Development Policy Review, 2011, 29 (s1): s5-s26 Aid, Institutions and Governance: What Have We Learned? David Booth Understanding of the relationship between institutions and economic progress made major headway in the 1990s. Since 2000 the pace of intellectual advance has been stepped up, with fresh thinking especially on governance systems and the role of aid. This article illustrates these propositions with special reference to relevant contributions to DPR over the period. Three particular topics are addressed: the rise and transformation of institutional theory; aid, governance and country ownership ; and the terms on which donors can contribute to the facilitation of institutional change. The article introduces a theme issue which celebrates the 50th anniversary of the Overseas Development Institute by reprinting nine of the highlighted DPR articles. Key words: Institutions, governance, policy, aid, Africa 1 Introduction It is sometimes said that it is impossible to have an original idea about development policy. Concerns and priorities go in cycles, and more often than not what looks like a new idea seems strangely familiar to those who are old enough to remember the debates of ten or fifteen years earlier. The most obvious examples involve the swings of the pendulum between the maximisation of economic growth and deliberate attention to income and wealth distribution, or more generically between market virtues and market failures. It seems very possible that when the history comes to be written, the main story about development-policy thinking since 1960 will involve cycles rather than genuine learning a somewhat depressing thought. Within the main story, however, there are definitely fields and sub-fields in which knowledge and understanding have had a more cumulative character. New evidence or sharper intellectual tools have led to fresh policy ideas (sometimes inspired by precursors from centuries rather than decades earlier) and these have become entrenched. When this happens, it should be celebrated. This DPR supplement makes the case that the field of institutions and governance exemplifies this more uplifting aspect of the evolution of development thinking. It does so by revisiting some of the best content that DPR itself has published in this field over the last decade. ODI began operations fifty years ago in 1960, and DPR has been publishing for a little over half of that period. The Editors were nevertheless persuaded that a celebration Research Fellow, Politics and Governance, and Director, Africa Power and Politics Programme, Overseas Development Institute, 111 Westminster Bridge Road, London SE1 7JD (d.booth@odi.org.uk). Published by Blackwell Publishing, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.
s6 David Booth of this sustained contribution might reasonably take the form of a relatively focused retrospective dealing with a particular set of issues within the wide scope of the Institute s and the journal s concerns. As a likely guest editor, I leapt at the chance to focus on a field with which I have been involved and in relation to which the large gaps in my knowledge and skills as a social scientist would be least likely to be exposed. I would maintain, and I believe the articles referenced here demonstrate, that real progress has been made over the last decade in thinking about institutions, governance and development, including the possible contributions of development assistance or aid. I do not think it can be shown that there have been equivalent advances in policies and practices, which is one of the reasons why it seems important to write and publish more on the subject in a journal devoted to development policy. However, reshaping the intellectual agenda is a necessary first step, and not one that can be taken for granted. Looking forward, top priority needs to be given to how uptake of the ideas into practice is most likely to be achieved, and what the barriers are. The argument of the following pages is that we now understand better than we did as recently as ten years ago: how and with what significant qualifications institutions rule in the promotion of successful economic, political and social development; the limitations of the instruments for overcoming countries institutional constraints that lie within the easy reach of development-assistance organisations; and the idea of context-sensitive facilitation of institutional change and the challenges it poses to development policy and practice. The next three sections of this overview article are structured around these points, while the final section sums up and looks forward. Three of the DPR articles referenced in each section are reproduced as originally published, but with new pagination, in Parts 1, 2 and 3 of the supplement. Many others are available to subscribers via the electronic links embedded in the list of references. 2 The rise and transformation of institutional theory To the extent that it makes sense to treat the history of thought in terms of decades, it is the 1990s that has the best claim to be the decade of institutions. The flowering of various streams of institutionalist thinking in economics and political science that took place during those years acquired particular salience from the major world events of the years after the break-up of the Soviet bloc in 1989. However, it was in the following decade that the institutional turn convinced the sceptics, and critical scrutiny of its implications and limits could begin. In many respects, this is the more exciting story. 2.1 Origins and next steps In the 1990s, the world got institutions. Several analytical perspectives of older vintage were famously revived and brought into the social science mainstream during those years, including the transaction-cost theory of economic institutions (North, 1990),
Aid, Institutions and Governance: What Have We Learned? s7 rational-choice and game-theoretic perspectives on public policies and collective action (Ostrom, 1990; Olson, 2000) and the comparative history of state formation (Tilly, 1990; Evans, 1995), among others. But what really made the 1990s the decade of institutions was what was revealed for all to see by the course of events in two parts of the world: the former Soviet sphere of influence in Europe and Asia, and sub-saharan Africa. The divergent paths taken by the different member states of the former COMECON after liberalisation, and the sluggish response to the first generation of economic reforms in Africa, made the critical role of institutional factors increasingly hard to deny. The ferment of institutional thinking that was a feature of the 1990s created the conditions for the later advances which are the main focus of this section. It laid a foundation, but it also left many questions unanswered. I would argue that we have learned at least four things since the turn of the millennium which make an important difference to the way institutions figure in both academic and policy debates: Institutions rule, in the particular sense that cross-country regression analysis and comparative studies of country experience seem to converge in support of the proposition that the quality of a country s institutions is a more important factor in explaining per capita income growth than either of the variables emphasised in earlier econometrics: the geographic location of the country or the extent of its integration into world trade (Rodrik, 2003; Rodrik et al., 2004). The contribution of institutional quality also appears far more substantial than, and not closely related to, the volume of development assistance received (Doucouliagos and Paldam, 2009). While institutions are critical in the sense that certain essential functions need to be performed if market-based economic growth is to be sustained, the form in which this need is satisfied is to some extent undefined (Rodrik, 2007: Ch 6, Getting Institutions Right ). The history of the now highly industrialised countries does not provide a reliable template in this respect. Indeed, prescribing for poor countries the institutions which now prevail in