MattAndrews

Government Debt and Good Governance: Rich Countries Now Lag Poorer Countries....

Regular visitors to this blog know that I spend a fair amount of time thinking about governance and governance indicators. I have proposed a range of ideas for measuring governance in the past. Let me try a new one today.

As in the past, I like to define governance as being about the way governments exercise authority on behalf of citizens. In this respect I think that governments are given authority to raise revenues through taxes and debt (and other means) to responsibly finance interventions in society.

It makes sense then to say that good governance must be reflected in the degree to which governments exercise this resource mobilization and management authority.

A potential measure of this--which is clear to understand--is the level of debt to GDP in a given country. This was certainly used as a measure to argue that African and other developing country governments could not govern in the 'stabilization' years of the 1980s. Many many governance reforms came from such logic.

So I looked at World Bank data on this for about 70 countries and generated the following simple excel graphs. They show how countries with lower GDP per capita tended to have higher debt/gdp ratios as recently as 2001 (with a trend line showing slight negative relationship between the variables). But if you look at the other two graphs you will see that the trend line changed over the 2000s and there is now a positive relationship: Wealthier countries now have higher debt to GDP ratios on average than poor countries.

As with all indicators we should contextualize the measure and i need to say up front that this is the product of an hour or so tinkering around...so don't go presenting this to your class as gospel! This is all the more important given that debt is now the political focal point in countries like the USA. So it behooves us to remember that 'ggod governance' could lead to higher debt to GDP ratios in some times than in others (like after a financial crisis).  It is also important to look at actual data and remember that US government debt to GDP is only about 75 % now. IT IS NOT GREECE (sitting at 1bout 135%, behind Japan at over 150% according to the World Bank). In this list of about seventy the USA ratios are lower than a variety of countries: Hungary,Malta, the United Kingdom, France,Ireland,      Belgium, Portugal, Barbados, Singapore, Iceland, Italy, Greece, and Japan.

I will bog a little more on the US situation in coming days, thinking about the kinds of processes that might help improve the governance of resource mobilization and management when this crisis is over...

In the meantime I really wanted to revel (as a development person) in the fact that poorer developing countries seem to have managed to keep their debt to gdp ratios in check over the past decade. Of course this reflects the fact that the 2008 crisis hit wealthier countries disproportionately. It could also suggest that developing country governments don't try to spend more in downturn because they realise fiscal policy is blunt if you can't actually implement the spending plans you propose (because of some of the process problems I have recently discussed).

Building State Capability at Harvard’s Kennedy School

The Center for International Development at Harvard's Kennedy School has just launched its program on Building State Capability. This is some shameless self promotion of that initiative, but if you are interested in these blog postings it is a good place for you to visit.

http://www.hks.harvard.edu/centers/cid/programs/building_state_capability

In particular, you might be interested in looking at our new paper, Escaping Capability Traps.
http://www.hks.harvard.edu/centers/cid/publications/faculty-working-papers/cid-working-paper-no.-240

One of the arguments we make is related to the discussion I have been having about complex contexts. We propose that the best way of introducing reforms into complex contexts is not to do loads of ex ante studies, but rather to

• enter the context through problems people care about, and then
• progress iteratively with small interventions that flush contextual impediments out, build capability and confidence and political support, and
• allow constant feedback…ultimately fostering the emergence of new hybrids.

In a sense, this is like saying that you need to muddle through the sea of icebergs in your context, ensuring that every step helps you navigate better in future.

Note how different this is to the way institutional reforms are commonly done: They are pre-designed as solutions, pre-planned over years, with limited opportunity for feedback and learning.

Doing reform in a sea of icebergs...the reality of contextual challenges

In my last three posts I have made a few comments about context and governance reform.

• I have noted that contexts in which reforms are planned are always full of preexisting institutions (rules of the game): There is no such thing as a blank slate on which to write a new reform script.
• I have also argued that the institutions one is likely to find look like icebergs, comprising visible elements like laws and invisible elements like norms and cultural-cognitive devices. Institutions are not laws or norms or cultural cognitive mechanisms; they are amalgams of all three.

I noted that many outsiders either treat institutions as one of the three or they don't look hard enough at the norms and cultural-cognitive mechanisms they cannot see. These are like the parts of an iceberg that lie below the water line. They are not easy to see, but can cause even the best reform to fail (like the Titanic).

Some say this iceberg sunk the Titanic (see http://www.irishcentral.com/news/Chilling-photograph-of-iceberg-that-sank-the-Titanic-emerges-147487545.html)

I will get even more complex today, with the idea that all contexts actually have multiple institutions at play.

The idea of an 'interinstitutional' context is not new, but it is important. All contexts are like seas of icebergs, with different sizes and shapes. Some dominate others, some are easy to pass by.

When one thinks about institutional reform I always suggest identifying the icebergs in place, and navigating between them. Think about an application, building on the brief discussion about US budgetary politics I began yesterday.

• There are more rules of the game than 'the Constitution' (which many think is the start and end of all budgetary institutions).
• There are formal Constitutional rules that give Congress responsibility, but keep it vague as to who in Congress is actually responsible, for bringing out the budget.
• There are less formal electoral rules that make the President responsible, though without formal authority to speak of.
• There are rules of the game that force political representatives to speak of limited government, because voters like to hear about this.
• There are rules of the game that require political representatives to get as much federal spending to their districts as possible, with 'pork' drawing support.
• There are rules that make defense spending a sacred cow for some, and health and social security spending a sacred cow for others.
• Etc.

One question I have is whether commentators are honest about thinking about all of these rules of the game when criticizing one or other aspect of the system (understanding that half-truthful criticism and blame-game politics seem also to be a dominant 'rule' of the US system). Another question is whether reformers see these multiple rules when thinking about how they will address the problems before them.

