Timothy Ogden has started an interesting discussion about governance in the Financial Access Initiative (FAI) blog (http://financialaccess.org/node/3746). He asks for serious thinking about governance in the microfinance industry. He argues that the governance arrangements in place in organizations are more important than their 'profit status'. Poor governance allows for scandal and wrongdoing in all kinds of organizations, whether they are for profit, non profit or partly profit based. He asks "What are proper governance arrangements for a pro-poor institution?"
This is a great question. It, and the discussion as a whole, offers a number of challenges to the broader discussions about governance in development. I see four in particular:
1. Conceptual content, and implications for measures and assessment:
'Governance' is given quite specific meaning in the posting. It reflects on how organizations are authorized, by whom, and with what effect. This is a much more specific approach to the content of this concept than one usually finds in the broader application of 'governance' in development. Think about the World Governance Indicators, for instance, that seem to enjoy so much breadth of content as to defy definition.
This raises a challenge: what does the development community mean when it talks about governance? As a reluctant academic who also inhabits the world of practice and engages with practitioners, I tend to prefer concepts that we can make sense of in our research and reform discussion. I am thus supportive of Ogden's sensible application.
This application is actually found in the literature on governance, where one sees greater conceptual clarity and content focus than is typical to the loose approach in international development. Indeed, the term was generally meant to reflect on the way in which authority is exercised in a particular context. This is how Michalski, Miller and Stevens (2001) define it. It is even how the World Governance Indicator (WGI) developers put it, though using different language.They speak of governance as “[T]he traditions and institutions by which authority in a country is exercised” (Kaufmann, Kraay and Zoido-Lobaton 1999).
If the content of this concept is about the exercise of authority, what do we need to measure such? How do we evaluate such? Which of our indicators actually reflect on how authority is exercized? Have we shifted this concept into a realm of problematic but opportunistic vagueness?
2. Unit of analysis and the focus of assessment and reform:
Ogden's discussion is of governance at two levels--within 'pro poor' microfinance organizations and across the microfinance community. He mentions lessons about governance in the organizations and implies that these should be learned and potentially applied in the field of 'pro poor' microfinance. I use the term 'field' here, in the spirit of DiMaggio and Powell's (1983) work on organizations. They recognise that organizations work with other organizations to make up activities in fields like micro-finance. The 'field' is that particular set of organizations that, “in the aggregate, constitute a recognized area of institutional life” (DiMaggio and Powell 1983).
It seems sensible to think about how authority is exercised at these levels. It seems that we can measure this at these levels. It seems also that indicators we might develop, and lessons we might learn, can be transformed into relevant reforms for the organizations and fields.
Now consider the way governance is analyzed and applied in international development. We have governance figures at the countrylevel (see the WGI definition of governance above). This level of analysis combines all organizations across all fields, assuming that this can be done and makes sense--practically or theoretically. So we say that Kiribati has better governance than the Marshall Islands, and Rwanda has better governance than Pakistan.
But what do these indicators mean, and what can we do with them? It seems to me that governance should be assessed and governance reforms be focused on less aggregated units of analysis. Authority is exercised in different ways in different fields and organizations within countries. Even more importantly, the challenges of exercising authority are different in different organizations and fields. Pro poor microfinance and education fields involve different agents, for example, and have different political pressures to contend with. Aggregated measures just do not capture this variation, or allow learning about how to structure governance solutions given such variation.
If you buy this, what are the implications for governance indicators in the development community? How many indicators either build up from organizations or assess governance at the level of discrete fields? What could indicators like this look like? How could indicators like this be used for developing ideas about 'good governance'?
3. Focus on form instead of function, and implications for the tone of discussion:
The thing I like most about Ogden's short note is his focus on bottom line issues: he emphasizes the importance of pro poor microfinance institutions actually serving the poor with micro finance. This is the goal of the organization and this is what we need better governance for. A simple idea. Stated simply, governance is important to improve the functionality of organizations and fields, reflected in results and outcomes. Governance is not a set of forms that we speak about because it has stand alone importance.
I think this approach is well reflected in theory on 'governance'. Tirole (2001) defines corporate governance as “the design of institutions that induce or force management to internalize the welfare of stakeholders.” Consider the basic elements of governance implied in this definition: (1) It is focused on how mechanisms (institutions) regulate (2) the way that authority is exercised by one set of agents (managers) (3) who act on behalf of a broad group of principals (stakeholders) (4) with the goal of maximizing the welfare of these principals (stakeholders). Combining these elements, we see that good governance emerges when specific agents exercise delegated authority in such a way that their specific principals enjoy improved welfare. The goal is better functionality.
This definition has parallels in the political science and public management literatures. Kooiman’s (2003) characterization of governing, for example, points to “the totality of interactions, in which public and private actors participate, aimed at solving societal problems or creating societal opportunities.” Hill and Lynn (2004) describe public sector governance from a management perspective, as “Regimes of laws, rules, judicial decisions, and administrative practices that constrain, prescribe, and enable the provision of publicly supported goods and services through associations with agents in public and private sectors.”
The idea of delegated authority emerges across these definitions, as does the focus on outcomes as the purpose of delegated authority ("maximizing stakeholder welfare", “solving societal problems or creating societal opportunities” and ensuring the “provision of publicly supported goods and services”). In Ogden's world the question of governance centers on how poor people delegate and enforce delegation of authority to micro-finance institutions, to empower the poor. This is a functional problem. Real, tangible, specific and practical.
In the world of international development, I contend that governance is much less real, tangible, specific, practical or meaningful. Many indicators focus on form and not function. Indicators like the World Governance Indicators, Doing Business Indicators, and even various quality of governance indicators reward countries for having specific forms in place. They either assume that these lead to better results or de-link governance and results and outcomes. At this extreme, good governance is really about systems, processes, laws etc. that have a stand-alone importance. Looking better is more important than being better.
Many will disagree with me on this. They will argue that outcomes and results are central to the discussion of governance in development. I would love to be wrong, and welcome the debate. Arguments would need to show that indicators actually emphasize results and/or that where they emphasize processes we actually have evidence that the new forms lead to improved results and functionality. I don't think the arguments can be made, partly because the questions are best askd at differnet levels of analysis (organizations and fields) but any responses in this light will be welcomed.
4. Solutions and answers versus problems and questions:
The tone and approach to Ogden's note is admirable. It notes that governance is a problem we should care about and asks questions about what kinds of governance are needed to improve services in the micro-finance community. This stands in contrast to the international development community's approach to governance, where indicators impose solutions and answers without clear problems or questions.
I agree that governance matters. I agree that it is something we should treat seriously. I agree with Ogden that we have questions rather than answers. I wonder if it is possible to re-focus the international development dialog so that it too goes back to problems and questions...
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