those countries, at the end of their process of development, is equivalent to kicking away the ladder with which countries climbed up in the past (Chang, 2002). To an important degree, then, we do not know what the right institutions are. There is a strong case for distinguishing between the long- and the mediumterm needs of poor developing countries. Cross-country regressions covering the whole world and using standard measures of good governance indicate a clear correlation between those variables and economic outcomes, with some indication of causality. But a similar exercise covering only poor and middleincome countries is far more ambiguous (Khan, 2006). As confirmed by recent developmental successes in East and South-East Asia, the institutions that are good for obtaining growth and reducing poverty in the poorest countries may be quite different from the best practice arrangements that have proven their worth in moving forward from middle-income starting-points (Future State, 2010; Levy, 2010). None of the required change is self-generating, and relatively little of it has been the result of conscious design. As with the creation of the preconditions for accelerated development in the now most developed countries (Greif, 2006; North et al., 2009), institutional improvement in the remaining poor countries
s8 David Booth of the world will happen, if it happens, as a result of social changes and political conflicts and transactions which usher in new patterns of behaviour and social norms. Institutional change is a function of politics, a fact which is not sufficiently appreciated by providers of development assistance (IPPG, 2010). The DPR article on Politics and Growth by Williams et al. [2009, this issue] sets out boldly several of the main steps in this emerging thinking. The article begins with the ways economic and political institutions can inhibit private investment and economic growth, and goes on to explore the relationship between institutional change and political incentives at the country level. It ends with an engaging discussion of how development agencies can help to shift politicians incentives in a pro-growth direction. The Williams et al. article is comprehensive. However, it does not touch upon two issues on which others, including DPR authors, have had much to say. One is the extent to which growth rates and other development outcomes are influenced by policy choices as well as, and perhaps independently of, institutions and politics. The other is the extent to which aid that is delivered without reference to the institutional features of the recipient country can do harm as well as good. 2.2 Institutions versus policy? The wide acceptance that institutional theory now commands, whether in the North or the Khan variant, is very welcome. But it entails some dangers, the most important of which is the apparent implication that the content of the policies pursued by governments is a matter of little significance. I would argue strongly that this is not one of the implications of taking institutions seriously. An unusually compelling body of evidence in support of this assertion has been assembled by the Tracking Development research project at the University of Leiden (van Donge et al., 2010). The project has been investigating development processes and outcomes in matched pairs of African and South-East Asian countries over the fifty years since 1960. The main finding is that all of the selected Asian countries but none of the African countries adopted policies which combined (i) macro-economic balance, (ii) rural-biased public investment and (iii) economic freedom for smallholders. Close analysis of the country processes confirms that most of the very substantial divergence in growth and poverty-reduction performance between the two regions over the period is explained by these differences in the policies pursued. The Leiden study provides telling confirmation of the importance attached to policy in other work, notably the study by members of the African Economic Research Consortium of growth patterns within Africa up to 2000 (Ndulu et al., 2008). The inclusion of the South-East Asian cases in a comparative study is particularly helpful in that it allows rejection of the simple notion that Africa s inferior development performance is due to the fact that Africa s institutions are neopatrimonial that is, a blend of impersonal, law-based and personal, clientelistic forms of rule or that corruption is particularly widespread. The South-East Asian countries succeeded despite sharing these features in full measure and, indeed, despite the fact that several of them
Aid, Institutions and Governance: What Have We Learned? s9 began with institutions considered at the time to be a highly unpropitious basis for modern economic growth. Policy really does seem to matter, then. And if one is concerned with low-income Africa, policies towards agriculture matter more than any others. John Mellor (1976) and Michael Lipton (1977) were not wrong about this, which illustrates my opening point about cycles in development-policy thinking. In this sense, the arguments developed in the pages of DPR by Colin Poulton and his associates (Dorward et al., 2004; Poulton et al., 2006; Tschirley et al., 2010) justify careful reading and the fullest possible dissemination among those who will be the next generation of policy-makers in Africa. These articles have institutions at their centre. They are concerned with what kinds of institutions at the sector and sub-sector levels are likely to assist technological upgrading by cash-strapped, risk-averse smallholders, or the maintenance of production levels and output quality standards in major export sectors such as cotton. There is nevertheless a battle of policy ideas still to be fought about this. On the one hand, the bulk of the African intelligentsia remains wedded to the concept that agriculture is inherently backward and a poor basis for a national development strategy. On the other hand, the Washington Consensus is not yet entirely dead, and even the limited form of state interventionism that Poulton et al. are advocating continues to provoke nervousness in some international agencies. It will make a difference whether leading policy actors change their minds on this issue or not. The same applies to the debates about industrial policy options which are being aired in the pages of DPR (for example, Lin and Chang, 2009; Lin and Monga, forthcoming). Whether or not the new structural economics in industrial policy proposed by Lin (2010) is too radical or too timid in its stretching of the principle of comparative advantage, is a matter of some significance, at least for countries that already have the basic preconditions for industrial take-off. 2.3 Policy in institutional context Insisting that an institutional focus should not displace a concern about policy choice does not, however, take us back to square one. In two important ways, this appreciation of the centrality of policy choice is entirely consistent with the notion that institutions, and their political underpinnings, do rule. First, it is the real policy that counts, not the nominal policy. Policy is what policy does. A good deal of the nervousness about the remedies proposed by Poulton et al. relates not to what the policy would imply if well implemented, but to what it would mean in practice in the most likely kinds of political context. Bates (1981) account of the political economy of agricultural policy in 1970s Africa still haunts these debates, and for good reason. Brian Cooksey s article on Tanzanian policy [2003, this issue] shows that these concerns continue to be relevant. It documents how a widely commended policy option on agricultural marketing and input supply was quietly but effectively abandoned by the Government of Tanzania, to be replaced by a de facto policy with quite different implications. Although the article does not get into detail about the political drivers of the real policy towards agriculture in Tanzania, the implication is clear, that policy choice is seldom just a battle of ideas.
