Week 9 - Politics and Institutional Reform Flashcards
What were institutions according to neoclassical economics?
institutions were a “residual”
What are institutions according to “New Institutional Economics”?
institutions are the formal and informal rules and norms that govern human behaviour
What do institutions determine?
determine whose choices matters, how choices are aggregated, how that determines the way the policy shapes rules that affect the economy
What is good governance? (World Bank)
changing institutions to unblock growth and development
What is governance?
the exercise of authority through formal and informal traditions and institutions for the common good (includes selecting, monitoring, replacing governments, sound policies and delivering public goods, respect of citisens and state for institutions that govern economic and social relations)
What is politics about and what largely ignores it?
about state power and donor approach to “good” governance largely ignores it (“everyone is interested in studying political institutions that limit or check power (democratic accountability, rule of law) but very few people pay attention to the institution that accumulates and uses power, the state”)
What does the donor approach “good” governance largely ignore?
politics
When was there a move to focus on institutions, “good governance”?
by late 1980s structural adjustment not working as anticipated (FDI not flowing, poverty increased in Africa and Latin America, conflict in Africa) although some progress in implementation (shrinking budgets and reducing number of jobs in state, liberalising economies, opening trade, privatisation)
What is the relationship between”good governance” and World Bank?
hatched as an add-on to neoliberal economic reforms
“root cause of weak economic performance in the past has been the failure of public institutions”, “good governance means public service that is efficient, a judicial system that is reliable, and an administration that is accountable to its public”
focus was on fighting corruption (state officials serve their own interest)
involves promoting “market enhancing institutional reforms” (in agriculture (price flexibility, eliminate marketing boards, credit issued at commercially attractive interest rates, private land titled, upgrade rural roads by local communities), in industry (government gets out of business, creates climate for private investment), foreign aid (channeled to countries deemed “good performers”, overall government should create an “enabling environment”)
What was the World Bank like in the first decade regarding politics and institutional reform in 1991?
conditionalities about political and administrative reform (financial accountability, information transparency, increasingly promote “participation”)
What was the World Bank like in the first decade regarding politics and institutional reform in 1997?
state role to ensure markets
What was the World Bank like in the first decade regarding politics and institutional reform in 1998?
channel aid to “good performers”
What was the World Bank like in the first decade regarding politics and institutional reform in 1999?
new focus on “poverty reduction” (prerequisite for IMF and World Bank lending, “participatory” process required for debt replied
governance broadly defined as traditions and institutions by which authority in a country is exercised (indicators mostly measure compliance with market enhancing reforms and adoption of formal democratic procedures, mostly perception-based surveys)
What is Chang’s criticism of the World Bank governance reforms?
focus mainly on institutions that limit state’s discretionary power, not on those that increase “state capacity” (most attention on institutions that permit market functioning like property rights, contract enforcement, curbing corruption)
reforms were often not adopted as expensive, resistance from elites, economic logic not understood, prejudices among state leaders against professionalism, gender, equity, etc., interdependence of some institutions
What are Chang’s conclusions on politics and institutional reform?
institutions promoted may only be possible after economic development
need to agree what “good” institutions are
takes time to establish institutions
not clear investors were demanding these “good institutions” (Western investments were flowing to China where these “good” institutions were not present, FDI was not the driver of development in most of the countries at the receiving end of good governance reforms)
premature introductions of institutions from capitalist countries had unintended consequences
What is Khan’s criticism regarding politics and institutional reform?
showed that there was no basis to conclude that the market enhancing reforms resulted in better growth (by disaggregating data to account for rich and poor country differences) –> could be reverse causality (first growth, then adoption of familiar market enhancing institutions)
What is market-enhancing governance (World Bank)?
governance to reduce transaction costs to make markets more efficient
What is required for market-enhancing governance (World Bank)?
achieve and maintain stable property rights
maintain a “good” rule of law and effective contract enforcement
minimise expropriation risk
minimise rent seeking and corruption
achieve the transparent and accountable provision of public goods in line with democratically expressed preferences
What is growth-enhancing governance (Khan)?
governance to enable catch up in a context of high-transaction costs (transfer resources to productive sectors, accelerate the absorption of new technologies)
What is required for growth-enhancing governance (Khan)?
market and non-market transfer of assets and resources to more productive sectors
manage incentives and compulsions for rapid technology acquisition and productivity enhancement
maintain political stability in a context of rapid social transformation
rents that facilitate stability and growth
public goods that facilitate stability and growth
What is a summary of growth enhancing governance?
requires technological capacity within the state
measures to ensure against “moral hazard”
growth enhancing institutions gone wrong can be destructive but can also be still make small gains
requires mechanisms to accelerate resource allocation to growth sector (land reform, licensing credit, price controls, fiscal) and accelerate technology acquisition (tax, subsidy, protection, licensing, investment zones)
What is Mkandawire criticism regarding politics and institutional reform?
institutional agenda is single task which is which is to attract FDI
instituions proposed played little role in development success stories (need institutions that can promote transformative change (“democracy” reduced to protecting property rights, reforms “cannibalised” states in Sub Saharan Africa))
“monocropping” (single blueprint of Anglo-American institutions not what Africa needs)
“monotasking” (monetarist policy to control inflation at all costs, which debilitates Central Banks and prohibits any industrial policy)
What are the theoretical challenges to “good governance” reforms from Foucauldians?
