Is the good governance agenda being overrated?

Daily Nation website. In the past few years, “good governance” has become a priority policy agenda among donors, multilateral organisations and civil society. A great deal of money is being poured into promoting issues such as democratic accountability, the rule of law, transparency, and stable property rights, particularly in developing countries.  In fact, it would be hard to find a government or an NGO in Africa that does not have a good governance element embedded in its policy documents.

This scenario, says Mushtaq Khan, professor of economics at the University of London’s School of Oriental and African Studies, has led to an “unholy alliance” between international finance institutions and NGOs, which now use the same language to describe what good governance entails and how it can be achieved.

Prof Khan was among many economists invited to talk at a unique seminar organised by the African Programme on Rethinking Development Economics, which is funded largely by the South African Department of Trade and Industry.

According to Khan, the good governance agenda is increasingly being hijacked by what is known as the Washington Consensus, a free market conservatism that dominates thinking within international financial institutions, particularly the World Bank and the International Monetary Fund.  Good governance is increasingly being described as a precondition for economic growth. The underlying assumption is that state intervention leads to rent-seeking and that if market-driven development is to take off, poor countries need to improve their governance indicators.

Good governance is, therefore, seen as a market-enhancing policy, not an end in itself. This view shapes many poverty reduction strategies, which are usually funded and designed by international finance institutions.

However, recent developments in rapidly growing Asian economies have shown that good governance has little or no impact on economic growth levels. China, for instance, which follows a model of state-led capitalism, could hardly be called “democratic”, yet it stands out as a country that achieved exceptional and sustained growth in a short period, and which, as a result, dramatically decreased the number of people living below the poverty line.

THE “Chinese Miracle” is now the subject of much debate and study in economics courses around the world, not just because China managed to grow so phenomenally, but also because it set its own development path by not succumbing to conditions set by international financial institutions.  In other emerging Asian economies, anti-free market policies were the norm rather than the exception. For instance, tariff protection, direct subsidies (particularly to infant industries) and subsidised infrastructure for priority sectors were all part of the industrial policies of success stories such as South Korea and Malaysia.

Unfortunately, these policies are not viewed as part of what constitutes good governance in international development circles.

What countries need to grow, Prof Khan stated, is a type of governance structure that could be defined as state-led developmentalism, which accelerates resource allocation to growth sectors, prioritises infrastructure for these sectors, and makes credible and attractive terms available to investors who bring in advanced technologies and capabilities.

With all the evidence pointing to the fact that good governance has little impact on economic growth, why is it that it is increasingly being touted as the solution to Africa’s under-development?

Part of the reason, says Carlos Oya, an economist who has done extensive research on rural labour markets and rural poverty, is that in light of the failure of structural adjustment programmes (SAPs) in much of sub-Saharan Africa, international financial institutions started to focus more on “getting the institutions right”.

Prof Khan does not dispute the fact that corruption has a devastating impact on the economies of poor countries, but says that eliminating corruption will not automatically lead to economic growth if anti-corruption measures are not accompanied by policies and strategies that target growth-enhancing industries.

More importantly, the state must play a key part in making this happen, and not leave everything to the vagaries of the free market.  Does this mean that African countries should abandon good governance in favour of growth-enhancing policies? No, because bad governance (particularly graft) has the potential to destroy economies.

But they must stop viewing good governance as the magic pill that will deliver growth and development.

This article, published on the Kenyan newspaper Daily Nation, is written by Rasna Warah.

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