Past reforms (including budget controls in the late 1980s) had minimal impacts and just 'went away' because they did not fit into the sea of institutional icebergs in place. In fact, while the US public financial management system underwent its most aggressive period of reform in past decades it also saw its weakest results (at least in terms of fiscal discipline).

I write about this in my recent article (http://faculty.cbpp.uaa.alaska.edu/afgjp/PADM601%20Fall%202011/(Il)logics%20of%20Federal%20Budgeting.pdf):

    "One could list many others [reforms], from planning-programming-budgeting systems to zero-based budgeting, performance-based budgeting, and the Program Assessment Rating Tool, the formalization of internal audit in agencies, process computerization, the adoption of long-term planning, and more. In many respects, the last century was a period of great budgetary reform in the federal government.
    Interestingly, however, the sustainability problem has worsened in this period. Deficits have been more prevalent since these interventions than before. Federal spending has exceeded revenues in 75 percent of the years following the 1921 act, compared with 38 percent of the years between 1792 and     1920. Spending exceeded revenues in 16 of the 20 years after the 1990 Budget Enforcement Act introduced measures to control defi cits. Deficits have exceeded 3 percent of gross domestic product (GDP) in 8 of the 20 years since the Budget Enforcement Act, reaching such levels only 26 times in the prior 198 years (13 of which were related to wars)."

I know it is oversimplified,  but this experience suggests that past reform activity has failed, repeatedly. I fear a poorly considered reform agenda will suffer similar failure. 

• What institutional icebergs need to be navigated to make reforms work better in this context?
• Which institutional icebergs need to be navigated to make reforms work better in your context?
• How can one navigate the sea of icebergs better than is typically done?

Picture from http://www.bbc.co.uk/news/magazine-17257653

Governance contexts are full of iceberg like institutions

When I think of governance contexts, I think of institutions--what we call 'rules of the game'. I think that anyone working on reforms in developing countries (or developed countries) should have a thorough appreciation of these rules of the game.

In speaking of institutions, people commonly refer to one of a number of things: formal regulative mechanisms like laws (that influence how people behave through extrinsic means), norms (that shape choices by offering intrinsic rewards when individuals do what they see as appropriate), and cultural-cognitive devices (that influence how groups think and include one's nationality or religion).

In development there is a bias (I believe) to seeing institutions as either laws, or norms, or cultural-cognitive devices.

I think that rules of the game are not one of these concepts alone, but rather take shape when you have an amalgamation of all three. I also believe that norms and cultural-cognitive devices are more deeply embedded than regulative mechanisms like laws, and hence provide the foundation necessary for rules to have an effect. People must think in a way that supports laws and deem the regulative devices appropriate before they adhere to such.

The problem is that cultural-cognitive devices and normative mechanisms are often informal and difficult to see--so they are frequently taken for granted when outsiders look at a country or government's context. These outsiders just look at the laws in place, and prescribe reforms accordingly. In the case of Malawi I started talking about last month, development experts thought that corruption festered because of a lack of formal anti-corruption laws and a formal anti-corruption agency. In reality, there are deeply embedded norms and cultural cognitive devices that underscore decisions in the country (and have fostered corruption for decades). The new laws and agency cannot work when these foundations are in place (which helps explain why the new laws and agency have not been as succesful as many would like).

My approach is stolen from people like Richard Scott, and sees institutions as something like icebergs: with formal regulative devices that all can see and less visible normative and cultural cognitive foundations (lying below the water line). If one fails to see the foundations when crafting a reform, the reform could end up crashing like the Titanic!

Below is the figure I use in my forthcoming book, of institutions as icebergs. Makes me wonder what the iceberg behind Greece's fiscal profligacy looks like (and if the foundations support new fiscal rules and austerity measures)?

• Anyone reading about the last few years' worth of diagnostics should see that there is very little attention to the informal political norms and cognitive frameworks underpinning Greek government (http://blog-pfm.imf.org/pfmblog/2008/07/budget-reform-i.html).
• They should also see that reform advice is always the same-"introduce better laws, better formal procedures, new offices, etc."
• Unfortunately results seem similar over time as well...limited change. I know we have a big crisis in place now, but is this enough to make us think change will be greater this time around?

I also wonder what kind of iceberg foundations lie behind the US government's current budgeting woes. For all those advocating fiscal rules, balanced budget amendments, etc. in the USA I ask: What are the cultural-cognitive and normative rules of the game that have routinely undermined discipline? For those who blame the President, I ask: Who is really responsible, formally and informally, for bringing out the budget and bringing down spending?

• Are we paying enough attention to the deeply embedded contradictions that lie in the way people in this country think about government, and how this complicates budget management ("we want an exceptional government but also one that is limited";"we want power distributed across different parts of government, but also want to hold the president accountable when things go wrong";"we want our representatives to bring home the bacon and serve our districts, but we don't want to pay more taxes"). See my article on the "illogics of federal budgeting". http://faculty.cbpp.uaa.alaska.edu/afgjp/PADM601%20Fall%202011/(Il)logics%20of%20Federal%20Budgeting.pdf

The same kinds of questions could be asked of reforms in all developing countries, and governance more generally:

•  What normative and cultural cognitive mechanisms are in place in the contexts we try to introduce reforms into?
• Are the icebergs in these contexts going to sink our reforms?
• Do differences in iceberg foundations make our good governance prescriptions harmful in many contexts? (where norms and cultural-cognitive devices do not support formal governance mechanisms promoted as 'good', 'better' or 'best'?) 
• Should we be more modest in proposing solutions when it is almost guaranteed that we don't understand the contextual underpinnings of the problems at hand or the difficulties of change that will emerge?
• How could we do reform better than we currently do, given the opaqueness of contextual realities, and preexisting rules of the game?