s10 David Booth Second, there are grounds for seeing a country s governance institutions and the elite incentives generated by them as a predisposing factor in the adoption of wise or unwise policies by its government. It is, of course, important to recognise the role of ideology and the intellectual climate of the time. Even the de facto policies of countries like Tanzania are strongly influenced by international opinion on what counts as sound development policy, and not only or mainly as a result of donor conditionality. But that having been said, it seems clear that some types of regime are more inclined than others to adopt and consistently implement wise policies. Implementation (or de facto policy) seems particularly susceptible to explanation in terms of the deep structures of a country s institutions, with the same weaknesses sometimes reappearing under a succession of different nominal policies. It is instructive in this sense to place Cooksey s analysis of Tanzania alongside Tony Killick s now updated study of policy in Ghana (1978; 2010). Killick was concerned to show, among other things, that Nkrumah s big push policy vision was not inconsistent with the mainstream development economics of the day, and he succeeded in doing this. However, his country analysis reveals not only that Nkrumah had his own reasons for acting as he did, but also that de facto policy was rendered fatally incoherent by socio-political factors which continued to operate under subsequent regimes, and in important respects remain at work up to this day. In short, recognising the importance of policy choice does not remove the imperative to understand the institutional make-up of a country before reaching conclusions about development prospects. It just provides a different entry point to consideration of the same issues. This is not to imply that the contrasting development performances of sub-saharan Africa and South-East Asia over the past 50 years are after all due to institutional differences, rather than the policy differences stressed by the Tracking Development project. Nor is it to revive the notion that Africa has suffered from forms of neopatrimonial politics or corruption from which South-East Asian countries have been free. That continues to be completely false. On the other hand, African economies have failed in different degrees and ways, as to a more limited extent have Asian economies. It may be that concepts as broad as corruption and neopatrimonialism fail to discriminate sufficiently. Perhaps there are forms of neopatrimonialism that are relatively good for development in both South-East Asia and sub-saharan Africa, in part because other things being equal they are favourable to the adoption and consistent implementation of sound policies. This is an avenue of enquiry which is being followed by a research stream of the Africa Power and Politics Programme (APPP), the consortium research programme which I direct. Pursuing a comparative study of post-colonial trajectories in Africa, with Asian experience and the Tracking Development findings in the background, this research argues that there are grounds for distinguishing among more and less developmental forms of neopatrimonial regime. It suggests that the main discriminating factor is the extent to which the collection and utilisation of economic rents are centralised by a political elite operating with a long time horizon (Kelsall et al., 2010). The argument has potentially large implications for what it means to get institutions right in the African context. It deepens the critique of the best practice approach to
Aid, Institutions and Governance: What Have We Learned? s11 institution building by pointing to the very different developmental dynamics to be found among regimes belonging to the broad family of neopatrimonial types. 2.4 Aid, institutions and development outcomes As Mary Shirley puts it, new institutional economics is not good news for foreign aid (2008: 76). And most of what we know about aid confirms this pessimistic view. History suggests that institutions change slowly, and mostly endogenously. Whether aid has any positive impact on economic growth continues to be contested territory, and the evidence of a contribution of aid through institutions to growth seems particularly weak. Indeed, there appear to be good theoretical and empirical reasons for suspecting that aid contributes perversely to elite incentives. In particular, it weakens the incentive to tackle difficult collective-action problems underlying the institutional barriers to faster and more equitable growth. It other words, it may do actual harm (van de Walle, 2001; Bräutigam and Knack, 2004; Moss et al., 2008). DPR articles suggest that the likelihood of actual harm being done can be high when aid is managed without taking proper account of the institutional features of the recipient country. For example, Borrman and Busse (2007) make a strong case for worrying about the Economic Partnership Agreements (EPAs) that are the European Union s favoured instrument for linking aid and trade in relations with the Africa, Caribbean and Pacific group of countries. According to this article, the trade-liberalisation components of EPAs benefit countries so long as they have a good framework of regulatory institutions which enable them to minimise the adjustment costs and take advantage of new trade opportunities abroad. However, many African countries have excessive regulation and reforming these arrangements under the tight deadlines implied by the EPA negotiations poses impossible political challenges. The countries with the weaker institutions are likely to incur losses to their trade if they follow the stronger members of their regional groupings into an agreement. If they opt out, regional integration processes will be badly affected. New flows of EU aid are supposed to support the needed reforms, but there are doubts about the appropriateness of the kinds of reform strategies that aid supports. So the promise of additional aid may simply serve to induce governments to accept unfavourable agreements. Other DPR contributions point to particular mechanisms which may help to explain the lack of evidence of positive aid impacts on growth. Although the debate continues, the econometric evidence that aid has a significant positive effect in aggregate does not seem to be strong. This, at least, is the conclusion of a recent metaanalysis of the large and contradictory literature on aid effectiveness (Doucouliagos and Paldam, 2009). The authors of this study and other economists who reach similar conclusions (for example, Rajan and Subramanian, 2009) commonly speculate that the reason has something to do with Dutch Disease effects, in which aid inflows work in the same way as natural-resource earnings to force up exchange rates, harming the profitability of the export sector. This is considered serious because dynamic export sectors are often needed to drive overall growth. Economists who advise donors on the potentially antiexport effects of aid (for example, McKinley, 2005; Barder, 2006) generally stress the
