“The Growth Report,” Part 2

Picking up from my last blog on long-term growth, in which I mentioned the need to address institutional development, today I’d like to talk about leadership and governance. The Growth Report says that policy leaders must “communicate a credible vision of the future and a strategy for getting there.” It also points out the value of capable, pragmatic technocrats. I agree that leadership and capable civil servants are much to be desired. I would, however, highlight the report’s biggest understatement: “Policy-making need not be confined to government circles.” Indeed, in my view, a policy process limited to narrow circles of leaders and technocrats is risking disaster.

It’s a question of governance, broadly speaking, not simply governments. Let me give four reasons why reliance on enlightened officials is risky. The most obvious reason is that few countries are automatically blessed with enlightened officials. If a country yields all power over economic decisions to certain officials, it is as likely as not to end up with unenlightened officials making poor decisions.

Second, the best way to establish a public consensus for growth is perhaps not to communicate and impose a vision of growth from the top down. At least, this is not how it happened in Japan. The growth agenda was picked up by Prime Minister Ikeda because it was politically popular and less controversial than other Liberal Democratic policies that preceded it. A consensus for growth is more likely to endure if civil society and the public are engaged and heeded. So I would say that leadership matters, but leadership is not the exclusive prerogative of government officials.

Third, the report recommends that governments “should test policies, and be quick to learn from failure.” But how exactly will lessons be learned from failure? Leaders may not learn the lessons if they either have limited information or have incentives not to admit failure. A good governance process would ensure that government leaders receive feedback on policy results and are held accountable for their decisions. A broader circle of civil society, especially private sector organizations, can play valuable roles by sharing information with policy leaders and monitoring their performance. As Prof. Ricardo Hausmann said at the Washington, DC, launch of the report, “Ministers need to open up communications to learn from the private sector what the problems are.”

Fourth, the report calls for corruption to “be fought vigorously and visibly.” The way to fight corruption is by building the institutions of good governance. That means defining the boundaries of authority carefully, making policies and their implementation transparent, and again, holding officials accountable.

I recognize that democracy is not built overnight and does not always precede growth. There are good reasons I think, though, why high-growth countries like Japan, Korea, and Taiwan have followed the path from authoritarianism to democracy. They wanted to sustain their success and to do that they had to adapt to large-scale socioeconomic changes. The democratic practices of consultation, feedback, and accountability facilitate this kind of adaptation. Democratic, market systems may appear messy, but they have a remarkable ability to flexibly coordinate complex economies that technocrats usually lack.

Published Date: June 04, 2008