One thing to note about contexts: There are no clean canvases...and what's there matters

Following my last blog entry, let me suggest one thing we should always remember about the importance of context in development and governance, especially when we are contemplating institutional reform. The idea is implicit in my forthcoming book on the topic.

There is no such thing as a blank canvas, and what's there matters and may not be well identified, appreciated or understood by outsiders.

 Let me explain what I mean, and why it is important.

Most serious new institutional theorists (including Douglass North) argue that all social groups have rules of the game; including small communuities, sports teams, scout groups, ministries of education, tax collection offices, and classrooms of students.  These rules differ in size and shape across contexts and through time, but they are always there, as incumbents that have emerged to direct behavior in the context. They influence how agents think and make decisions, impact patterns of resource allocation, and shape the kinds of capacities that exist and do not exist.

In a way, they are like the paint marks an artist has already put on her canvas. Sometimes they make sense to external observers, and appear ordered and purposeful (maybe like the flowers below), and other times they make a little less sense to observers, looking disordered and messy (the Pollock painting under the pretty flowers may look like this to some, certainly I have a hard time working it out).

 

It turns out the functionality of different incumbent institutional forms may be as subjective as art, and as difficult to make sense of and appreciate for outsiders who have not learned about such mechanisms. Rules of the game in a poor country with no transparency may resemble messy and 'in need of reform' painting marks to you and me, for instance, but they could merge to provide some kind of chaotic order that works for important groups of people in the country (often even for the poor).

More importantly, the people in the country may not see any need to change incumbent rules of the game, or may lack capacities to change given the entrenched dominance of incumbents. So any new reforms you introduce become like added paint on the Pollock canvas; which has to fit in with what's already there or risk adding to the chaos; or being overwhelmed by the incumbent patterns (as seems to happen to so many reforms).

This basic observation is an important starting point for thinking about context and governance and institutional reform: Institutions always exist, in all contexts, in many different forms that have some functionality for some people in the context, and that need to be considered when thinking about reforms, but probably are never properly considered by outsiders.

It is an obvious observation, you may say, but is it always respected when development agencies craft their reform programs for developing countries, or when we as outside specialists conceive our indicators of what constitutes a good, or better, or best practice?

It seems to me that many reforms are crafted with only a passing glance at the context; which is followed by a much more serious presentation of externally devised, 'better' and 'right' rules. It seems, further, that the act of creating generic indicators of the 'right rules' turns a blind eye to the fact that different places already have rules in place and that relevant governance solutions are more than just a little likely to look different across different places (if only because the opening slates are so different).

In both instances it seems that we in the development comunity think it appropriate to craft reform solutions and think about 'good governance' ideas as if there are a bunch of clean or clean-able slates on which to work our masterpieces. The reality is that you cannot 'buy' a clean slate on which to paint new governance solutions (like those shown below) and that we should stop blaming countries when reforms fail because the reform slates were filled with other incumbents that we either did not see or did not take seriously.

We need to remember this. And stop pretending that the world is our oyster. And start developing the tools, capacities, and sensibilities to better understand how to appreciate 'what's already there'.

What do you think these tools, capacities, and sensibilities should or could look like?

 

Context, history, governance and development

I have been away from the blog awhile, finishing a couple of book manuscripts. It is time to pick up, however, and I'd like to do so by asking some simple questions about context, governance and development.

Last year I wrote a bit about institutional reforms in Malawi . I looked at the creation of Malawi's Anti Corruption Bureau (ACB) in 1994. The reform turned out to be a problematic failure; not once, but on multiple attempts. The experiences raise some important questions about context, history, governance and development.

As a refresher on Malawi's story:

• The ACB was created in the mid-1990s at a time when Malawi had hoped of being a new, vibrant democracy and economy. It was modeled after the Hong Kong anti corruption commission which had also influenced the Botswana version.
• The ACB initially opened thousands of investigations into corruption. Very few investigations went anywhwere, however, and corruption got progressively worse in the country.
• Measures and analytical work done by organizations likeTransparency International and Global Integrity panned the work done by the ACB and noted that the action behind anti corruption laws was limited.
• Donors depressed with the results attempted to launch a new version of the commission in the late 2000s, with new legislation to boot.
• A 2010 NORAD evaluation noted that the anticorruption reforms (past and present) were “Affected by a political context where politics and institutions are highly personalized and a political culture which tends to discourage impartiality.” The report argues that such contextual factors undermined the impact of impartial, formal anticorruption laws and law-enforcers.
• This resonates with comments made over a decade before, which suggested that 1990s reforms should address contextual “reasons why the formal rules governing behaviour in the public sector have broken down, and why informality—of which corruption is one manifestation—has taken over.”
• It appears that these contextual realities were not addressed, however, either in 1994 or in 2009. In both instances reforms focused instead on introducing new and improved formal rules and rule-makers. The result is history repeating itself, with contextual limits emerging again and again to thwart change.

Going beyond Malawi, to generic questions:

The institutional reform experience in Malawi is not peculiar. It is an example of the many reform  failures that seem to result from the impact of stubborn contextual constraints that are not
effectively considered in most reform designs.

•  Isabelle Werenfels points to such in arguing that Algerian privatization was undermined by, “a country-specific complex interplay of … forces [that] decisively affect the path of any institutional transformation.”
• Andrew Wilder writes similarly about governance reform in Pakistan, where donors consistently push for change “without investing sufficiently in understanding the social, cultural and political contexts within which the
  civil service functions.”

Werenfels’ and Wilder’s comments—and the story from Malawi—raise two important questions:

• What should external actors like donors know about the context in which institutional reform takes place?
• Why do these external actors under-invest in understanding such things?

