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AJR 2012

Institutions can be extractive (Latin American colonies) or inclusive (North American colonies). This will determine their development (Latin America = underdeveloped; North America = developed).

Sachs et. al 2001 - Institutions and Geography

Comment on AJR 2000




Both geography and institutions are important.

Institutions

"The rules of the game" (North et. all 2009).



the norms rules habits customs of routines both formal and informal that governs society at large. (BRETT)

Organization

Groups of individual bounds by some common purpose who come together to achieve joint objectives as actors in societies.




Organisation with their agents provides services to their consumers (“principles”).

Characteristics of a liberal institution

-autonomy & freedom


-efficiency & growth


-diversity & pluralism, equity & justice -connectedness & cooperation

Agent (see recipient)

one who delivers the service, the one that has to be hold accountable (ex: capitalist firms)

Recipient/Principles (see Agent)

consumers


clients


citizens

Accountability

Holding individuals/organisations responsible for performance measured as objectively as possible. (Paul 1992)

Public accountability

approaches, mechanisms and practices used by stakeholders to ensure public service performance.

Definition of Development (Week 2 in summaries)

TRANSITION from regressive to progressive systems, from illiberal to liberal institutions

What is development management?

From the summaries: The conscious processes involved in shifting from less to more progressive institutional types and organizational systems by modifying the authority, accountability and incentives systems that regulate them (Brett)

3 organizational forms of institutions

-Hierarchy (Governance state)


-Market (production economy)


-Solidarity (collective action)

Institutional Pluralism

Societies can choose between different organisational forms. The organisational form can differ across social function. (See 3 organizational forms of institutions).

Developmental Transition

shift from illiberal to liberal transition (Brett), traditional to modern institutions, autocratic to democracy.


→ Difficult to achieve because it is disruptive




- Alters distribution of power and health (resisted by those with vested interest)


- Devalues the incumbent cultural values and knowledge systems

Externalities

Positive (vaccinations --> less chance for disease)


Negative (pollution --> Climate change)

Market Failure

Resources are not allocated to those who need/demand them.

4 relationships of accountability

-Voice


-Compacts


-Management


-Client Power

3 actors in accountability

-State


-Citizens


-Providers of services (difference between organizational and front-line providers

Voice & Politics

Connects citizens to politician/policymakers (ex: voting)

Compacts

connect policy makers to organizational provider (ex: contract)

Management

connects provider organization with frontline professionals (ex: internal process)

Client power

contacts client with providers

What are the determinants of accountability?

Voice and Exits

What determines whether people can "exit" (accountability) ?

- Barriers to exit:


- Economies of scale diminish exit chances (service providers


- Legal entry barriers - Spatial barriers


- Public good rule out exit

What determines whether people can utilize "voice" (accountability)?

- Legal/institutional barrier


- Information asymmetries


- Income/education


- The importance of the service to the public

What is the long route of accountability? What is the short route of accountability?

- Short route is client power (market)


- Long route is through politicians/policy makers

Pros of Short route of Accountability

- Quicker


- More direct


- Better accountability


- Organizations have incentives to perform well  efficiency and quality


- Organizations are autonomous

Cons of short route of accountability

- Might bypass the policymakers (takes the government out of its responsibilities)


- No pressure for equality of service


- No collective objectives


- Customer power can suffer from information asymmetry

Pros of Long route of accountability

- Focus on equity rather than efficiency

Cons of Long route of accountability

More opportunities for failure

What is the Washington Consensus?

Williamson 1989




-10 relatively specific economic policy prescriptions


-"standard" reform package promoted for crisis-wracked developing countries


-Washington, D.C.–based institutions such as the (IMF), WB and the US treasury department

Conflict Trap

in a fight against poverty, civil war creates a vicious circle à war causes poverty and low-income result to tensions.




(Collier 2007)

Natural resources trap

the reliance on natural resource that makes a country uncompetitive in other markets due to the increase in the exchange rate (which makes other exports uncompetitive) and that can affect country revenue due to the volatility in the commodity prices.