s12 David Booth offsetting effects on export dynamism of the cost-reducing investments that aid can (and was originally designed to) finance. However, empirical studies showing which of these tendencies prevails in practice are relatively few and far between, and there is almost no reflection on the institutional factors likely to influence the net result. The DPR article by Killick and Foster [2007, this issue] is a rare example of research which answers the question whether a surge of additional aid to poor African countries should be expected to have Dutch Disease effects, and under what conditions these would be offset by successful measures to stimulate the supply side of the economy. The authors did not find actual evidence of Dutch Disease, although in at least two countries (Tanzania and Uganda) they did find the related phenomenon of a crowding-out of private investment by aid-supported public spending. However, none of the seven African countries considered fully absorbed the surge in aid (preferring to accumulate the foreign exchange as reserves, in part out of fear of Dutch Disease). Therefore, the authors caution against the assumption that any large increases in aid to African countries will not cause this type of macroeconomic difficulty. The article proceeds to discuss the possibility that aid-financed investments would offset any exchange-rate effects by reducing the costs of enterprises producing tradeable goods and services. It makes the case that a compensating effect is more likely if the investments are targeted to the major components of exporters costs (for example, transport and power infrastructure) rather than the social sectors which have been emphasised so strongly by donors in recent years. It then comes to the issue of institutions. Whether extra aid is actually well deployed will depend on the strength of local public-expenditure management and the capacity of the civil service to channel resources into projects which are designed and implemented with reasonable efficiency. This is a bottleneck, and not one that aid itself has been good at addressing. As Killick has written elsewhere about Ghana, throughout the period 1988-2006 when aid fluctuated around 10 per cent of GDP the capacity of the public service to put these resources to productive use was quite limited (2010: 452). The implication is clear. The lack of evidence of a strong positive link between aid and development outcomes such as economic growth should not surprise us if we have taken on board the general argument about the centrality of institutions. Obviously, no link should be expected if central banks do not allow the absorption of aid funds. But if they do, institutional bottlenecks are very likely to obstruct the use of the funds in the ways that, according to economic theories and models, could compensate for the antigrowth effects of stagnation in export sectors. These studies, of course, rest on descriptions of what has happened in the past. It is arguable that the past is a good enough guide to the future in matters of this sort. In this case, donors should probably pack up and go home. After all, shortage of foreign exchange as such is hardly a problem these days anywhere in Africa for Ghana, remittances alone have been of the order of 40% of GDP in some recent years, according to Killick (2010: 455). On the other hand, as Paul Collier (2006) puts it, aid is not oil; it is a particular sort of resource transfer that has at least the potential to impact positively on the institutional constraints which limit its own effectiveness as a contribution to development. Unless there are indications that the institutional problems of poor developing countries are likely to be self-correcting in the medium term, there seems to be an argument for asking the question whether the aid business could not do
Aid, Institutions and Governance: What Have We Learned? s13 rather better than it has in the past, in general and in respect of its impact on institutions in particular. The remaining two sections of this overview pick up this challenge. 3 Aid, governance and ownership During the twenty years or so in which academic research has come to terms with the centrality of institutional change in development, the policy world has been preoccupied with the limits of aid conditionality and the challenge of getting country ownership of aid-funded development efforts. The two trends have not been entirely disconnected, but they have remained distinct. 3.1 PRSPs: what went wrong? Donor and concessional lending agencies have a limited range of instruments at their disposal. They can be fully conscious of the depth and complexity of the deficiencies in development management at country level but still be faced with few options when it comes to engaging with this intractable reality. For this reason, the style of academic research which limits itself to debunking the latest World Bank or bilateral donor initiative without serious consideration of what it was attempting to do or what the alternative lines of action might be is seriously unsatisfying. An obvious case in point is the initiative of 1999 which gave the world Poverty Reduction Strategy Papers (PRSPs). This was a highly imperfect attempt to address a real problem, namely, the revealed inability of policy conditionality to secure commitment by the governments of aid-recipient countries to poverty-reduction goals and the steps required to achieve them. As Andrew Rogerson has written in DPR (2005: 550-1): the aid industry remains completely schizophrenic about conditionality. [Donors have] a deep-seated need to have multiple lock-in devices that either give us the power to rescind [long-term aid partnerships] at any time, or allow us to believe that we have it. It does not really matter whether these are framed as disbursement conditions or eligibility criteria. Most donor agencies use a belt-and-braces mixture of both. None of this changed in 1999/2000, except that the World Bank opted quite firmly for the eligibility criteria variant, otherwise known as ex-post conditionality, with its new instrument, the Poverty Reduction Support Credit. The Wolfensohn initiative at the Bank which led to the Comprehensive Development Framework and then PRSPs was, however, a genuine innovation. Like the subsequent multilateral decision to require Heavily Indebted Poor Country debt-relief candidates and later all recipients of the most concessional Bank and IMF credits to prepare PRSPs, Wolfensohn s idea was a thinking response to the failure of all previous forms of conditionality and technical assistance to bring about real commitment to policy-making for poverty reduction. The idea was misconceived in
s14 David Booth many respects, and has consequently been a rich source of learning. However, it is not the case that anyone at the time had many better ideas. That was the spirit in which DPR began to devote significant space to critical reflection on what PRSP experiences were revealing in particular countries. The series began in relatively upbeat mood with a theme issue containing the best of a multicountry study commissioned by the Strategic Partnership with Africa (Booth, 2003). Many of the deficiencies that became more apparent later were noted there, but the analysis focused particularly on the ways in which the initiative could be seen as an effort to address, and avoid simply by-passing, the political obstacles to serious antipoverty planning. As its critics were not slow to point out, the PRSP initiative was a new form of conditionality and a rather intrusive kind at that. However, the notion that a process conditionality in which governments were expected not just to make a plan but to discuss it with civil-society actors might trigger a local political dynamic favourable to poverty reduction was a real innovation. The SPA study documented the difficulty of transforming technocratic ownership into political ownership at the highest level, suggesting this as the principal limitation of PRSPs in their earliest years. The finding contributed to the first major review of PRSP experience by the Bank and the IMF, one outcome of which was that governments were encouraged to pay more attention to consulting parliaments and were given greater freedom to present national plans, enjoying some local productrecognition, in place of PRSPs. This was a sensible acknowledgement that Washington s love affair with civil society was getting in the way of a proper appreciation of political dynamics at country level. It acknowledged the reality that PRSPs tended to be viewed in-country, including in the most advanced sections of the media, as the latest donor-funded project. However, to some extent these changes just replaced one set of illusions about civil society and donor influence on domestic politics with another set about parliaments and formal policy commitments in general. The lessons that really needed to be drawn were deeper and different. 3.2 Latin America and Africa This became strikingly apparent in low-income Latin America. In this context, PRSP processes hit a large submerged rock which brought into perspective another aspect of donor naivety about politics. Whereas, in most African countries, there was limited political alternation in power and a permanent core civil service, the Latin American countries tended to change personnel and political direction rather radically after each national election. The willingness of a new president to assume responsibility for the medium-term strategy elaborated under his or her predecessor could be more or less assumed in Africa. In Latin America, even in highly aid-dependent states, this could not be taken for granted. The DPR article by Geske Dijkstra [2005, this issue] is the best available analysis of this experience and its implications. It synthesises the results of a multi-year PRSP monitoring and evaluation programme, focused on Bolivia, Honduras and Nicaragua, funded by the Swedish International Development Co-operation Agency (Sida). It tracks the various contortions which the donor community found it necessary to undertake to maintain the fiction that PRSP processes had been undertaken according to