What do you think?

PS. I'm happy to give my sources to anyone who asks but choose not to include them here because they just make the blog post too bulky.

 

What do externally influenced governance reforms achieve?

I have not written for a while. So, this post is me getting back to business. Those who follow the blog will know that a while back I discussed some research showing that only half the countries pursuing externally supported governance reforms see better government effectiveness scores over ten years. I thought I would re-visit this commentary today, as I am working on why this is the case and what could be done to address it. So, let me backtrack a bit.

The 50:50 problem

The argument rests on some work I did last year, where I started looking at whether countries with World Bank sponsored reforms in the Public Administration, Law and Justice Sector (PAL&J reforms, which typically target institutional improvements) had better World Governance Indicator scores on Government Effectiveness.

The WGI scores have obvious problems (and I myself am a critic of using them too much), but they are commonly used to reflect on the quality of governments in developing countries and are the ‘internal’ measures development organizations like the World Bank used to think about the issue in the 2000s. One would therefore expect World Bank reforms to impact these WGI scores directly, given that such interventions and WGIs are both products of the same external development community. In this way, they are the ‘test’around which reforms may have been shaped and, using a term from the education literature, one would expect external organizations to ‘teach to the test’.

Interestingly, WGI data suggests that reform results are mixed.Some of the 145 countries I looked at--all of which adopted institutional reforms with the World Bank--have seen improved WGI government effectiveness scores in the past decade. Many have seen scores decline, even though they adopted reforms through costly projects. Afghanistan and Rwanda recorded the most improvement between 1998 and 2008 at +0.96 (with Afghanistan going from-2.27 to -1.31) while the Maldives dropped the most, at -1.39 (from 0.95 to-0.35). While not matching the Maldives in the extent of its drop, 72 countries had declining scores in the period. An almost equivalent number, 73, saw improved scores.

I find the story startling: Half of 145 countries that have had donor sponsored government reforms in place saw declines in donor devised indicators of government effectiveness over a recent ten year period.Given such evidence, organizations like the World Bank cannot be too confident in their reform agendas. Imagine a new president asking her World Bank country representative, “What are the odds that proposed reforms will help us get better government effectiveness scores in a decade?” Based on this kind of data, the answer should surely be, “No more than 50-50 Madame President …as good as getting heads on a coin toss.”

These are also the odds of reforms yielding improvements in a smaller 40 country sample I worked with at a higher level of detail. 21 of the 40 countries went backwards on WGI government effectiveness scores between 1998 and 2008. A smaller set of 19 countries saw improved indicators. Cape Verde dropped from 0.35 to 0.05 even though the country had pursued reforms in 28 World Bank projects that started in 1992 and cost $122 million. Senegal’s scores dropped by a quarter of a point even though it had undertaken 75 projects with PAL&J content, which cost over $1 billion in total. Senegal’s reform activities were consistently pursued as well, with 16 projects in the 1980s, 26 in the 1990s and 21 between 2000 and 2008. $526 million was committed to projects between 1998 and 2008 alone, the period in which government effectiveness scores fell. Nicaragua engaged in World Bank sponsored institutional reforms costing $355 million between 1998 and 2008, building on about $290 million worth of prior engagements, but saw government effectiveness scores dip by more than half a point.

It’s worse than 50:50 on the Quality of Governance measures

As noted, I expect some to question this source of data, noting that the WGI measures lack validity or reliability. While standing up as a critic, it is important to note that many many people use these indicators, so one should not dismiss them as a legitimate source of data. Even academics use the data to capture hard-to-measure concepts like government effectiveness, leading to thousands of Google Scholar citations to the ‘Governance Matters’ paper series.

Even given the multiple WGI citations, it is reasonable to ask whether other measures paint a different picture of government quality or effectiveness between 1998 and 2008. One alternative is the Quality of Governance (QoG) measure produced as part of the International Country Risk Guide (ICRG). It is generated by the Political Risk Service Group (PRS), a rating agency that has provided data for developed and developing countries over the last few decades. Its indicators are used by international firms, donors and international financial institutions. The QoG measure is a subjective index created by summing three sets of data on corruption in government, bureaucratic quality and the rule of law. These three dimensions are actively targeted by external institutional reforms. When summed, they are presented as an indicator ranging from 0 to 1. This indicator is widely used in academic research, with over 500 references on Google Scholar between 2009 and 2011 alone.

I looked at QoG data for 107 countries to illustrate the story about governance quality and ‘reform’ between 1998 and 2008. All 107 countries had World Bank sponsored institutional reforms in place during this period. Most also had reforms predating 1998 and most are expected to have also worked with other agencies on reforms to improve the quality or effectiveness of government.

Even with such reforms, however, over 70 percent of these countries saw QoG scores decline between 1998 and 2008. This is a larger number of decliners than was evident when considering the WGI government effectiveness data. This evidence suggests that the odds of a country doing externally influenced reform and seeing improved quality of governance was less than 50-50 for the period. Given this, most countries doing reform should expect that government quality will still decline over time, regardless of reform.

This finding is reinforced when looking at the smaller sample of 40 countries. QoG data over the entire period are only available for 29 of these countries. The QoG scores declined for 19 of these, stayed the same for one, and improved for the other 9. The biggest gain was in Serbia, which increased its score from 0.34 to 0.47. At the other extreme, Argentina fell from 0.69 to 0.52. Serbia had adopted 22 World Bank projects with institutional reform content in the 1998-2008 period, costing $217 million. Argentina engaged in 46 such projects in the period, costing over $4 billion.

