My research posits that institutional reforms are limited in development. These reforms lead to better laws that are not properly implemented, better looking budgets that are not executed, and more capable central agencies that make new rules but persistently weak deconcentrated agencies that have to live by and implement the new rules.
Some colleagues have suggested that these limits should decrease with time, given that institutional reform takes time and we need to allow countries time to make the new institutions they are adopting work. This sounds more than reasonable, given that everything we know about institutional change tells us that new rules of the game take a long time to emerge.
But the argument does not necessarily pertain to institutional reforms in development, because of how they are being done in development. And evidence shows that time does not necessarily make reforms more effective.
Evidence in public financial management
I have argued before that public expenditure and financial accountability (PEFA) shows gaps between what budgets look like and how they are executed, the quality of laws and implementation of laws, and the strength of concentrated agencies like the ministry of finance and deconcentrated agencies like line ministries, districts and local governments. Evidence from repeat assessments shows that these gaps grow in many countries where PEFA ecores improve. One such country is Liberia, where a 2012 PEFA assessment showed an improved average score on its public financial management system quality (from 2008). However, this was largely achieved by making laws even better than they had been, and bolstering the quality of the annual budget preparation process and document. Scores for budget execution remained low, leading to a larger gap between appearance and reality than existed in 2008.
The same is true for a country like Afghanistan, which was recently lauded for scoring ‘the same as Italy’ on the Open Budget Index. The problem is that the government enhanced its scores by making its budget preparation process much more transparent than it had been in the past, but transparency was not significantly enhanced in areas pertaining to actual spending (where much money is still opaque and outside of the government).
A study I did in 2010 (with Paolo de Renzio and Zac Mills) found that this kind of observation was routine. Countries that had engaged in reforms for longer did not have better results than their PFM systems or higher levels of implementation or diffusion of reforms. By contrast, the additional time had just yielded better-looking budget documents and laws and stronger central agencies. The study identifies these as the “simpler reform areas” and notes that additional time did not lead to gains in “the messier, and more difficult, challenges” of reform implementation. The implication is that time helps countries perfect the form of new institutions but does not facilitate greater implementation, functionality, or influence. The study presents this as a reason why reforms seem to have a “very small impact” after even decades of engagement.
Evidence in anti-corruption reform
The same observations can be made when looking at anti-corruption reforms. I have blogged about these before, often using Uganda as an example. It amused me this week to see an IMF team advising the Ugandan government that it should address corruption problems. There seemed little recognition that Uganda has been addressing corruption problems for decades now, and has pretty much done what donors told it to do. Its laws are best in the world, for instance, and for many years were used as an example for other countries. But its implementation of those laws is really weak, leading to an implementation gap that is one of the highest in the world (as measured by Global Integrity).
The situation is similar across the developing world. When looking at Global Integrity data, one sees a convergence in the quality of anticorruption laws in developing and developed countries (where developing countries’ laws are looking more and more like the laws in developed countries). This is ostensibly the result of institutional reforms in development, which have helped to improve the average developing country score for laws from 80 in 2007 to 83 in 2011 (compared with a static 87 in OECD countries). Data shows an increasing divergence when looking at the gap between these forms and their function, however. Implementation scores in developing countries were at a static average of 48 in both 2007 and 2011, while the scores were higher in developed countries (and improved in the time, on average, from about 72 to 74. This means that the gap between form and function widened from 32 to 35 in the developing world in this period, regardless of (and I argue because of) institutional reforms. This gap is more than twice that in richer countries where corruption is less of a problem.
Explaining the situation
I think the reason why institutional reforms are not becoming more effective over time is because the process of doing such reforms is flawed. The theory that suggests time will make new rules of the game more effective is based on observations from more developed countries where new institutions emerged over many years (often centuries) as societies reflected on and addressed pressing problems, experimented with new ideas, gradually built capacities and structures that could support new structures, and went step-by-step towards establishing the new rules of the game. Often, the new rules of the game existed functionality before they were made formal in laws or bureaucratic procedures.
One of my favorite examples is civil service reform in the USA, at least from 1850 to the 1950s. The reform movement pressed for an end to patronage for decades before it was actually abolished in law (in direct response to a major crisis), and by that time there were pockets of government where one could arguably already find more merit based civil service mechanisms in place. But the Pendleton Law did not clean up all aspects of the civil service; it left issues alone like the right of civil servants to be politically active. This was only changed in the 1930s when—again—years of concern and reflection were bought to a head in a crisis (and the Hatch Act reforms).
I argue that the civil service reforms have (generally) led to a functional and effective US civil service where new rules of the game actually matter because they emerged over time in the context. I call it ‘purposive muddling’ but some people don’t like the word ‘muddling’ and prefer to think about ‘gradual innovation’. Time makes a difference in such situations.
Contrast this with developing countries, where governments commonly face pressures to introduce a range of externally defined best practice reforms in short periods across health sectors, public financial management domains, civil service regimes, and beyond. Bolivia stands out as an example, where externally influenced reforms decentralized the government, professionalized the civil service, and introduced performance management in the period between 1988 and 2002. ALL AT ONCE. NO PURPOSIVE MUDDLING (SORRY, GRADUAL INNOVATION). The country had been a centralized military dictatorship before this, with entrenched patronage. These systems ultimately proved resistant to much of the proposed reform, and Bolivia was criticized for failing in its commitment to reform. In retrospect, it seems that a better explanation was that many Bolivians did not see their incumbent systems as problems and hence did not choose to support new systems. Repeated efforts to introduce these deep and extensive reforms routinely fail, and they also fail to build on opportunities for change that do in fact exist.
The same is true for many PFM and anti-corruption reforms, where time should not simply be expected to make the difference. Unless we change the way we do institutional reforms in development and allow purposive muddling, through time, to yield context specific institutions that do emerge through time—along path dependent trajectories, in response to problems.
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