Deliberation councils can keep the lines of communications open
The spectacular growth of many East Asian economies has captured the world's interest. Japan, the Four Tigers, Indonesia, Malaysia, and Thailand have all sustained their rapid growth for more than 20 years (the Philippines is the exception). Their success stems partly from their policies, partly from their institutional mechanisms. One of their distinctive features is close collaboration between business and government. Hence, the popular accounts of Japan Inc., Korea Inc., and now Malaysia Inc.
This popular image oversimplifies, asserts Bank researcher Ed Campos, in his new book.[1] As in any society, interests diverge, and government does not have the kind of control to guarantee that everyone will pursue common goals. But a variety of institutions and practices in East Asia foster cooperation between business and government---and among businesses. One critical mechanism: the deliberation council.
A deliberation council is a consultative committee of businessmen, government officials, journalists, labor representatives, and academics---a formal channel of communication for private sector representatives and government officials to develop a consensus on the policies that govern an industry or sector.
Through repeated interactions among participants, informal exchanges also occur and become even more important. The formal procedures then tend to focus more on the initiation and the completion of the consultative process.
Effective deliberation councils have economic benefits, improving the coordination among firms and the flow of information among businesses and governments. They also have political benefits, establishing the credibility of principles of shared growth and reduced rent-seeking. Through the councils, government, business, and labor have been able to collaborate in formulating and implementing growth-promoting policies. All the participants share information, which in the absence of the councils would be privy to particular sectors (sometimes even to individuals). Quickly transmitting changes in market conditions to the government, the councils can also disseminate policy refinements to deal with those changes. Most important, the rules and regulations governing an industry or sector are made clear.
Compare that with many other developing countries, where market shares are carved out mostly through opportunistic rent-seeking.
The deliberative council's dispersion of information and greater understanding of rules check such behavior---making it more difficult and more costly for firms to extract special favors from the government and for government officials to grant special concessions to favored parties. In many ways, the councils give government a credible means for reducing opportunism.
Other developing countries have used consultative committees that resemble deliberation councils, but in most of these countries, the committees have not produced the same results. What are the key differences between the councils and the less effective forms of business-government communications?
First, the information that participants in the deliberative councils receive is worth something. Insights about a government's plans are of great value to private investors, and to gain those insights they are willing to divulge information they would normally withhold. If firms do withhold it, they are banished from the information circle.
Second, being part of the process has benefits. Deliberative councils are not debating societies---they do something. In Japan and Korea, they were the mechanism for government to carry out much of the export-push strategy. Firms were expected to participate in the deliberative council as a means of coordinating export strategies and investments. As a reward, they were given access to foreign exchange (during early periods of growth) and to credit.
Third, the bureaucracy is reputable, perhaps the most critical factor contributing to the council's success. Access to competent bureaucrats, capable of making credible commitments on the part of government, is one reason businessmen have found it worthwhile to remain in the deliberative councils. The bureaucrats are arbiters and enforcers, and without them, firms would have been more tempted (and able) to free-ride or seek rents.
How can countries create a reputable bureaucracy? Pay matters. Singapore and Korea have narrower salary differences between the private sector and the public sector---and more reputable bureaucracies---than Thailand. No surprise, then, that deliberation councils in Thailand have not been as effective.
Salaries of bureaucrats need not match salaries in equivalent positions in the private sector. Two factors allow them to be lower. First, rules and procedures governing public employment have been institutionalized and have insulated bureaucrats from political intervention. In particular, recruitment and promotion are based on merit. In Korea, much like in Japan, recruitment is based on tough civil service exams, making public sector employment a status symbol, partly compensating for lower pay.
Second, clearly defined career paths culminate in a prize of substantial value---a pension plus a directorship or executive position in a large conglomerate on retirement. Besides increasing the income of bureaucrats, the prize engenders loyalty to the institution, maintaining its stability. These factors improve the quality of the bureau-cracy, discourage corruption, and create an esprit de corps among civil servants---all of which also help insulate the bureaucracy from political pressure.
The deliberation council is beyond the capacity of most developing countries because their bureaucracies are weak and much less reputable---and perhaps because of their social structures. They can, however, use a deliberation council to deal with issues that affect all parties---such as regulatory procedures that affect the cost of doing business (see the box). Because such procedures affect firms more or less equally, they are easier to get agreement on, making the task of coordination much simpler. There is less need for a strong bureaucratic presence.
For the council to be effective, it must be credible. If the bureaucracy lacks credibility, it might be necessary to appoint a third-party moderator who has no direct interest in the issues and is mutually acceptable to all parties concerned---a respected journalist, for example. And as long as the issues do not involve difficult coordination problems---directed credit is such a problem---a third-party moderator will suffice. Naturally, the government must accept and implement the council's recommendations---so that it has value for the private sector.