Looking at per capita income as well

Mixed results like this are evident when looking at other measures of government effectiveness as well. Economic growth could be considered such a measure, not because governments drive all growth but because this is a bottom-line indicator that many believe citizens care about. Ronald Reagan’s 1980 election campaign famously noted that an administration’s success was reflected in whether people felt better off because of the government’s presence. Bill Clinton’s 1992 election slogan reinforced the idea, proclaiming ‘It’s the economy, stupid’ when describing what citizens expect of their governments.

Given such, it is important to note that most countries’ economies grew over the 1998-2008 period, and most of the world’s citizens could access more value in 2008 than they could in 1998. However, many countries grew at rates slower than their comparators, suggesting variation in factors like the quality of institutions. GDP per capita, measured in constant terms, increased by about 20 percent in Bolivia between 1998 and 2008, for instance, less than the mean growth rate for lower middle income countries. Latin American lower middle income neighbors like Brazil grew by significantly larger amounts. One could also look at Malawi, where citizens saw personal incomes grow at about 10 percent over the entire period, way below the average of low income countries. Incomes increased by about 50 percent in comparable income countries like Laos and Mozambique, the latter sharing Malawi’s southern border. Countries like Bolivia and Malawi were performing less effectively than comparators. Using a sports metaphor, they were boxing below their weight—looking like a middleweight but punching like a flyweight.

It seems that 60% of 132 developing and transitional economies underperformed in this way. They grew at rates lower than their comparators showed was possible in the period. One cannot attribute this directly or completely to low quality governance or ineffective government, but the poor performance does reflect partly on such—at least subjectively. As with many other countries, Malawi’s government did not ensure the same growth as neighboring Mozambique between 1998 and 2008, a lackluster performance that many would surely call ‘ineffective’. This weak record was achieved even though the country had embarked on 23 World Bank projects with PAL&J content amounting to about $550 million in the period, building on over 40 operations prior to 1998.

Twenty five of the 40 randomly selected countries identified in chapter one had economic growth rates less than those evident in comparable countries. This is a similar proportion of underperformers as one sees in the full set of 132 countries. It suggests that government is comparatively ineffective in about 60 percent of the countries where externally influenced reform was meant to make government more effective.

DO COUNTRIES BOX AT, ABOVE OR BELOW THEIR WEIGHT? Contextually-fitted outcome measures to drive thinking about governance

OUTCOMES ARE USEFUL AS GUIDES FOR GOOD GOVERNANCE

BUT ONLY IF WE CONTROL FOR CONTEXT, BEING REALISTIC ABOUT EXPECTATIONS AND DRAWING LESSONS FROM RELEVANT COMPARATORS

Outcomes as a doorway to better governance indicators

Yesterday I did a post on creating outcome measures that could be useful in facilitating focused governance indicators. I focused on child health and suggested that we look at the survival rates of children to see where countries are experiencing good or bad governance. I took some steps:

First, I argued that we need a theoretical frame for the indicator that ties principals to agents in the production of welfare. Hence the statement,

Citizens grant public organizations the authority to ensure optimal provision of child health care, in whichever way appropriate, reflected in the cost efficient production of the highest possible survival rate of all children under five. Governance systems are ‘good’ when they ensure relatively high survival rates at relatively low average cost.

Second, I suggested that we construct a measure that reflects effectiveness (what level of service is produced, for example) as well as equity (how many citizens have access to the service) and cost (how much do citizens have to pay). I argued that the last consideration is particularly important because efficient production of one good allows citizens resources to consume other goods (further improving welfare).  Inefficiencies in one organizational field will impact effectiveness in others.

Following these steps, I created a two-dimensional measure that allows one to see the zones in which countries are performing (see figure 1 below). There is a (potentially) good governance zone, in the bottom-right hand corner of the figure (see below). Here countries have child survival rates above the global average with costs below the global average. There is also a (potentially) poor governance zone, in the top left corner, where countries are producing survival rates below the global average but spending more than the global average. There are two additional zones that suggest mixed performance (high survival rates at high costs or low survival rates at low costs).

Figure 1 from yesterday: Different countries, different outcomes

 

This is not a governance indicator. It is a two-dimensional measure of outcomes that starts to raise questions about governance. We might wonder if countries in the bottom right zone exhibit specific management or institutional or organizational mechanisms that others do not have, for instance. Perhaps country performance can help us say something about governance.

I asked what more information we needed before saying this, however. Today I will address one set of such issues. Put simply, we need to consider other factors that might explain outcomes. Contextual factors may dominate governance in explaining how well countries perform. We must be careful not to move to a discussion of 'governance' making a difference when we don't actually know if it does.

Many governance indicators have not controlled for contextual factors, and this undermines their construct validity. I discussed this a few weeks ago and related to studies by Melissa Thomas and Kurtz and Schranck. These authors argue that many governance indicators are really just different measures of economic development. World Governance Indicators, in particular, have extremely high correlations with country GDP per capita. We do not know if the WGI's are just capturing a country's level of development or other factors driving social, political and economic development. Consider the graph below, which shows that WGI scores are systematically higher in higher income country groups.

 

Controlling outcome measures for context: What results should we expect?

Some contextual factors impact outcomes in a reliable fashion and muddy the study of governance. We know, for example, that income levels have a significant impact on mortality rate statistics (Pritchett and Summers 1996; Filmer and Pritchett 1999), and that even income scores from 25 years ago can explain inter-country differences in under-five mortality rates.

The fact that Pakistan has a lower survival rate for under five year olds than Singapore may thus be more about its level of development than its governance quality. Indeed, only 3 of the 64 countries in the bottom right ‘good governance’ quadrant of yesterday's figure are low income countries (Vietnam, Uzbekistan and the Kyrgyz Republic). Fifteen out of 24 countries in the top left (inferior governance) quadrant are low income, with the highest income country in this quadrant being from the upper middle income country group (South Africa).

