When Governance is Not Government

11.01.2018 | Richard O’Sullivan

Ahead of CIPE’s event on November 1st, Governance is Not Just Government: The Importance of Self-Regulation in Development, long-time CIPE partner Richard O’Sullivan shares his experience on the importance of self-regulation to foster increased transparency and accountability in order to build more sustainable democratic processes.

 

The Importance of Self-Regulation to Promoting Democracy and Market Transparency

Self-regulation is one of the most powerful tools available to promote democracy, social justice, and market transparency. Yet, it is, arguably, also the least well understood practice among development projects. Self-regulating by nonprofit groups is often misperceived as a strictly Western or Northern construct not appropriate for developing markets that lack more sophisticated market and legal systems. As a result, donor organizations often encourage civil society leaders in developing markets focus on government regulation almost exclusively.

In reality, the opposite is true. Advanced economies do not self-regulate because their institutions are more mature. Those economies advanced because they availed themselves to self-regulation. The purpose of any regulation is to influence economic and social choices in order to reduce individual and societal risk. Economic and social behaviors can be influenced three ways: market forces, social norms and pressure, and regulatory fiat, each with its strengths and weaknesses that make it appropriate in some cases but not others.

When all of the levers to influence economic and social behaviors are put into the hands of the government, it opens the potential for one-party rule by whichever party gains control of them. When civil society’s only path to change is to demand changes in governmental actions, it necessarily puts CSOs in conflict with public officials. Not surprisingly, many academics and practitioners now see the lack of self-regulation and the over-dependence on government controls in emerging markets as major contributors to the closing of civil society space and the retreat from democracy in fragile environments.

In contrast, by positioning civil society as a partner in the governing process, self-regulation promotes a more collaborative relationship between the public and nonprofit sectors.  In Afghanistan I worked with several different healthcare associations, all of which had extremely contentious and often hostile relationships with the Ministry of Public Health (MoPH) – save one: the Afghan Midwifes Association.

While the Ministry only heard from the other associations when they complained or issued demands, the midwife association approached the Ministry as a partner.  Noting that primary among the Ministry’s concerns was its maternal mortality rate, the world’s highest, the association positioned itself as the solution that served the Ministry’s interests.  It had developed a set of midwifery practice standards, a training program, and a certification exam to ensure competence. Its only request of the Ministry was that it use the association’s credential when employing midwifes. While other health associations had difficulty securing meetings with MoPH officials, the Afghan Midwifes Association had an open door.

By taking ownership of the problem and become part of the governance process, the midwife association transformed its relationship with the government from confrontational to collaborative and, in doing so, accomplished its social mission.  I have often heard CSO leaders ask how the donors can empower them.  The fact is: The only one who can empower an organization is itself.  It is instructive to note that the French word for empower is responsabiliser. To become empowered, one first has to take responsibility for the problem and the outcome.

A village in the Philippines faced repeated water shortages due, for the most part, to chronic embezzlement of the public water utility’s funds and contract kickbacks that compromised routine preventative maintenance.  Rather than just lobby the government for more honest management, community leaders, working with – instead of against – government officials, stepped forward to take direct responsibility by proposing that a nonprofit cooperative be formed to maintain the water utility’s physical plant.  While, the municipality retained ownership of the utility, itself, the independent cooperative simply eliminated the possibility of corruption by management.

Now the cooperative collects monthly usage charges from local residents, businesses, and public agencies, who are all members of the cooperative.  A supervisory board, elected by members, publishes requests for proposals for all maintenance and repairs.  Potential suppliers are vetted through a transparent, public process. Each year, the cooperative publishes a financial report itemizing all funds collected and the costs of all contracts.

Significantly, this solution reversed public and nonprofit roles.  Not only did the nonprofit become the service provider but the government now became the watchdog agency.  The municipal government, which still owned the utility but whose employees could no longer personally profit from it, now had every incentive to hold the co-op accountable for a well maintained physical plant.

This example demonstrates another important feature of self-regulation: revenue generation. The ability to influence economic and social behaviors is a revenue-generating asset, a fact made painfully obvious with each bribe a public official extracts.  Publishing standards, training potential adopters, testing for compliance and/or competence, and maintaining a certification, which is essentially a brand for which practitioners pay royalties to use, all generate revenue.  In fact, training and certification programs account for nearly 40 percent of revenues for civil society organizations who self-regulate.  Obviously, by ceding regulatory responsibilities to the public sector, CSOs give away an extremely valuable revenue-generating asset.

Additionally, by removing the utility’s revenues from public control, it also identified the finances that would assure a long-term self-sustaining solution.

Conclusion

As noted above, self-regulation is only one of three means to affect economic and social change and is not the best solution in all cases; but neither is government regulation.  The inclusion of self-regulatory systems into the mix ensures more sustainable and transparent solutions.

Unless “None of the above” is an option for the governed to choose, singular control of the mechanisms for governing economic and social environments will inevitably undermine democratic institutions. By establishing an alternative to government control, self-regulation holds public agencies in check without being confrontational and reduces the potential for corruption and abuse of power.  Development strategies need to adopt more balanced approaches to governance that make most effective use of all three sectors in the governance process.

 

About the author: Richard O’Sullivan, who formally served as an assistant director at the world-renowned Johns Hopkins Center for Civil Society Studies, is the principal of Change Management Solutions, a consultancy founded to help civil society organizations to identify, understand, and harness the forces of economic, political, and social change.  Mr. O’Sullivan, who also founded and chaired the Civil Society Workgroup at the Society for International Development-Washington, specializes helping CSOs in developing markets to become donor-independent and self-sustaining agents of change.  He has worked in Sub-Saharan Africa, the Middle East, South Eastern Europe, the Former Soviet Republics, and Central Asia.  For questions or comments regarding this paper, he can be reached at rosullivan@harnesschange.net.