“development” as a discourse portrays “government” as a set of technical fixes, devoid of politics and power (state seen as an apolitical tool)
What are the theoretical challenges to “good governance” reforms from within?
institutions are anchored in history and cannot be changed by policy fix (natural state, where elites have privileged access to wealth and authority to limit violence and promote social order)
What are the theoretical challenges to “good governance” reforms from outside?
institutions tend to reflect power configurations in society and can be successfully changed only through a change in power configurations
What is limited access order in natural states and what does it challenge?
elites cooperate instead of fighting in exchange for privileged access to resources
challenges “good governance” agenda (rents may be necessary to maintain peace, limited economic and political competition, re-evaluate democracy (open access to government unlikely until economic advancement), re-evaluate enlarging government (may be necessary to maintain peace))
What are states made up of?
states made up of institutions (formal and informal rules) and organisations (executive/administrative, legislative, judicial, coercive) to implement the rules (whatever regime type)
What is political settlement?
configuration of power in society, that has historically emerged through conflict and bargaining that underpins the state and over which a state’s institutions and organisations preside
Do good governance reforms pay attention to the political settlement?
good governance reforms attempt institutional changes without attention to the political settlement
What is a political organisation?
central to establishing a “political settlement”
affects grounds on which elites mobilise people (e.g. ethnicity, state expenditure) and extent of popular mobilisation, alignment of rents (institutions) with distribution of power (between elites), whether executive has enough authority to ensure elites play by rules but also limited by checks against abuse of its power)
What happens if there is no attention to political settlement?
acting “blind” (outcomes left to chance)
acting on institutions and organisations of the state impact settlement and disturbs distribution of power
leads to unintended consequences (reforms remain unimplemented, empowers some elites over others (e.g. decentralisation empowering rural elites) opens new income streams (privatisation creates new and larger rents), sparks violence)
What can understanding political settlement do?
can identify possibilities and costs of reform
“design of institutions” does not determine outcomes (political settlement more important formal rules)
different vantage point on democratisation (introduction of democratic rules can have extremely divergent outcomes)
crucial role of elites, elite bargains and constituents on whom elite power depends (civil society and social movements) (for state stability and development trajectory)
patterns of inclusion and exclusion can determine outcomes (power sharing might be superior to elections)
Why is applying the political settlement framework difficult?
requires detailed local and historical knowledge, attention to politics and political organisation, attention to vested interests, engagement with power more important than probity (“good governance”), uncomfortable solutions (bolster elites)
interpretive analysis difficult to measure and defies standard equilibrium analysis (multiple equilibria or absent), recognising complexity can lead to paralysis
political will not enough, distribution of power is central
What is said about Botswana regarding politics and institutional reforms?
AJR claim institutions established prior to colonisation explain its more successful development outcomes than in other natural resource-rich former colonies
Popete shows that “political coalitions” established following independence and before diamond mining began played the decisive role in avoiding the “resource curse” and achieving positive developmental outcomes
What does New Institutional Economics suggest about understanding institutions?
Institutions must be understood in the context of the social systems in which they operate, as they are rules designed to solve specific transaction problems
How are property rights defined in this framework?
Property rights are rules about how assets can be used, reducing transaction costs but creating rents that can affect different individuals and organizations unevenly
What are rents in the context of institutions?
Incremental changes in incomes or benefits created by particular institutions, often benefiting those who hold property rights
What is the political settlements framework?
It examines how the distribution of power among organizations influences the effectiveness of institutions and policies, aiming to explain why similar institutions work differently in different contexts
What is the equilibrium in a political settlement?
A balance between the benefits distributed by institutions and the power distribution across affected organisations
How does the political settlement framework evaluate institutions and policies?
It assesses their sustainability by analyzing the power dynamics and responses of organizations operating under them
How are institutions and organizations defined by Khan?
Institutions: Rules that determine resource allocation and interaction outcomes
Organisations: Structured groups operating under institutional rules, with their power influencing institutional outcomes
How do organisations respond to institutions?
They may support, resist, or distort institutions based on their interests, capabilities, and the rents affected
What factors determine an organisation’s power?
Organisational capabilities, leadership, mobilization capacity, and skill in rewarding key individuals
Why might political inclusion reforms not always benefit economic development in developing countries?
They can strengthen unproductive organisations by making rent-seeking activities cheaper and enabling additional clientelist organisations to emerge
What is the critical assumption about broad-based productive interests in developing countries?
These interests are often weak or non-existent due to the dominance of unproductive powerful organizations and collective action problems among the poor
What determines the developmental outcomes of authoritarian regimes?
Outcomes depend on the distribution of organisational power, with better results if institutions face minimal challenges from powerful organisations
What are the risks of authoritarian regimes with increasing internal challenges?
They are likely to become repressive, losing developmental characteristics as repression increases
Why is enforcing the rule of law more feasible in advanced countries than in developing ones?
Advanced countries have powerful, productive organisations that rely on legal compliance, while developing countries often have unproductive organisations relying on collusion and informal mechanisms
What conditions are necessary for the emergence of good governance?
The presence of many dispersed, productive, and powerful organizations that advocate for rule of law to protect their interests
How does the political settlement framework apply to Afghanistan in 2017?
Afghanistan had a relatively stable power distribution across government and rebel organizations, but this settlement was vulnerable to disruption if the power balance changed suddenly
What is a key policy challenge in developing countries?
Designing policies that incentivise low-productivity organisations to become more productive, particularly when powerful organisations distort rules to capture resources
