Investing in Governance for Lasting Growth

Amid the lingering effects of the global financial crisis, there has been an ongoing debate regarding the strategy behind international aid. The question is whether to continue with traditional projects that seek to alleviate poverty through the provision of basic human needs such as health care, education, and food security, or to refocus efforts on building the capacity of local governance thereby making developing countries capable of addressing these issues on their own.  While this debate has been around for at least two decades, current budgetary constraints in donor countries have brought the conversation back into focus.

Speaking in terms of policy, there has long been consensus on the fact that better governance leads to more vigorous economic growth.  Regardless of rhetoric, however, donor agencies have continued to channel the majority of their resources toward areas like infrastructure, agricultural development, and education.  This must change if the development community wants to meet its goals.

On a panel at the Center for Strategic International Studies, Executive Director of the Center for International Private Enterprise (CIPE) John Sullivan joined three other discussants – including a World Bank VP and U.S. Ambassador – to talk about the nexus between governance and growth. The panelists unanimously agreed that governance, specifically democratic governance, is a crucial element of moving developing countries off of foreign aid.  Good governance is an enabler that allows developing countries to better utilize donor funding and develop sustainable, local solutions to challenges.

CIPE’s 30 years of experience have shown that principles of democratic governance such as transparency and accountability do more than help to combat corruption and the misallocation of funds through increased capacity and effectiveness of government agencies.  Democratic governance structures also ensure institutions that provide rule of law and open access to markets are in place.  Without such institutions, the developmental power of local economic activity is constrained and full growth potential cannot be achieved.

Quoting Douglass North, Sullivan stated that at its core governance provides the framework necessary for market actors to move beyond interacting with only people they know and trust to engaging with strangers.  In order to facilitate such impersonal transactions, governments must be able to intervene and create free and fair markets with limited barriers to entry. This cannot be done without effective governance.  The multi-stakeholder engagement that characterizes democratic processes is the best method of identifying issues and finding solutions that fit the local context.   Increased accountability that is common under true democratic governance also allows for course corrections and ensures that proposed solutions are implemented.

In attempting to foster governance, reformers cannot simply provide solutions without first identifying the problems.  Because the local context varies dramatically from place to place, imposing “best practices” from the West or even other developing countries will not always result in high impact and can even lead to more problems.

In order to avoid such a situation, the question that directs all CIPE projects is:  “Why do things work the way they do?”  While grassroots organizations are often the best equipped to answer this question, transitioning governments and nascent civil society organizations often do not know how to effectively engage one another.  CIPE aims to build the capacity of civil society groups as well as local governments to participate in democratic dialogue so that proposed solutions fit the local context.  Rather than simply treating symptoms in an ad hoc manner, this approach equips developing countries with the tools necessary to diagnose the problem and administer solutions to remove it altogether.  This process has the added effect of building institutions that promote democratic governance and demonstrate to the separate parties how to resolve various issues whenever they arise.

The provision of human needs is of course vital as people who are unhealthy and malnourished are not well positioned to become active participants.  As Ambassador James Michel stated, the answer to the debate is not an either/or choice; both components are mutually supportive.  In order to effectively accomplish their missions, development agencies must move beyond rhetoric and actually implement programs to build effective governance.  Without it, developing countries will never become self-reliant.  To accomplish this, development projects may have to become more collaborative where the political scientists and economists work together. Cooperation is one of the main drivers of innovation, and innovation in the field is exactly what good governance requires.

Frank Stroker is Assistant Program Officer for Global Programs at CIPE.

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