Higher income countries are also disadvantaged by development status, given that health care costs per capita are much higher in these countries. Higher income countries account for 32 out of the 57 countries in the above figure's top right quadrant (better than average survival rates at higher than average costs). This could imply higher costs (and hence lower welfare) in these countries, or a health care product that ensures significantly more than survival for under-fives (perhaps because more developed citizenries demand more than just survival and also because health care cost indicators used in relation to child health include a cross subsidization of health costs for the aged).

These kinds of dependable contextual variations are important to consider in both assessing governance through outcomes and in identifying where different countries should look for lessons on how to improve. Like must be compared with like as an approach to control for context in governance indicators.

Roger, Jerrett and I took a simple approach to doing this, starting first by observing which variables do have a dependable influence on the outcome in question. As discussed, in the case of child health, this variable is the nation’s income level (Filmer and Pritchett 1999). Figure 2 below shows just how much variation there has been in mean scores for survival rates over the years, across four ‘income leagues’—lower, lower-middle, upper-middle and higher (based on United Nations  classifications).

Fig. 2. Average survival rates across ‘income leagues’, 1960-2005

 

The figure shows that average under five survival rates in 2005  among lower income countries were lower than the survival rate average in higher-income countries in 1960. Figure 3 shows that the deviation across income leagues is also different, being higher in the lower income group. Higher and upper-middle income groups have seen greater convergence around high under five survival rates.

Fig. 3. Standard deviation in survival rates across ‘income leagues’, 1960-2005

 

Given such data, we should not expect that a lower income country will score a survival rate as high as a higher income country, even if the lower income country has the best form-basedgovernance in the world. Wealthier countries will also likely have higher per capita health costs (even as a proportion of GDP) regardless of whether they govern their systems well or not. 

Given these observations, we create a two-dimensional governance outcome measure that controls for income leagues present across the world, using the United Nations Classification as a guide.

The underlying argument is simply that governance in the field of child health is best assessed through outcomes when comparing lower income countries with other lower income countries, and so forth. It is still comparative, but the comparison is now within income groups and not across all countries. So we ask how far each country’s survival rate and cost scores are from the averages in their league, measured in standard deviations to allow comparison across all countries (applying an approach similar to Anderson and Morrissey 2006 and Lawrence 2006).

Z-scores are calculated for all of the countries, using the score for each country (of the survival rate and cost), and the mean and standard deviation (for both measures) for the relevant country set (low income, lower middle income, upper middle income and higher income (OECD and non-OECD)).  

Figure 4 shows the results, with the USA survival rate ending up 0.13 standard deviations above its high income country group survival rate mean, and 2.64 standard deviations above the high income country group cost average. South Africa stands -2.65 standard deviations below its comparator group (high middle income) in regards to survival rates, and is also 1.12 standard deviations above average mean costs in this group.further research into why outcomes vary between countries, and will help to focus research on real governance and government impacts.  

Fig 4. How outcomes look when controlling for expectations

 

This graph shows where governance systems ensure the provision of child health quality at, above or below their income level; much as one might asks whether a boxer boxes at, above or below his weight level.

As in Figure 1, the lower right-hand quadrant shows those countries that ‘box above’ their income levels by producing higher survival rates than the average of their income group (at zero, the vertical line) at lower costs than the average of their income group (the horizontal line). One should note that some countries change their position given the contextual control:

• Pakistan moved from the lower left quadrant in Figure 1 to the lower right quadrant in Figure 4, for example (because its survival rate was lower than the overall world average but higher than its comparator lower income group average). Pakistan’s performance is below average in comparison to the entire world, but above average when compared with countries in its income group. Much like a middle-weight boxer may routinely lose against a good heavyweight but be the best of the middleweights.
• The USA “boxes at its income level” in terms of the survival rate produced (0.13 standard deviations above the average of higher-income countries) but it “boxes below its income level” in terms of cost of production, with costs over 2 standard deviations higher than the high-income country average. The USA is an economic heavyweight boxing at the middleweight level because of high health care costs. Using the language of governance, we conclude that authority in the US child health field is not being exercised in a manner that maximizes welfare (given the high costs of producing services).
• The situation is more dire in South Africa, where weak governance in this sector is reflected in weak service delivery (lower than average upper middle income group survival rates) and high costs (higher than average upper middle income group cost per capita). South Africa may be an economic middleweight, but its child health care field struggles to compete as a welterweight.

The approach to measuring governance in Figure 4 helps one to identify the top contenders or better governed countries (in this children’s health field) in all income groups:

• 16 low income countries fall into the bottom right quadrant: Pakistan, Comoros, Mauritania, Bangladesh, Eritrea, Madagascar, Papua New Guinea, Lao PDR, Uzbekistan, Kenya, Yemen, Tajikistan, Nepal, Tanzania, Vietnam, and The Gambia.
• 24 lower middle income countries are in this quadrant: Indonesia, Philippines, Thailand, Algeria, Vanuatu, Syrian Arab Republic, Sri Lanka, Azerbaijan, Peru, Cape Verde, Mongolia, Samoa, China, Tonga, Ecuador, Morocco, Armenia, Tunisia, Colombia, Guatemala, Albania, Dominican Republic, Egypt, and Honduras.
• 15 upper middle income countries are also in the good governance area: Libya, Malaysia, Fiji, Mauritius, Venezuela, Romania, Russian Federation, St. Kitts and Nevis, Chile, St. Lucia, Lithuania, Latvia, St. Vincent and the Grenadines, Poland, and the Seychelles.
• And 10 high income countries box above their weight level: Brunei Darussalam, Kuwait, United Arab Emirates, Singapore, Bahrain, Estonia, Cyprus, Korea, Slovak Republic, and the Czech Republic..

