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# **Policy Research**

# **Policy and Revelw**

# **WPS** 815

This paper is a product of the Policy and Review Dcpartmcnt. Copics arc availablc free from the World Bank, 1818 I t Street NW, Washington DC 20(433. Pleasc contact Zeny Krarizer, rooni N9-05 1, extension 37494 (48 pages). !)ccember 1991.

Brautigam reviewed the literature on political science, development management, and institutionial economics to give Bank staff a clearcr understanding of the links betwecn development and governance - specifically accountability, (including institutional pluralism and participation); openness (including problems such as corruption that result at least partly from lack of openness); and predictability, or the rule of law.

She found some support for a positive link between economic performnance and these variables of governance (although some correlations appear stronger than others). Among her findings and conclusions:

* Arbitrarv law enforcement and failure to uphold the constiution - the law -- lead to unpredictability, instability, and a poor climate for growth. Wellspecificd property rights and enforceabic contracts are cleiarly economic development issues and should be recognized as such. The contcnt and distribution of property rights critically affect how broad-based developmcnt will be.

**L** ack of accountability - combined with opaque and highly discretionary regulatory proccdures - can provide great opportunities for economic corruption and waste. The suppression of political openings may ultimatcly affect stability, disrupting production and commerce. The failure to encourage grassroots participation reveals itself in comparatively unsustainable projects.

- Research trying to correlate economic performancc with governanice variables inevitably involves a short lime frame. The recent economic performance of Chilc, Taiwan, and South Korea occurred with littc political openness, and their market systenis seemced to work without pluralistic political systems.

But in the past few years all three have made significant transitions toward more open, competitive, partic ipatory political systems, which suggests that _.sIolaining_ (as opposed to establishinig) market-based growth may require the development of political representation. With rencxxed interest in open political systems, we can expect a new generation of research or these variables.

> ***** Donors who wish to makc "governance" the temporary trend of the 1 990(s must understand that, as Zafar Ahmed put it, "One cannot miake a tree grow faster by pulling it from outside: it has to grow from its roots." It takes generations, perhaps centuries, to build effective bureaucracies. It tak-es not only skills but volition, which comes from effective social pressurc on the state. Donors must ask how best to nurturc a social desire for accountability and the rule of law.

***** Effective property rights and accountability result from a long-term dialogue between governn ents and their private sector, not between governmenus and donors. In Europe, public accountability developed throLIgh a state-socicty struggle about the collection and use ol tax revenues. In many of the world's developing coLilutries, tax revenucs are disproportionately low as a proportion of GNP, even with low levels of per capita GNP. -thus, much of the dialogue about accountabilitv shifts to one between states and donors. This process ol assistance could inadvcrtently undercut the historical process of rulers first becoming accountlheC to elites for the use of their tax revenucs.

**o** Donors must becomc aware of the possible effeccts of large sums of external assistance. They must push thc new concern for "local ownership" towvard a deep commimint to dcx elol) economic policies together, cven if thc process is slow and frustrating. This shouldi encourage **thc** development of accountabilit)y as a matter primarily betxxccn governments and citizens. Onl) over time c.an socictics push their governments to deliver _thc_ accountability', openness, and predictabilit\ that sustainable developmncnt requires.

The Policy Rcscarch WVorking Paper Scries disserninates the findings of work un(der **wax in Ohc** Hank. An ohijectis' c ot the scries **is** to get these findings out quickly, even if prcsentations are less than fully **pollshed** The findmlio". in(trpretations. an(i .onclusions in thcsc papers do not necessarily represent official Rank policy.

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