Dutch disease (natural resource)

The export of natural resources --> increased value of currency --> exports become more expensive --> less people buy them (lower income)

“Landlocked with bad neighbours” trap

→ Neighbour matters because they influence the landlocked country’s transport cost, infrastructure and market (ex: neighbour could be a potential market, if neighbouring countries are poor  no opportunity for your economy)

What are social technologies?

Social technologies are methods or mechanisms whereby social institutions create patterns of behaviour (ex: property rights)

What explains rapid growth in China?

1.Communism→Capitalism(private incentives, property rights & investment)


2. Centralised control→ limited control


3. Totalitarianism → fragmented authoritarianism


4. Political centralization → Administrative Decentralisation BUT → Limited rise in laws → Limited rise in media and civic freedoms.


(Key: Inherent advantages kick in improved knowledge/Economic Policy. Improved political will/Institutions.)

What explains rapid growth in India?

1. Liberalisation period 1991-//after balance of payment crisis, liberalization, privatization and globalization.


2.Strong regional/industrial policy


3. Continuous investments in infrastructure and technological change.


4. Significant productivity growth in 1980s.


5. Very much the opposite to “shock therapy “. Political signals have been consistent and now widely agreed


6. Provincial Darwinism.(Key: improved knowledge/economic policyEffectively engage with outsiders/Aid. )

Arguments that Democracy -> Devel




Intrinsic Values

- improve people’s minimumwell-being (Sen 1999)


-allowsfor self-determination, self-actualisation,self-development and personal freedoms. (Sen &John Stuart Mill)


- mitigate socialinequalities and tensions, because they are more representative (Lindert, 2004)


-mitigates socialinequalities (especially acute in India) that act as barriers to social andeconomic mobility (full development of individual potential) (Bardhan 2010)

Democracy's instrumental value that leads to Development

-Democracy has instrumental value as it manages individual differences (ideas andinterests)->maintaining peace and stability (Olson 1993)

Democracy -> Development




Constructive Value of Democ.

-it allows for learning, improving ideas andincreasing consensus for these ideas (democratic deliberation & Search forcommon good→(Joshua Cohen(deliberative democracy).


- increase investment inhuman capital (ex: investing in education) Przeworski


- (open) societies provide abetter environment for development of information and relatedtechnologies→ A matter of importance in the current knowledge-driven globaleconomy→ intensive cyber censorship in China may seriously limit futureinnovations in this area. (Bardhan 2010).

Democracy -> Development




Democracy -> Less elite capture + gov't more responsive to citizens

- avoid capture because ofrooted institutions, strong civil society, public participation, electoralinstitutions


- betterresponsiveness (because of the incentives to be re-elected on the long term)


-State service provision is improved (Lake & Baum 2001)


- Gov't interested inproductivity of society since they share in it (taxes) and thus they generate widerdistribution of resources than dictatorships. (Olson 1993)


-Democracies have more intensepressure to share benefits of development among people -->makes democracymore sustainable and more scope for popular movements against industrialfallout such as environmental degradation. (Bardhan 2010)

Democracy is better able to avoidcatastrophic mistakes (Bardhan 2010):




Examples when Authoritarianism went wrong:

1. China’sGreat Leap Forward Famine




2. NorthKorea’s central planning




3.(Mobutu) Zaires’sTwo-Decade Economic Decline




4.(Mubarak)Egypt’s High Unemployment & Poverty

Issues with authoritarianism that inhibit development

Lackof accountability --> corruption.




Information and monitoring problems in absence of liberalism.




Authoritarianismregime in China ≠ efficient. E.gfragmented power moderates dictatorship but is inefficient.

Arguments against democracy for development

- Not ALL type of democracies will lead to better development. Participatory liberal democracy is likely to improve development




- Democracies are “bad” at taking“hard” decisions which could have developmental benefits (e.g. lowering trade boundaries) or “shock therapy/big bang approaches)(counterargument: Thatcher)

Examples in support of authoritarianregimes for development (Myths to be wary of according to Bardhan 2010)

China and also Taiwan and SouthKorea



-Authoritarianism delivers more atthe initial stages of development.





Counterargument for: "Authoritarianism delivers more at the initial stages of development."

COUNTER ARGUMENT (so reason for YES to democracy).