Aid, Institutions and Governance: What Have We Learned? s15 the rules, so that it would not be necessary to suspend its programmes. This involved turning a blind eye to some questionable aspects of country politics. At the same time, the apparatus and rules of PRSP production gave a significant impulse to the practices of orthodox development planning, which treat all problems as soluble by one technical remedy or another. This did not just imply an underestimation of the political forces which could be expected to sabotage any attempt to shift resources in a pro-poor direction. It also risked pouring technocratic cold water on any attempts by politicians to build real political campaigns around the claims of poorer citizens. The attempt to engineer country-owned development plans with PRSP processconditionality has failed fairly comprehensively in Latin America. It has also failed in sub-saharan Africa, including in the country which is said to have invented the idea, Uganda. However, the outcome has been slower to reveal itself and the reasons are not entirely the same, President Museveni being one of the most durable national leaders in the region and his Ministry of Finance being one of the more coherent bureaucracies. Canagarajah and van Diesen [2006, this issue] dissect the Ugandan experience. At the time the resident country economist and social development adviser for the Bank and DFID respectively, they provide an authoritative account of how the Ugandan PRSP, the Poverty Eradication Action Plan (PEAP), began to fall short of the high expectations invested in it. These were broadly the same as those articulated in 1999 as the five PRSP principles : country ownership, results orientation, comprehensiveness, a partnership orientation and a long-term outlook. They urge a return to these principles, meaning in particular greater support from the donor community in Uganda to integrating the poverty-reduction strategy into domestic policy and accountability processes, and greater realism and patience about what this entails. The article notes that, as the PEAP became technically more sophisticated, it lost some of the political support it received in its first phase when it was linked to presidential concerns that poverty might be increasing with serious political implications. It is a mistake, say Canagarajah and van Diesen, to treat poverty reduction as a technical, rather than a political, project. On the other hand, they do not elaborate on what it would take to make PRSPs more political, or, even more challenging, to revive the seriousness about policy reform that Museveni s government displayed in the 1990s. 3.3 Aid effectiveness : two roads from Paris This inability to absorb one of the main lessons of the PRSP experience, or to find viable ways of acting upon it, has continued to be a feature of global donor thinking. From 2005, much of this thinking has centred on the challenge of improving the way aid is delivered, as articulated in the Paris Declaration on Aid Effectiveness. The Paris Declaration builds on the PRSP concept, including the call for donors to harmonise their efforts and align them with country policies and systems in order to support or reinforce country-owned development. It adds a commitment, by donors and partner countries, to a mutual accountability around the attainment of development results and the Millennium Development Goals. It does not add anything which makes it any easier for donors or would-be reformers to do something about the domestic or international political reasons why serious, politically owned development and poverty-reduction
s16 David Booth projects are rare in all but a handful of poor aid-dependent countries. The 2008 followup, the Accra Agenda for Action, signalled that ownership remained a problem but suggested nothing new. In this context, individual development agencies have gone in two broad directions, a few taking both paths more or less simultaneously. The first direction, which was taken decidedly by President Bush s Millennium Challenge Account (MCA) and more hesitantly by the European Commission, involves a reversion to political or governance conditionality, with an enhanced emphasis on the use of governance quality indicators. The other recognises the limits to donor leverage and calls for greater investments in understanding in-country political institutions and processes, with a view to avoiding errors in programme design and identifying opportunities for constructive interventions. Its concern is with understanding the deeper causes of governance trends rather than monitoring per se. A number of European bilateral donors and parts of the World Bank have played important roles in developing this agenda. 3.4 The conditionality road The DPR article by Arthur Goldsmith [2010, this issue] dissects the thinking which inspired the MCA and explains some of the snags that it has encountered in practice, illuminating in the process some of the more generic problems involved in allocating support on the basis of performance. The MCA prefers performance-based selectivity, or ex-post conditionality rather than the ex-ante kind. It awards grants to countries on the basis of their demonstrated quality of governance. Goldsmith draws a parallel with the accountability movement in US domestic policy, under which support to public schools is allocated on the basis of performance indicators. In both contexts, the basic idea has powerful political attractions. Goldsmith proceeds to show that in practice it poses huge challenges that have not been overcome and may well be prohibitive. Although the MCA approach is one of intelligent pragmatism, it does not overcome the difficulties which beset the governance-indicator industry generally, and in particular the lack of any clear evidence of a link between good governance, as currently defined and measured, and development outcomes such as growth and poverty reduction. The MCA overestimates its ability to know in advance which countries are best positioned to meet major development goals; decisions based on its methodology are therefore likely to be flawed. In concluding, Goldsmith makes a timely comment on the obvious alternative of allocating aid on the basis of governance outcomes or development results rather than governance outputs. This has seemed attractive to many observers as a means of avoiding the problem that one-size-fits-all governance conditionality may kill off valuable institutional experimentation and inadvertently limit true performance. However, anchoring accountability in outcomes poses its own problems. These are hardly less serious than those associated with governance outputs. He concludes: In the end, performance evaluation in public administration presents a dilemma. Predetermined targets or timetables must be balanced with flexibility and professional judgement in order to increase the odds of improved social and
