World Bank now promotes "Effective" State

WASHINGTON: The World Bank in its latest annual report on global development, rebuffs those who favour minimal government presence in national life.

But the Bank also criticizes governments in which "policies devised by technocrats (are) accorded pride of place" at the expense of responsiveness and accountability to the public.

"Development - economic, social, and sustainable - without an effective State is impossible," the Bank says in this year's World Development Report.

Bank officials readily admit the agency itself has promoted both the notion of the small State as well as big government. Having devoted its early years to development policies and projects that required - and, in turn, reinforced - large and unresponsive State structures, the Bank more recently has promoted a model of small, non-interventionist, and market- friendly States.

Its new report is not a departure from the latter argument, but "an amplification of what it means to be market-friendly," says Joseph Stiglitz, the Bank's chief economist.

A two-part strategy

The Bank now embraces the notion of the "effective State" as "one which harnesses the energy of private business and individuals, and acts as their partner and catalyst, instead of restricting their partnership," according to a statement released with the report. This conclusion is based in large part on a survey of some 3,600 local businesses in 69 countries, according to Ajay Chhibber, who led the team of Bank staffers charged with writing the report. This was the first time in the annual report's 20-year history that the agency used such a survey.

Additionally, the report draws on the history of Western industrialization and the "important role of the State in the 'miracle' economies of East Asia."

The report is "not a recipe book" of specific policies governments should follow, says Stiglitz. Rather, it advances a two-part strategy to guide countries in building effective States.

First, States must focus on "five fundamental tasks (that) lie at the core of every government's mission," the report argues. These include: establishing law and order and securing private property rights; maintaining macro-economic stability while not interfering with private markets; investing in basic services and infrastructure; maintaining social safety nets; and safeguarding the environment.

In many countries with weak States - including the poorest ones and those emerging from conflicts - Stiglitz asserts, "people aren't asking what to do, but where to begin." Rather than try to do too much with too little, he adds, they should start with these "pure public goods", which the private sector cannot provide.

Thus, the report argues, States would prevent their workload from exceeding their "capability". It defines this as "the ability to undertake and promote collective actions efficiently."

The strategy's second element is to improve that capability by "reinvigorating public institutions," chiefly by improving civil servants' performance and reducing political interference in their work.

The report highlights three measures: establishing effective rules and restraints; fostering competition within the bureaucracy and between public and private service providers; and increasing citizens' "voice and partnership" with the private sector.

The problem of corruption

The report places particular emphasis on curbing governments' "discretionary actions", promotes policies that reduce State control over foreign trade, remove entry barriers for private industry, and privatize State enterprises as ways to fight corruption.

Acknowledging that corruption has increased under many privatization schemes, Chhibber argues that this "is really a symptom of underlying problems in the interface between the public and private sector."

The key to stamping out corruption, the report argues, is to wrest regulatory power from the hands of individual officials; reduce the number and complexity of regulations with which the private sector must comply; and ensure that the resulting rules are enforced.

The report also says corruption flourishes where civil service wages have fallen too far behind private-sector pay. It argues, however, that wages at the upper echelons of bureaucracy have been undermined by excessive hiring at the lower end, and suggests any raise in salaries for superiors should be tied to layoffs for their underlings. Thus, wages might be raised without exceeding budget limits set by the International Monetary Fund (IMF).

Altogether, these reforms will yield "good economic policies and stronger institutional capacity" and, in turn, faster economic growth for countries implementing them successfully, the report asserts.

It acknowledges, however, that "reforms have little appeal if the winners cannot compensate the losers" and adds: "A further problem is that the benefits are often realized in the future, whereas the losses are immediate."

For these reasons as much as anything else, the report says, "reforms only succeed if they are directed by leaders with a clear vision of the way things could be, and a contagious determination to turn that vision into reality."

This may sound to some like an endorsement of authoritarian governments headed by charismatic leaders, but the report makes the point that "no single type of regime can guarantee economic and social progress."

Entitled "The State in a Changing World", the otherwise tame and general report singles out "the predatory State" as "inconsistent with economic development". It cites the examples of Romania under Nicolae Ceausescu and Haiti under Francois 'Papa Doc' Duvalier and his son, Jean-Claude 'Baby Doc' Duvalier. (TWE No. 164, 1-15 July 1997)

Chakravarthi Raghavan is the Chief Editor of the South-North Development Monitor (SUNS) from which the above article first appeared.