Acknowledging the state’s existing, possibly meager capabilities does not mean accepting them for all time. The second key task of state reform is to reinvigorate the state’s institutional capability, by providing incentives for public officials to perform better while keeping arbitrary action in check.
Countries struggle to build the institutions for an effective public sector. One reason the task is so difficult is political. Strong interests may develop, for example, to maintain an inequitable and inefficient status quo, whereas those who lose out from this arrangement may be unable to exert effective pressure for change.
But the problem of continued ineffectiveness, or of corruption, is not entirely political. Often politicians and other public officials have strong incentives and a sincere interest in improving public sector performance. But managing a public bureaucracy is a complex business that does not lend itself to clear, unambiguous solutions.
In fact, building institutions for an effective public sector requires addressing a host of underlying behavioral factors that distort incentives and ultimately lead to poor outcomes three basic incentive mechanisms can be used, in a variety of settings, to combat these deeper problems and improve capability Effective rules and restraints Greater competitive pressure the increased citizen voice and partnership. Effective Rules and Restraints
Over the long term, building accountability generally calls for formal mechanisms of restraint, anchored in state institutions. Power can be divided, whether among the judicial, legislative, and executive branches of government or among central, provincial, and local authorities.
The broader the separation of powers, the greater the number of veto points that can check arbitrary state action. But multiple veto points are a double-edged sword: they can make it as hard to change the harmful rules as the beneficial ones.
In many developing countries legislative and judicial oversight of the executive is weak. The setting of goals and the links to the policies needed to achieve them are sometimes diffuse, legislatures suffer from limited information and capability, and judicial independence is compromised.
An independent judiciary is vital to ensure that the legislative and executive authorities remain fully accountable under the law, and to interpret and enforce the terms of a constitution. Writing laws is the easy part; they need to be enforced if a country is to enjoy the benefits of a credible rule of law.
These institutions of restraint take time to establish themselves, but international commitment mechanisms such as international adjudication, or guarantees from international agencies, can serve as a short-term substitute.
A major thrust of any effective strategy to reinvigorate the public sector will be to reduce the opportunities for corruption by cutting back on discretionary authority. Policies that lower controls on foreign trade, remove entry barriers for private industry, and privatize state firms in a way that ensures competition-all of these will fight corruption.
Such reforms should not be half-hearted: reforms that provide opportunities for private entry into closed sectors of the economy, but leave that entry to the discretion of public officials rather than establish open and competitive processes, also create enormous scope for corruption.
Formal checks and balances can also help reduce official corruption, but they are seldom enough. Reforming the civil service, restraining political patronage, and improving civil service pay have also been shown to reduce corruption by giving public officials more incentive to play by the rules.
Where corruption is deeply entrenched, more dramatic efforts will be needed to uproot it. These efforts should be focused on better monitoring of official action-both by formal institutions and by individual citizens-and punishment of wrongdoing in the courts.
In Hong Kong (China, as of July 1, 1997), an independent commission against corruption is one successful example of such an approach. Likewise, recent reforms in Uganda have incorporated several elements of the anticorruption strategy outlined here, with some encouraging results.
The same mechanisms could be applied around the globe: corruption, despite claims to the contrary, is not culture specific. Reducing it will require a multipronged approach, which must include the private sector and civil society more broadly. The briber has as much responsibility as the bribed; effective penalties on domestic and international business must be part of the solution.
Subjecting the State to More Competition: Governments can improve their capability and effectiveness by introducing much greater competition in a variety of areas: in hiring and promotion, in policymaking, and in the way services are delivered.
Boosting Competition within the Civil Service whether making policy, delivering services, or administering contracts, a capable, motivated staff is the lifeblood of an effective state. Civil servants can be motivated to perform effectively through a combination of mechanisms to encourage internal competition:
» A recruitment system based on merit, not favoritism
» A merit-based internal promotion system
» Adequate compensation
Starting in the nineteenth century, all of today’s established industrial countries used these principles to build modern professional bureaucracies. More recently these principles have been applied in many countries in East Asia, which have transformed weak, corrupt, patronage-based bureaucracies into reasonably well-functioning systems. But many developing countries do not even need to look overseas or to history for role models: they exist at home.
Central banks, for example, often continue to work effectively and retain their competence even when all other institutions have declined. These agencies work well for all the reasons listed above. They are less subject to political interference. They have limited but clear objectives.
They are given adequate resources and training. And their staffs are usually better paid than their counterparts in other parts of government.
Cross-country evidence reveals that bureaucracies with more competitive, merit-based recruitment and promotion practices and better pay are more capable. In several countries (Kenya, the Philippines) political appointments run quite deep, whereas countries such as Korea have benefited from reliance on highly competitive recruitment and a promotion system that explicitly rewards merit.
Ongoing reforms in the Philippines are examining these issues in an effort to improve bureaucratic capability. By and large, countries in which broader checks and balances are weak need to rely more heavily on more transparent and competitive systems.
The experience of certain high-performing East Asian economies also shows that meritocracy and long-term career rewards help build an esprit de corps, or a shared commitment to collective goals. This reduces the transactions costs of enforcing internal constraints and builds internal partnerships and loyalty.
In many countries civil servants’ wages have eroded as a result of expanding public employment lower skill levels and fiscal constraints on the total wage bill. The result has been a significant compress of the salary structure and highly uncompetitive pay for senior officials, making it difficult to recruit L retain capable staff. Some countries, such as Uganda, are undertaking far-reaching reforms to reduce overstaffing dramatically, increase average pay, and decompress the salary structure. But in ma countries these problems have yet to be addressed.
