But just how do these concepts translate into economic planning?
What does “governance” mean in the context of economic policymaking?
In the aftermath of the Arab Spring in Egypt and Tunisia, the World Bank and other development partners are engaging these countries to support them, insofar as they both want and welcome this in their transitions to a new form of government. What that will ultimately look like is still a work in progress. But millions of citizens have expressed aspirations that new governments be responsive and accountable to citizens; that the voices of ordinary people be heard where previous rulers turned deaf ears.
The revolutions to date have brought political changes, but these will need strong and reformed economic institutions to underpin a sustainable political progress with economic growth and opportunity. The reform of institutions that enable citizens to monitor and evaluate the actions of their elected governors can ensure that rulers are aware of the constraint that citizen oversight imposes on their actions. Without the people’s oversight, the new rulers will repeat the actions of past rulers.
While Tunisia and particularly Egypt did some economic reforming in recent years, these didn’t go nearly far enough and omitted some key changes we now understand better. Many of the regulations which looked strong on paper were not applied on a level playing field. This was especially true in Tunisia, an awkward case for its development partners because indeed it scored quite highly by many measures of creating a good business environment in the past. Critically though, business wasn’t open for everyone.
Ultimately the lack of accountability of previous rulers and the opacity and arbitrariness in enforcing the rule of law eroded the foundations of the state and of doing business, perhaps slowly, but inevitably. The World Bank described the economic consequences of this governance system in a 2009 report entitled From Privilege to Competition, not a report the rulers at the time received happily; there was little coverage in the media. Of course with the benefit of hindsight the Bank wonders now whether it should have pushed more aggressively. This unhappy report described stunted private sectors, undiversified economies and markets, dominated by protected and privileged groups with low productivity and little incentive to innovate. These were private sectors incapable of creating jobs for a growing labor force of young and quite well-educated workers. The rest, for at least two MENA countries, is history.
And today’s task is reshaping that history so that citizens recognize themselves in their own countries, finding opportunity, fairness, justice and, an abstract term for any economist, dignity, the clarion cry of the revolution.
In essence, good governance, as expressed in economic terms, is largely about the management and freedom of information, indeed the very right to information broadly and equally defined for all citizens. Unaccountable politicians are tempted to use public funds and public policy manipulations for themselves and their families and associates. As the practice grows the circle widens and the entrenchment of the behavior requires further and deeper management of corrupt practice. But shine light on the actions of rulers with monitoring and evaluation and their incentives change and become more in tune with the needs of citizens. When citizens know how public money is being spent and can measure the effectiveness of services that should be reaching them like health, education, public infrastructure and the like, they can hold the politicians they elected to account. And this is especially true at the poorest end of the spectrum where citizens depend deeply on public services.
The same is true for the private sector: transparent access to timely information and confidence that regulations are applied fairly, differences arbitrated justly, can allow the private investor to make better decisions and trust she’s on a level playing field with the competition; a foreign investor can confidently choose Tunisia say, instead of looking somewhere else.
What the Bank is doing
What all this requires, and where the Bank and others are working with Tunisia, is laws ensuring access to information, equitable corporate governance practices in the banking systems, laws or regulations that allow citizens and professional groups to associate freely and exchange information. This can even mean access to information between government departments. For example, setting an affordable minimum wage has to be well informed by good information on real wage levels and cost of living. Some government departments don’t have this even though it might exist in another department. Take another example where information is crucial: knowing where poverty is greatest and which parts of a country are underserved enables those in need to be reached effectively. It all takes accessible information. And of course building a strong judicial system to underpin all this transparency and create fairness of outcome between all parties is both an urgent requirement and a complicated longer-term reform process.
Initial lending from the Bank ($500m to Tunisia this week) is going to support reforms that already address some of these issues vigorously and looking to boost job creation and social services too. Both Tunisia and Egypt took a fairly sharp economic hit and need help over their transitions. Bank research offers hopeful examples from elsewhere showing that these initial economic shocks can turn into quick recoveries if open and transparent processes are put into place and citizens feel they are genuinely participating in their new and hard-won countries.
As President Zoellick said in the same speech quoted above: “The World Bank will work with governments in the region to help strengthen their effectiveness and accountability. Our success will vary, depending on the willingness of governments to relinquish their command and control and move towards greater openness.”