Aid, Institutions and Governance: What Have We Learned? s17 economic results. These basic precepts of management are true in international development and in all other domains of public policy. (2010: s171) This is a difficult message for the politicians and senior administrators who run development agencies to absorb. It remains easy for new variants of the idea of resultsbased disbursement, such as the current one from the Center for Global Development (Birdsall and Savedoff, 2010), to get the attention of development ministers and philanthropic organisations. The common-sense appeal and apparent simplicity of the idea of rewarding results make it highly seductive to politicians. No matter that we lack evaluation of previous experiments on these lines or even robust evidence on how the relevant in-country incentives currently work. The European Commission is a case of a donor which began by adopting resultsbased disbursement into its budget-support procedures, and then introduced a form of governance conditionality. The idea of variable tranches based on whether the recipient country has met agreed targets against a range of outcome indicators was introduced some years ago on the basis of the conjecture that this would allow countries to decide for themselves how best to achieve their goals. The results have never been systematically evaluated as far as I am aware. Subsequently, the Commission, along with the rest of the donor world, became preoccupied with the question of corruption and governance quality. The result was a new Governance Incentive Tranche. In principle, this rewards countries which meet governance-reform targets agreed with the Commission on the basis of a country governance profile using standard indicators. The best assessment of this experience is the DPR article by Molenaers and Nijs (2009). The authors argue that in design and practice the incentive tranche is surprisingly similar to some of the unsuccessful aid modalities of the past. It involves persuading governments to commit to reforms they do not own. It risks non-compliance by disbursing aid before real commitment has been demonstrated. In the final analysis, the experience illustrates why it is an illusion to think that the Paris concerns to promote country ownership, results orientation and mutual accountability can be met by tweaking disbursement modalities and other technical changes to aid delivery. Being more effective with aid involves tough political choices, and making the right choices hinges very much on the incentives and structures of donors (2009: 577). 3.5 First understand This warning is just as relevant to the other direction in which thinking has gone. This second approach to the political side of the country ownership problem corresponds to Goldsmith s plea to leave some role for flexibility and professional judgement. It starts from the observed ineffectiveness of all donor efforts to leverage change with their financial contributions. The argument is that donors should devote less effort to promoting their own ideas about appropriate forms of governance and more to understanding the deeper realities and needs of the countries they are dealing with, with a view to at least making fewer mistakes. The most clear-sighted and influential contributions to this way of thinking have come from Sue Unsworth, who retired from DFID after serving as a Regional Director and Head of Governance. In Unsworth s recent writing (for example, 2009), the
s18 David Booth desirability of getting a better understanding of country context and a less supply-driven approach to aid is linked to considerable scepticism about the ability of donor agencies to make this transition. Given their mental models of how development happens, donors are not well placed to become more intelligent political actors at country level. This suggests placing the main emphasis on getting greater donor attention to the non-aid elements in global regulation and governance. These are demonstrably a major source of incentives to non-developmental governance and state breakdown, and arguably they are more tractable, as they depend directly on the laws and policies of donor states (Moore and Unsworth, 2006). Unsworth s thinking has had an important influence within DFID and also on the Dutch Ministry of Foreign Affairs, with both agencies adopting specific operational tools designed to feed political or political-economy analysis into operational decisions at country level. The author of the DPR article After the Paris Declaration: Taking on the Issue of Power (Hyden, 2008) has played a similarly inspirational role in relation to Sida. In this article, Hyden argues that the fact that the Paris Declaration commits donors to building a partnership around a country-led development process increases rather than decreases the need for embassies and co-operation offices to understand how power works in a country. They particularly need to understand the informal processes through which the most important decisions are taken. These are often purposely hidden from donors view. An important element of the Unsworth/Hyden argument is the suggestion that development policy and practice should be informed by the best research and analytical work, and vice versa. In different ways, two DPR contributions exemplify the potential benefits from strengthening these links. One is the theme issue Developmental States in the New Millennium and the editorial overview with which it was introduced (Fritz and Rocha Menocal, 2007). Fritz and Rocha Menocal show how the concept of the developmental state, previously part of a rather narrow debate about the East Asian industrialisation experience, came back into both academic and policy thinking after the turn of the millennium, and now serves as a useful antidote to simplistic, institutionblind formulas for inducing growth and poverty reduction in South Asia and Africa. Getting donors to think about state-building has helped them move beyond naive democracy-promotion premised on the notion that all good things go together, and has permitted them to give some greater content to concepts like ownership so that they begin to serve not just rhetorical but practical purposes. The second example is the recent DPR article by Jörg Faust (2010). This addresses the trend in thinking since the Accra High Level Forum which attempts to radicalise the commitment to country ownership by attaching to it the adjective democratic. The notion is that what is wrong with the Paris commitments can be mitigated if more attention is given to building a democratic ownership, based on free and fair elections, parliamentary control of the executive, checks and balances, civil-society participation and so forth. Faust is in favour of a more realistic and analytical approach to the politics of developing countries. On this basis, he shows that making democracy do the work of giving the Paris principles more political content is fundamentally misconceived. Democratisation is an inevitably extended process and the contribution it eventually makes, in the best of cases, to the adequacy of provision of key public goods is iterative
