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Political Economy in Practice at the Bank

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Title: Political Economy in Practice at the Bank


1
Political Economy in Practice at the Bank
  • Stephen Ndegwa
  • AFTPR

2
Why is political economy critical?
  • A complete understanding of the governance
    environment in a given country must include an
    understanding of the political process, and not
    merely a better understanding of public
    administration
  • What is the nature of the political seas and
    sea bottoms through which a country team seeks
    to navigate its ship of development assistance?
  • CTs cannot devote all of their attention to their
    program of assistance narrowly defined, i.e. to
    the ship and what is inside it.
  • CTs must also consider the relationship between
    the ship and the seas through which it sails.


3
  • The Banks work is embedded in a larger societal
    context that often affects its outcomes in
    unforeseen ways. These include
  • The political process and the institutions within
    which that process plays itself out (arguably the
    most important dimension of this larger societal
    context)
  • But also
  • A countrys social structure -- especially the
    extent to which society is a peasant based
    agrarian society or urbanized one.
  • The structure and configuration of cultures (i.e.
    ethnicity) and language.
  • Informal practices (e.g. and especially
    clientelist networks and patronage) as well as
    formal ones.
  • History
  • Each society IS unique, and therefore one size
    does not fit all.

4
Good governance has many dimensions entry
points
  • Institutional Checks Balances
  • Independent, effective judiciary
  • Legislative oversight
  • Decentralization with accountability
  • Global initiatives OECD Convention, anti-money
    laundering, WCO
  • Political Accountability
  • Political competition, credible political parties
  • Transparency in party financing
  • Disclosure of parliamentary votes
  • Asset declaration, conflict-of-interest rules
  • Civil Society Voice Participation
  • Freedom of information
  • Public hearings on draft laws
  • Media/NGOs
  • Community empowerment
  • Report cards, client surveys
  • Competitive Private Sector
  • Economic policies
  • Restructuring of monopolies
  • Effective, streamlined regulation
  • Robust financial systems
  • Corporate governance
  • Collective business associations
  • Public Sector Management
  • Meritocratic civil service with adequate pay
  • Public expenditure, financial management,
    procurement
  • Tax and customs
  • Frontline service delivery (health, education,
    infrastructure)

5
Part IIIs Politics Bankable? Philip Keefers
PREM Learning PresentationAdapted
6
Why do politics matter?
  • Politicians are the ultimate arbiters of
    welfare-enhancing, growth-promoting, equitable
    policies.
  • They are the ultimate arbiters of success of
    foreign assistance.
  • The political economy question
  • What are the incentives of politicians to pursue
    development-oriented policies?

7
The paradox
  • Efficient public goods and broad public policies
    (e.g. regulation) are critical to development.
  • Government incentives are therefore more
    pro-development the more they favor these over
    rent-seeking and private good provision.
  • The paradox when politicians prefer policies
    that benefit fewer people, when with the same
    resources they could choose policies that benefit
    more people.

8
Priority questions for addressing the paradox in
development policy
  • The primary development question what
    interventions improve political incentives to
    pursue development-oriented policies?
  • The secondary question How can we design sector
    interventions to be compatible with political
    incentives?
  • The tertiary question How can we build
    constituencies for reform?
  • The quaternary question are key decision
    makers supportive of reform?

9
Some reasons why politicians systematically
ignore reform information
  • Political market imperfections information
  • We cant expect political accountability for
    development outcomes when
  • public doesnt know what political decisions were
    made
  • public cant observe outcome of decisions.
  • public cant observe the impact of decisions on
    their welfare.
  • Most donor interventions do not increase citizen
    info others fail to provide the right kind of
    info.
  • They should informed citizens (exposed to
    media) much more likely to receive transfers
    (India, US) (probably) more likely to demand
    public goods.

10
Reasons why politicians ignore reform credibility
  • Political market imperfections credibility
  • Politics is not about policy/public goods in poor
    countries
  • high tax/high redistribution vs. low tax/low
    redistribution competition in social service
    delivery versus no competition deregulation
    versus regulation.
  • Why?
  • Politicians cannot credibly promise high quality
    public goods, public policy to most citizens.
    Can sometimes credibly promise populist transfers
    (free power) to most citizens. Can usually
    credibly promise clientelist benefits (pork
    barrel, jobs in government) to a few citizens.
  • Hence, few programmatic political parties in poor
    countries
  • at best, we see populist reputations (e.g., free
    power) more often, purely clientelist
    (vote-buying/vote blocs/jobs in gov).

11
Reasons why politicians ignore reform
polarization
  • Political market imperfections social
    polarization
  • Citizen polarization leads them to care more
    about who benefits from policy than the welfare
    effects of policy.
  • Related to credibility and information in
    credibility- and information-free environments,
    promises to co-religionists most credible,
    easiest to monitor.
  • Donors pay insufficient attention to how they
    might mitigate (1) the political factors that
    exacerbate polarization and (2) effects of
    polarization on implementation of reforms.
  • But they should substantial evidence (Kenya, US,
    etc.) that public good provision suffers in
    multi-ethnic settings.