More Competition in the Provision of Public Goods and Services: In many developing co tries services are delivered badly or not at all. Politicians often intervene in the day-to-day operation sot public agencies, and managers have limited flexibility.
There are limited accountability tor results. And ill many countries the public sector has assumed a monopoly in delivery, eliminating pressures for belt performance.
Building an effective public sector in these circumstances will mean opening up core government institutions, to improve incentives in areas that the public sector has long monopolized.
Dozens o countries throughout the Americas, Europe, and Asia have capitalized on changes in technology an introduced competition in telecommunications and electric power generation. This has resulted in lower unit costs and a rapid expansion of service. Competition is also being enhanced by contracting out services through competitive bids and auctions.
This is a significant trend in industrial countries (the United Kingdom, Victoria State in Australia), but such mechanisms are also being used to improve efficiency in developing countries (for example, that of road maintenance in Brazil). Faced with weak administrative capacity, some countries (Bolivia, Uganda) are also contracting out the delivery of social services to nongovernmental organizations.
There is a growing trend to set up focused, performance-based public agencies with more clarity of purpose and greater managerial accountability for outputs or outcomes. New Zealand provides the most dramatic example among the high-income countries.
It broke up its conglomerate ministries into focused business units, headed by chief executives on fixed-term, output-based contracts with the a throaty to hire and fire and to bargain collectively. Singapore has long followed a broadly similar approach with its performance-based statutory boards.
Other developing countries are following suit, with Jamaica, for example, establishing executive agencies along the lines of the British model.
But countries with inadequate controls and weak capacity need to proceed with caution. For these countries, giving public managers more flexibility will merely increase arbitrariness and corruption with no commensurate improvement in performance. And writing and enforcing contracts, particularly for complex outputs, require specialized skills that are scarce in many developing countries.
These countries need first to strengthen rule-based compliance and financial accountability (as Argentina and Bolivia have done) within the public sector, provide greater clarity of purpose and task, and introduce performance measurement (as in Colombia, Mexico, and Uganda). As output measurement and ex post controls on inputs are strengthened, agencies can be provided more flexibility in exchange for their greater accountability for results.
Bringing the State Closer to People: Governments are more effective when they listen to businesses and citizens and work in partnership with them in deciding and implementing policy where governments lack mechanisms to listen, they are not responsive to people’s interests, especially those of minorities and the poor, who usually strain to get their voices heard in the corridors of power. And even the best-intentioned government is unlikely to meet collective needs efficiently if it does not know what many of those needs are.
Giving People a Voice: Partnership involves bringing the voice of the poor and of marginalized groups into the very center of the policymaking process in many countries, voice is distributed as unequally as income greater information and transparency are vital for informed public debate and for increasing popular trust and confidence in the state-whether in discussing expenditure priorities, designing social assistance programs, or managing forests and other resources.
Client surveys (in India, Nicaragua, and Tanzania) and citizen charters (in Malaysia) are providing new options for making voices heard.
The best-established mechanism for giving citizens voice is the ballot box. In 1974 only thirty-nine countries-one in every four worldwide-were independent democracies. Today, 117 countries-nearly two of every three-use open elections to choose their leaders. But periodic voting does not always mean the state is more responsive.
Other mechanisms are needed to ensure that the concerns of minorities and the poor are reflected in public policies. Getting genuine intermediary organizations represented on policymaking councils is an important first step in articulating citizen interests in public policymaking.
Even more effective in local and provincial government, these organizations have recently become very active in developing countries-especially where the state has performed poorly and where such organizations are not suppressed.
Broadening Participation: Evidence is mounting that government programs work better when they seek the participation of potential users, and when they tap the community’s reservoir of social capital rather than work against it.
The benefits show up in smoother implementation, greater sustainability, and better feedback to government agencies. Higher returns from water-borne sanitation systems in Recife, Brazil; housing schemes for the poor in Port Elizabeth, South Africa; forest management efforts in Gujarat State, India; and healthcare in Khartoum, Sudan, are all testament to the power of partnership- -the participation of local people. This is in contrast with top-down approaches, which often fail.
In successful countries, policymaking has been embedded in consultative processes, which provide civil society, labor unions, and private firms opportunities for input and oversight. In East Asia public- private deliberation councils-such as Korea’s monthly export promotion meetings, Thailand’s National Joint Public and Private Consultative Committee, and the Malaysian Business Council-have provided mechanisms for feedback, information sharing, and coordination.
Devolving Power, Carefully: The typical developing country has a more centralized government than the typical industrial country but with some significant exceptions, the past thirty years have seen a small shift in public spending power in developing countries from the national to lower levels the industrial economies have seen an opposite trend, with spending power moving to the center neither of these observations, of course, takes into account the decentralization implicit in recent market reforms, which have clearly reduced the direct power and resources of central government in a broad range of countries.
Decentralization is bringing many benefits in China, India, much of Latin America, and many other parts of the world. It can improve the quality of government and the representation of local business and citizens’ interests. And competition among provinces, cities, and localities can spur the development of more-effective policies and programs. But there are three big pitfalls to watch out for:
» Rising inequality. The gap between regions can widen-an issue of considerable concern in China, Russia, and Brazil. Labor mobility provides a partial solution, but it is seldom easy, especially in ethnically diverse countries where migrants are not always welcome.
» Macroeconomic instability. Governments can lose control of macroeconomic policy if local and regional fiscal indiscipline leads to frequent bailouts from the center, as occurred in Brazil.
» Risk of local capture. A serious danger is that of local governments falling under the sway of special interests, leading to misuse of resources and of the coercive power of the state.
These dangers show, once again, how central government will always play a vital role in sustaining development. The challenge is to find the right division of labor between the center and the other tiers of government.