Aid, Institutions and Governance: What Have We Learned? s19 and experimental. Adding democracy to the prerequisites for aid effectiveness would be certain to backfire, leading back to the traditional donor-recipient problems that Paris was supposed to address. A shift in attention from ownership to transparency would be a more appropriate step, although, once again, donors have to accept the challenge of overcoming their own collective-action problems... probably the most difficult task of all (2010: 532). An important feature of the Faust article is that it makes careful use of key concepts not just from the classics of democratic theory or the analysis of power, but also from relatively recent developments in political-economy analysis, especially the strand of work stemming from Olson (Olson, 1993; 2000), notably Keefer (Keefer and Khemani, 2005; Keefer, 2007). Using these tools, Faust is able to make connections between high-level theory about dictatorship, democracy and public goods, on the one hand, and donor strategies and tactics, on the other. This is not yet very usual in writings advocating greater awareness of political realities, or in the donor-sponsored frameworks for political-economy analysis currently available. It should become standard. 4 Facilitating institutional change It is one thing to get policy-makers and practitioners to commit to the idea that they need better understanding of country contexts in order to be more effective. It is another to go beyond general injunctions about the risks and waste likely to be incurred by not doing this, and to begin to spell out some specific dos and don ts. Faust enters this territory. There is also now some momentum behind the move at the World Bank to harness the full range of political-economy tools to the task of more realistic programming in a problem-driven way (Fritz et al., 2009). But this initiative has a long way to go. One of the challenges it poses is building relationships through which governance as a research field is able to feed the best operational thinking, and be stimulated in return by exposure to the problems thrown up by practical experience, for example in sector reform processes. 4.1 Beyond best practice On the operational side, a precondition for this to happen is wider acceptance of Levy s argument about the bankruptcy of the best practice concept of institutional reform (2010); Grindle s plea for good enough governance (2004), and/or Moore and Unsworth s invitation to turn governance thinking upside down by helping countries to build on the institutions they already have (Future State, 2010). A number of DPR contributions have helped to make the case that several supposedly universal remedies for governance weaknesses are not fit for their purpose unless radically adapted to the actual conditions of the countries in which they are applied. Schneider and Zúniga- Hamlin (2005) document why advancing local people s rights in rural Peru is more successful when it adopts a pragmatic approach to the prevailing clientelism than when it takes a rights-based approach. Golooba-Mutebi (2005) shows that popular participation is not a viable solution to quality problems in primary health care in
s20 David Booth Uganda, given the depth of the prevailing inequalities of status and power. Bräutigam (2004) challenges the usual presentation of participatory budgeting as an example of successful civil-society pressure on government. She shows that citizen participation in budget processes has not always had pro-poor results. And the experiences which did lead to pro-poor shifts in spending were associated with the accession to power of leftof-centre political parties, not with citizen participation on its own. The point that universal formulas can have completely unanticipated consequences if not actually do harm is strongly made in the article by Frödin [2009, this issue]. Frödin analyses a particular experience with the introduction of a British concept of integrated planning into the very different setting of local government in South Africa. He uses this to illustrate a more general argument about the need for reforms to be based on particularistic, not generalised, thinking. More recently, Batley and Mcloughlin (2010) have set out evidence which warns against the replacement of one simple policy universal that non-state bodies provide services better than states with another: that because state service provision builds the legitimacy of fragile states, state provision is always to be preferred. They too argue for a context-specific assessment which recognises different modes of engagement of the state with non-state providers and various risks and trade-offs. 4.2 Facilitating change, applying research If there needs to be more context-sensitivity among policy-makers, among researchers there needs to be more discussion of the implications of one of the propositions I offered in Section 2: that institutional change tends to be slow and mostly endogenous. The default position of most academic researchers is to treat this as a fact of life and a good enough reason for not getting involved at all in thinking about ways of accelerating or improving change processes. The very weak evidence cited earlier that aid in aggregate is anything other than bad for institutional progress reinforces this position. It would be a defensible position if there were more signs of endogenous drivers of progress with the capacity to bring real change in the medium and not just the very long term. In the absence of such evidence, I incline towards van de Walle s perspective: with only a few exceptions, development is unlikely to take place without external change agents, given the absence of a domestic political coalition that supports rapid development (2005: 34). To use a cruder argument, there is little chance of donors packing up and going home any time soon. Their ability to have a negative impact with badly designed institutional interventions (for example civil-service reforms that do not work) is nonetheless well established. Therefore, they are under some obligation to do better, and researchers ought to help. The two other DPR articles reprinted in Part 3 of this supplement help in different ways to define an agenda for this interaction. In revisiting her classic statement on good-enough governance, Merilee Grindle [2007, this issue] goes into some detail about how to think through possible interventions, breaking with the maximalist approach of good governance and instead beginning where the country is. She suggests a threelevel assessment, asking the questions: What is there to build on? What is the degree of
Aid, Institutions and Governance: What Have We Learned? s21 complexity and difficulty of the proposed intervention, given the context? And is there likely to be room for manoeuvre in the process of change? The last element is important, as it may well suggest opportunities and not just a long list of constraints and things that are unlikely to work. It points to the possibility that external actors have a role to play not just as more informed decision-makers about where and how to deliver funds, technical assistance or policy dialogue, but as active facilitators of institutional change. This component of Grindle s framework is much influenced by her studies of sector reform in Latin America, where the change agents were usually not foreigners or donor employees but national technocrats. However, there seems no obvious reason for not extending the reasoning to poorer and more aiddependent countries. If facilitation of institutional change is not completely off the action agenda, the need for policy and practice to be informed by good research is overwhelming. This imposes a double obligation, on researchers to deliver the research and development agencies to absorb it. The latter is currently a rather serious problem, for reasons I have discussed elsewhere (Booth, 2011). It will only stop being a problem when politicians and publics recognise that effective aid is a labour-intensive business, so that it makes no sense to deliver increasing volumes of aid to countries with decreasing staff resources. But, in the meantime, what is good research? I would argue that one of the things it has to be is a source of answers to Grindle s first question: what is there to build on? This is a field that is now getting the attention it deserves from governance researchers, with a significant body of conclusions coming from the Centre for the Future State at the Institute for Development Studies at Sussex University, among other places. These conclusions are summarised in the booklet I have already cited several times (Future State, 2010). One of the strengths of this work is that it is beginning to show how countries governance-and-development trajectories may differ not just in respect of the pace and the sequence in which familiar institutional advances are