12
Program design implications
  • Information components already in some
    programs/projects citizen report cards, PETS
    dissemination, media outreach
  • Often fail to provide information crucial to
    political accountability
  • outcome info (benchmarking of school/health
    performance) info on decision process (e.g., how
    much money approved, by whom).
  • Cutting-edge PMI analysis identifies nitty-gritty
    design elements that make the difference between
    no impact and substantial improvement
  • Education services in Uttar Pradesh no impact of
    best practice interventions to encourage
    better-informed participation in public services.
    New PMI-informed design being tested in
    Karnataka decentralization operation.
  • Use PMI analysis to turn impact evaluation from a
    device by donors to hold governments and
    themselves accountable to a device that allows
    citizens to hold governments accountable.

13
Program design implications
  • CDDs rely on local governance to improve
    service delivery.
  • PRSPs build local ownership for reform agenda.
  • However, PMIs need not be fewer at the local
    level (Khemani, et al.).
  • Most successful CDD KDP-Indonesia. Donors
    participate in ongoing governance, however. CDD
    approach usually seen as a substitute for donor
    oversight.
  • PRSPs have no/limited effect on PMIs, but these
    determine who owns what. Uninformed citizens
    in non-credible environments cannot own reform.
  • CDDs and PRSPs need to focus on credibility,
    information.
  • E.g. Directly, CDDs do nothing for credibility
    of national policy makers may help indirectly by
    building up credible local challengers to
    national politicians.

14
Implications for monitoring
  • Track whether politicians are investing political
    capital in promises to provide public goods.
  • Track whether citizens have info. to monitor
    these promises.
  • Use supervision strategically to improve
    credibility of governments to citizens to
    substitute for accountability where PMIs are high
    and citizen leverage over government officials
    low.
  • Increase supervision budgets where
    accountability is low reduce where high.

15
What Donor Role?
  • Donor conditionality and support to specific
    leaders can be counter-productive it can
    undermine leaders credibility to their own
    citizens.
  • In the extreme case what should we advise
    military-led governments who get rid of corrupt
    political parties?
  • Currently we hope that economic reforms are
    self-sustaining.
  • Problem Chile is rare.
  • Instead, more country-specific analysis needed on
    dynamics of political parties, and how
    reputation-building for public goods can be
    supported.
  • Assist non-democratic governments (that are so
    disposed) to lay the groundwork for or at least
    understand the importance and characteristics of
    accountable political parties.

16
Part III Brief Examples
  • Analysis, Advice, Action

17
Morocco Summary of Results
  • Current Outcome indicates the results of the
    anticipated stakeholder dynamics on the issue
    given model results and analysis.
  • Opportunity for Reform indicates changes in
    approach and strategies to overcome
    implementation challenges given model results and
    analysis.

18
Utility of the general findings
  1. () Need to change our partnership strategy!
  2. () Reform is more/less difficult than we thought
    depending on the issue!
  3. (-) Some specific results did not make sense!
  4. (-) Pool of experts too limited!
  5. (-) Potential courses of action unclear

19
Overall lessons
  1. Stakeholder analysis should come at early stage
  2. Enlarge the circle of champions beyond line
    ministry (focus on Ag Ministry big mistake)
  3. Get to understand the dynamic rather than the
    static reform process
  4. Pro-reformers use the radical Bank position to
    help craft a compromise
  5. Better to train Bank staff to conduct the
    analysis rather than having consultants carry the
    task (skill mix and relation with client) .

20
Laos
  • Primacy of Political Order, Fragility, State
    weakness
  • Monolithic vs. fragmented state -- state as arena
    of negotiation esp. at realigning moments
  • Incomplete state formation nationalism, economic
    prosperity/hemmed in, capacity
  • (soft state)
  • Coming transition
  • unraveling regime consistency for several reasons

21
Three Bank Choices
  • a) Muddle through status quo
  • Perfectly legitimate/reasonable in public
    management
  • NPEP a muddle through script not necessarily bad
  • b) Selective-strategic reform areas
  • Two track problem service delivery and
    institutional change
  • 1. Public resource management
  • 2. Capacity Enhancement
  • gtgt Find Constituency for reform Need for
    unequivocal preference for reform

22
c) Positioning for State Transformation
  • Disturbing Query why are we in Laos?
  • change to how we do business differently
  •  Beyond 3-4 Year CAS, beyond NPEP
  • Absence of Governance and macro-political reforms
    (transparency, accountability, citizen tests of
    accountability) in CAS would miss opportunity
  • Creative use of AAA to affect agenda
  • Access to where power resides, building trust
    (less leverage) to move macro-political reform
    information, SE Asia models bottom wont fall

23
Ethiopia
  • Post-election violence, threats donor withdrawal,
    WB CAS budget support
  • Review team to examine appropriate of strategy
  • Deep divisions, swing to single party dynamic,
    party businesses, weak parliament
  • Move to ISN, move to PBS Protection of Basic
    Services, via decentralization

24
Kenya
  • New government, Anti-corruption, uneven
    performance
  • Anglo-leasing scandal a less than savory
    kitchen cabinet
  • What else to do, other than rant rave?
  • Rapid response note on wounded executives
    code of ethics work
  • Result leadership code for new cabinet,
    integration of leadership/code in Bank TA

25
Overall Lessons
  • Not so much whether to do, but how and do well
    (integration)
  • Not so much smart production but smart
    consumption (management)
  • Incentives staff vs. managers
  • Retail/country case driven vs. wholesale/framework
    driven
  • Resources exist, other donors keen
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