It is interesting to note that while we have not controlled for the income bias completely, the above lists show significant variation in income levels amongst the strong performers in each group.

• Six of the fifteen low-income countries listed have per capita incomes below the average of low-income countries. (Using GNP per capita calculated according to the Atlas Method for 2005, available in the World Development Indicator database; Eritrea, Madagascar, Tajikistan, Nepal, Tanzania, and The Gambia  have income levels below the low-income group average.)
• Five of the top ten lower-middle income countries have per capita incomes below the average for their group. (This includes three of the top six performers; Indonesia, the Philippines and Sri Lanka.)
• Four of the top seven in the upper-middle income group also have per capita incomes below their group average. (Fiji, Venezuela, Romania and Russia).
• All ten high income countries boxing above their weight level had per capita incomes below their group averages. (Bahrain, Brunei Darussalam, Cyprus, Czech Republic, Estonia, Korea, Kuwait, Singapore, Slovak Republic and the United Arab Emirates.)

A number of factors emerge as intuitive answers to questions about why different countries fit into these different ‘governance quadrants’. Many of these are not about the processes of governance but rather about the governance context:

• It seems, for example, that country size might matter in influencing governance outcomes (Singapore has better survival rates at lower cost than the United States, a high-income comparator). Is it easier to govern a small health sector cost effectively than a large one?
• Newly-rich countries also seem to do better on this indicator than their other high-income comparators, producing high survival rates at much lower costs. Do newly rich countries have a leapfrogging benefit, whereby they build capacities and relational mechanisms on the basis of the latest technology and lessons from older wealthier countries, who are locked into their more outdated systems?
• Countries with higher Gini coefficients, relative to their income league, seem to perform differently, perhaps reflecting the complexities of governing unequal countries. The USA has the highest Gini for high income countries, and a much higher cost of producing health care; countries like South Africa might argue that their inequality puts them in a higher income league than appropriate (upper-middle) which results in an unfairly harsh benchmarking.
• Higher-income countries seem to do better when there is a greater direct public sector expenditure outlay, which may speak to the complexities of governing market-driven systems. The high cost of a private sector-led US system stands in contrast to other lower cost government led systems in the OECD, for example, suggesting different costs drivers and abilities to contain cost in these systems.

These and other second-stage observations provide important avenues for further research into why outcomes vary between countries, and will help to focus research on real governance and government impacts.  I will explore these more in coming weeks but wonder what you think of the approach in general?

 

Choosing Outcomes To Shape Governance Indicators Around

Today's Question to Guide the Design of Governance Indicators: Which Outcomes Should Government Be Engaged in?

I'm back in Boston and into thinking about governance, governance indicators and outcomes. I have replied to a couple of great conments on past posts--thanks to those who are engaging so thoughtfully.

One of the comments, by the ever-sharp Clay Wescott, suggested that we need a step by step approach to connecting governance indicators to outcomes. I agree. I think my starting step is even earlier than what Clay proposes, however. I think we need to start by asking what outcomes we have in mind when we think about governance. Given we are thinking about governments in particular, the question I ask is: What outcomes do citizens commonly authorize governments to help facilitate?

This question emerges from the assumption that principals delegate authority to agents in order to achieve outcomes. Mirroring basic theories of public finance, I argue that citizens delegate authority to governments when faced with restrictive costs or complicated problems of cooperation and coordination. I could extend my perspective to sociological theory on the state, agreeing that sometimes citizens give governments authority because they beleive it is appropriate to do so (regardless of the presence of cost or coordination-type problems).

I am arguing that citizens are still looking for outcomes in return for the delegated authority, however, no matter why they give such. Further, the quality of public sector governance is reflected in whether public organizations exercise authority in a way that facilitates outcome and value production.

This does not mean that the governments produce services directly. They could regulate a sector. They could subsidize a sector. Etc etc.

Given such thinking, I suggest that public sector governance indicators should focus on domains where most would agree that citizens accord governments authority to influence outcomes. This could include “public goods” interpreted narrowly (such as defense) and more broadly (maybe the Millennium Development Goals (MDGs)).  I wonder what areas quickly come to mind: Perhaps macroeconomic management, policing and defense, education, health care, and environmental protection.

I would love to see a top 5 from readers. What outcomes do we think governments around the globe are authorized to  facilitate?

I think the question is important and takes us from dominant approaches to governance that have assumed that 'small' or 'limited' governance makes sense--regardless of country or outcome being considered.  It calls us  into the debate on the functional role of government--not necessarily its form. 

As an example, in the coming weeks I will be discussing an area in which governments are always involved--child health--and an indicator that cannot be achieved without the enaggement of governments--child survival to five years old.  What other examples would you like to explore?

Is the US federal budget process ungovernable?

I usually write exclusively on development and developing countries. I recently authored an article on the US federal budget process, however. The Association of Schools of Public Administration referenced it in discussing the debt ceiling debate/debacle.

I think there are some lessons about fitting reform to context in this piece. The lessons speak to the importance of theorizing both the reform and reform context to ensure you have the proper fit for a governance problem. When one theorizes the American context, focused on the logics driving political decisions, I come to wonder if any solution does fit. 

Let me get to the blog piece. Apart from some fun figures (see here) I also liked the blog title:  "The Budget Deal: A Repeat Phenomenon?" (http://aspanational.wordpress.com/2011/08/04/the-budget-deal-a-repeat-phenomena/).