introduced (which is one possible reading of good enough governance), but in more creative and less predictable ways. Some of the creativity may involve harnessing the inherited institutional resources of societies and states in ways which map out paths not previously trodden by anyone. The article by Kelsall [2008, this issue] provides this sort of answer to the question what is there to build on? with particular reference to sub-saharan Africa. The article shows that several of the institutional elements that have usually been regarded as troublesome or anti-developmental features of the African social environment, including the big-man syndrome, clientelism and moral obligations to family members and kin groups, have a positive side that reformers would do well to consider. Kelsall has gone on to develop the concept mentioned earlier, that we need to recognise different kinds and conditions of neopatrimonial political regime in Africa. We should consider whether some of these are due the same recognition as distinct national pathways to middle- or high-income status that has been accorded East and South-East Asian development pioneers such as South Korea or Malaysia (see Kelsall et al., 2010). These ideas are contributions to the previously mentioned consortium research effort, the Africa Power and Politics Programme. Other research streams within this programme are searching for good second-best things to build on with reference to state bureaucracies, parliamentarians relations with their constituents and the executive,
s22 David Booth local governance, local justice, educational reform and productive-sector reform as exemplified by cotton in West Africa (see www.institutions-africa.org). Findings which are emerging from this work are going to challenge quite a few conventional assumptions about the features of the African institutional landscape that provide the most promising building blocks of developmental governance and, perhaps, a distinctively African development trajectory. APPP is not going to be proposing initiatives for donors to promote in a formulaic way in place of the existing formulas of good governance. On the contrary, one likely message from the research is the need for external funders, as well as central governments and NGOs, to back off and allow space for institutions to be constructed on the basis of more localised problem-solving. There is a need for more humility and a much greater willingness to suspend judgment in the face of the imperfections which are inevitably a feature of endogenous institutional innovation. This, however, does not preclude a more active role for external actors on the lines of Grindle s proposal. Recognising what there is to build upon can be the first step towards a position where development agencies, supported by researchers, are able to act in small ways as facilitators of changes that would not otherwise happen. 5 Looking forward While in some respects development-policy thinking is cyclical, in others it is cumulative. The place of institutions and governance in development and aid policy is one such field, making it a suitable topic for consideration in a volume marking ODI s fiftieth birthday. This article has surveyed some of the main crossroads and landmarks of thinking about institutions and governance in the academic and policy fields, paying particular attention to the gathering pace of discussion since institutions began to occupy centre stage in the 1990s. It has proven possible to illustrate much of this progress with reference to articles and theme issues published by DPR, a good sample of which are reprinted in the following pages. Without making undue claims about the contribution of this journal to the overall evolution of the field, I would maintain that the quality of engagement illustrated by this set is impressive. I have argued that much of what is interesting and constructive in the field of institutions, governance and aid relates to three topics: how and with what qualifications institutions rule ; the limitations of the instruments that lie within the easy reach of development-assistance organisations; and the idea of context-sensitive facilitation of institutional change. No doubt there are other and better ways of representing the progress that has been made, but this device has permitted the making of one or two key points in each of three areas. These seem the most important things to keep in mind in moving forward. Thus, institutions rule, but what are the right institutions is context- and timeperiod-specific, and institutional change is not self-generating. Policy choices do matter, and institutions are important partly because they frame the likely policy choices. For both sets of reasons, we need to develop middle-range concepts that discriminate more than blanket terms like neopatrimonialism. Institutional change has been, historically, endogenous and slow, and aid has so far done little to help. However, this does not seem a good enough reason to abandon the
Aid, Institutions and Governance: What Have We Learned? s23 search for better ways for external actors to be involved with change processes in poor countries. The experimentation with aid approaches that better support country ownership has been valuable, even if it has largely failed. But it is important to draw the right lessons from this experience. These do not justify a reversion to forms of governance or results conditionality that experience shows will not work. They call rather for more politically informed, more context-sensitive and less supply-driven aid. There remains a question about how actively interventionist this can be. A role for donors in facilitating institutional change is not to be excluded, but there are preconditions. One is that operational staffs abandon formulaic best practice interventions and think more actively about how to build on what exists. The other is that researchers deliver more finely tuned ideas about what are the building blocks, and what may be the room for manoeuvre, in facilitating appropriate and feasible institutional innovations. first submitted September 2010 final revision accepted October 2010 References Barder, Owen (2006) A Policymakers Guide to Dutch Disease. Working Paper 91. Washington, DC: Center for Global Development. Bates, Robert H. (1981) Markets and States in Tropical Africa: The Political Basis of Agricultural Policies. Berkeley, CA: University of California Press. Batley, Richard and Mcloughlin, Claire (2010) Engaging with Non-State Service Providers in Fragile States: Reconciling State-Building and Service Delivery, Development Policy Review 28 (2): 131-54. Birdsall, Nancy and Savedoff, William D. (2010) Cash on Delivery: A New Approach to Foreign Aid. Washingon, DC: Center for Global Development. Booth, David (2011) Book Review Article: Turning Governance Upside Down, Development Policy Review 29 (1): 115-24. Booth, David (ed.) (2003) Are PRSPs Making a Difference? The African Experience, Development Policy Review 21 (2): 137-287. Borrman, Axel and Busse, Matthias (2007) The Institutional Challenge of ACP/EU Economic Partnership Agreements, Development Policy Review 25 (4): 403-16. Bräutigam, Deborah (2004) The People s Budget? Politics, Participation and Pro-poor Policy, Development Policy Review 22 (6): 653-68. Bräutigam, Deborah A. and Knack, Stephen (2004) Foreign Aid, Institutions, and Governance in Sub-Saharan Africa, Economic Development & Cultural Change 52 (2): 255-85. Chang, Ha-Joon (2002) Kicking Away the Ladder: Development Strategy in Historical Perspective. London: Anthem Press. Collier, Paul (2006) Is Aid Oil? An Analysis of Whether Africa Can Absorb More Aid, World Development 34 (9): 1482-97. Dorward, Andrew; Fan, Shenggen; Kydd, Jonathan; Lofgren, Hans; Morrison, Jamie; Poulton, Colin; Rao, Netha; Smith, Laurence; Tchale, Hardwick; Thorat, Sukhadeo; Urey, Ian and Wobst, Peter (2004) Institutions and Policies for Pro- Poor Agricultural Growth, Development Policy Review 22 (6): 611-22.
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