ‘rule of law’, and ‘control of corruption’. The Bank has been gathering this data from more than 200 countries since 1996.

The World Bank in its 2002 report defines governance as “rules, enforcement mechanisms and organizations”. A decade earlier in 1992, the Bank defined it as “the manner in which power is exercised in the management of a country’s economic and social resources for development”. Governance is the political economy of the state’s interactions with the citizens.

The six indicators to measure governance in the Bank’s WGI paper are based on respondents’ perceptions. Voice and accountability deals with the holding of free and fair elections, citizen participation and ensuring various kinds of freedoms such as that of expression and association. It also includes free media. Political stability and absence of terrorism deals with the continuity of the tenure of government.

Government effectiveness focuses on the state’s ability to deliver services. It looks into the standards of the bureaucracy and the degree of autonomy of the civil service from political interference, and ability of the government to deliver essential public services to citizens with credibility and commitment.

Regulatory quality deals with the World Bank’s notions of making nation-states regulate and monitor the private sector. The purpose is that the government should act as a watchdog rather than pushing development through planned state intervention.

Rule of law in the institutional economics framework deals with property rights and the ability of the state to enforce contracts. Control of corruption looks into the misuse of public office for private gains and the monopolization of state resources by powerful interest groups and factions. It also includes “both petty and grand forms of corruption”.

IFIs push the ‘good governance’ reforms model that is inspired by neo-Weberian thinking. They focus on the implementation of rule of law, sanctity of contract, a level playing field and rule-based governance. The theoretical roots of such rule-based governance go back to ‘Weberian’ analysis. Weber’s writings have been appropriated (even wrongly) to justify the reforms package that is not compatible with the structural features of the developing countries like Pakistan. Therefore, there is a need to present a more nuanced political economy structural analysis.

Acemoglu and Robinson in their much acclaimed book ‘Why Nations Fail: The Origins of Power, Prosperity, and Poverty’ (2012) present a limited view of history. Acemoglu and Robinson’s book differentiates between inclusive and extractive political and economic institutions. It attempts to explain why inclusive institutions emerged in some parts of the world and not others. Inclusive pluralistic political institutions are critical in engendering inclusive economic institutions based on competition and innovation. They encourage investment due to property rights being well-defined and enforced.

In order to get nations out of poverty, and for them to achieve a long-term growth trajectory, inclusive economic and political institutions are critical. They provide a level playing field, sanctity of contract, rule of law, political participation, secure property rights and no entry barriers. The features of the inclusive political institutions described by Acemoglu and Robinson have some ‘Weberian’ characteristics such as rule of law, sanctity of contract, and a level playing field.

In contrast, extractive institutions are absolutist. In extractive institutions, a tiny elite concentrates power in its hands and enjoys un-fettered power with weak constraints. Countries with extractive institutions lack effective checks and balances. Drawing from a large body of historical data going back as far as the neolithic revolution, Acemoglu and Robinson explain the history of hundreds of years through a rather simple theory.

As political economy literature illustrates in detail, broad political participation and democracy might not always lead to more accountability, transparency and checks and balances. The way rents are generated in developing countries by mobilizing patron-client relationships (who mobilize political activities and earn economic payoffs) and through politics of patronage point to a weakness in Acemoglu and Robinson’s analysis.

Structural analysis largely inspired by Marxist political economy focuses on the underlying distribution of power in developing countries by emphasizing its compatibility with institutional capabilities in these countries. Structural analysis explains the reasons behind the generation of rents. It also explains why some forms of rents are essential to maintain political stability. Rents are the necessary costs that have to be paid to balance the needs of political stability and economic development, something the mainstream pro-market analysis fails to take into account. The structural analysis forewarns against over-simplification of a complex process of transition to good governance-oriented model of development.

Therefore, it is important that any prescriptions for good governance for Pakistan coming from IFIs are rigorously examined by critical minds while keeping in mind the structural underlying factors that explain the complex processes involved in any meaningful transition; they should not be missed out in an exercise of over-simplification.

Foqia Sadiq Khan, "Governance issues," The news. 2019-04-16.
Keywords: Political science , Financial institutions , Political institutions , Political activists , Political economy , Developing countries , public services , Good governance , Structural analysis , Social resources , Terrorism , Corruption , Accountability