 

It could also have been titled, "Governance Gaps in US Federal Budgeting: Gaping and Growing despite Reform." Or it could have kept the original article title, "The illogics of Federal Budgeting and Why Crisis Must Come." (http://onlinelibrary.wiley.com/doi/10.1111/j.1540-6210.2011.02352.x/abstract).  All of these titles show how well the story line of US federal budgeting reform relates to the problems of governance gaps in developing countries. Consider some of the observations I think are relevant:

• US budget reforms have been numerous in the past decades, just like they have in developing countries: Federal budgeting reforms since 1912 have included steps to introduce executive budgeting and fiscal rules, PPBS, ZBB and PBB and PART, the formalization of internal audit in agencies, process computerization, adoption of long term planning, and more. One could call the last century 'The period of great budgetary reform in the federal government' (Let's call it 'The Period'). 
• The US federal budget performance seems to have gotten worse in spite of these reforms, as it has in many developing countries: Interestingly, the country's fiscal sustainability problem has worsened in this 'Period'. Deficits have been more prevalent since these interventions than before. Federal spending has exceeded revenues in 75 percent of the years following the 1921 Act that introduced executive budgeting as a solution to spending problems, for instance, compared with 38 percent of the years between 1792 and 1920. Spending exceeded revenues in 16 of the 20 years after the 1990 Budget Enforcement Act (BEA) introduced measures to control deficits in the late 1990.  Deficits exceeded 3 percent of GDP in eight of the twenty years since 1990’s BEA, reaching such levels only 26 times in the prior 198 years (13 of which related to wars).
• Reforms that seem poorly fitted to the US context are constantly proposed, as they are in developing countries: Executive budgeting is an example. How can one have an executive driven budget as the 'solution' in a country where the Constitution gives Congress responsibility for budgeting? How can one think that fiscal rules will work in a country where politics is competitive, flexible and dynamic? 
• The country ends up being dependent on short-lived 'deals' as fixes to immediate problems, even though these offer no longer term solution--as one sees in many developing countries:  Short term fixes like the recent agreement between President Obama and the Congress are like band aids on a corpse. The agreement between President Clinton and the Republicans was not much better--a bandage, perhaps--and did not ensure the sustainability of budget surplus (a major short run achievement though that was). 
• In many ways reforms and agreements  are really just signals intended to suggest that those in authority are  trying to provide governance solutions--as they are in many developing countries: Beyond the signals, the interventions have limited effect--either holding for short periods only or penetrating the budgeting system superficially. Writing over twenty years ago, Aaron Wildavsky noted that we cannot even imagine what a budget reform would look like that penetrated further, disrupted politics, and forced real change where it is really needed.

These observations could be made about reform in many developing countries. It is often nothing more than a repeated game of signaling an intent to govern better while preserving the status quo. In the United States that status quo is a complex one that I think may prove ungovernable. I say this simply because it is informed by a set of principles or logics that interact in ambiguous ways.

• The first logic is reflected in the doctrine of Separation of Powers. A system of checks and balances allows each branch to restrain abuse by the others. Federal budget preparation and oversight is the responsibility of Congress, for example, but execution rests with the executive. The system purposefully fragments power, which inevitably fragments accountability as well. This makes developing a budget--or a budget reform--problematic. Who is accountable for the overspending? Who is accountable for developing the solution?
• Consider also the principle of limited government. Formalized in the Constitution, it reflects a deep seated American view that government should not encroach significantly in the lives of individuals. Applications in the Articles of Confederation relate directly to budgetary policies, limiting federal government powers of taxation. Many still believe these limits should hold, including civil society groups like the Club for Growth. Such groups see low taxes as appropriate fare, but this is a perspective that clashes with other ideals. 
• America is also a nation of people who value assertiveness and competition, for instance, and exhibit what Geert Hofstede calls a 'low uncertainty avoidance'. Put together, these values support aggressive, unfettered budgetary deal-making that are reinforced by regular competitive elections, expectations that representatives will bring home the pork, and the appropriateness of a vast structure of lobbyists set up to press for interests. These elements contribute to a logic of competitive competition that encourages politicians to act as snake-oil salesmen playing high-stakes games of chicken in the budgetary process. Winning is important, reflected in one's ability to get money for one's constituents. This clashes with the idea that government should be limited and constrained.
• Short-termism and a defining belief in the ‘American Dream’ and versions of American Exceptionalism further promote such behavior. These scripts generate expectations of America being ‘better’ than others, which arguably manifests in demands on government and on government expenditure. The demands come from multiple competitive representatives and their constituencies who all wish to be heard and expect to be satisfied with appropriations. Some expect and demand federal assistance in the aftermath of Hurricane Katrina and are willing to sponsor lobbyists to ensure this is forthcoming. Others demand military responses to provocation from Iran, Iraq and Afghanistan. Some work hard to ensure federal efforts are robust in stabilizing unstable financial markets. Additional interests call for support to small business, help for first-time home buyers, and much much more. The scripts suggest that an exceptional country needs exceptional government that can do all these things.  And still be limited. Budgets should accommodate it all, but taxes must still be low.

I am not sure how one crafts a governance solution in the face of these different values and logics. I am sure that the task is more complex that introducing a technical fix--like a fiscal rule (the balanced budget amendment, for instance), or mechanisms that strengthen the executive, or performance metrics, or program based budgeting.

Whatever the solution, reformers must have a theory about American government that takes such values into consideration--identifying the hole in which the reform peg must fit.

To be real and accommodate a fit, the debate about reform must involve open political contestation and discussion about the logics driving budgeting--the social and cultural ideas of what American government is, how it gets its money, the social trade-offs of providing or not providing services, and such. I think real crisis may be the only thing that fosters such debate. Until this happens, I fear that the US federal budget process will continue to be ungovernable--and get worse over time. Regardless of who holds the Presidency or what band aid deals they can facilitate.

In many senses, the situation in US federal budgeting may be more complex than that in developing countries! In both, however, we need to ensure that future reforms are better fitted to context--and to do this we need to theorize the reforms and context better.