-Authoritarianism is neither necessary or nor sufficient for economic development. e.g. see today’s industrial democracies and recent development successes: Costa Rica, Botswana and now India. (Bardhan 2010)

Arguments for Democracy hindering development

Competitive populism– bribes/favoritism to win elections --> hurts investment,particularly in physical infrastructure (main hindrance of Indiandevelopment.)



--> Difficult to charge user feesfor public services (roads, electricity, irrigation, discouraging investment in theseareas). (In China, infrastructure companies charge full commercial rates)



-->difficult to carry out policyexperimentation (unlike China)--> electoral consequences of failures(job-lossesetc.)


-->Democracy has slow-decisionmaking processes→ costly in a world of fast-changing markets andtechnology.(Bardhan)

What conditions help democracy?

1.Strongly rooted institutions, strong civil society and public participation.




2.Loyal opposition developed due to electoral institutions.




3.Fragmented Elite, more aligned to the public than each other

What is political accountability?

Responsibility or obligation of government officials to act in the bestinterests of society or face consequences.


Leads to politicalresponsiveness.

3 Key Features of Political Accountability

1. Reporting/transparency (letting people know what is happening)




2. Explaining and Answering (explaining why it is happening)




3. Responsibility/Liability (taking responsibility for thesedecisions)

What is a democracy?

Democracy is a form of government inwhich the supreme power is vested in the people and exercised directly by themor by their elected agents under a free electoral system.

Four key thinkers in defining democracy

1. Robert Schumpeter (electoral competition)




2.Robert Dahl (polyarchy)




3. Ian Shapiro (non-domination)




4. Joshua Cohen(deliberative democracy): political inequity concerned with improvingcollective decision making.

Liberal democracy

-fair/free/competitive elections



-freedom of civil rights



-separation of power



-rule of law



-open society


-equal protection forall

Illiberal democracy

Fareed Zakaria in 1997




-elections with uninformed citizen




-lack of civil liberties (such as freedom ofspeech or of assembly).




-It not an open society

Procedural democracy

- elections (the main procedures of democracy) are held




-However, politicians can maintain power through non-electoral means.




-also, the minority tends to be under-represented and unprotected

Substantive democracy

A government both elected by the people and acts in the interest of the governed.

What is an authoritarian regime?

Linz, 1964




->Constraints on political institutionsand groups (limited political pluralism)


-> Basis for legitimacy based onemotion + identification of the regime as a necessary evil to combat “easilyrecognizable societal problems”


-> Constraints on the mass public


-> Formally ill-defined executive power

What differentexamples of authoritarianism regimes are there?

1. Monarchy/ Military Regimes/Dictatorship (e.g. Saudi Arabia) ruler = absolute dictator (no constitutional/ restriction or opposition.) --> strict obedience to authority at theexpense of personal freedoms.



2. One Party-Authoritarianism States (e.g.China)

3. One Party Dominant States (e.g. Egypt formally)

What is a roving vs stationarybandit?

stationary bandit = dictator that ‘sticks around’ (Olson).


- ‘long-time horizons’ vs‘short-time horizon’ of a roving bandit.
a) Invest in public goods


b) Are less extractive


c) Value stability so they canmaximise their returns in the form of tax (overall better for development)

What is polyarchy?

-form of government with 3 or more rulers (neither democracynor autocracy).




-procedures for “the continuing responsiveness ofthe government to the preferences of its citizens, considered as politicalequals”)




-high level of liberalization (public contestation)

-high level of inclusiveness (the proportion ofthe population entitled to vote or participate in the public contests).

What is clientelism?

Clientelism is the threat/inducementsof material goods in return for electoral support, where the criterion ofdistribution that the patron user is simply: “did you or will you supportme?”(Stokes, 2009)

patronage

proffering of public resources (most typicallypublic employment) by office holders in return for electoral support.




Jonathan's note: it looks like patronage is a pre-election action whereas clientelism is post-election.

Characteristics of Open Access Societies

-Competition regulates politics and economics.


-Many different organizations and a vibrant society.


-Larger, decentralized gov't provides more services


-Require the right to form organizations



Characteristics of a limited access society

-"rent creation" through privileges


- Political system regulates economic competition


-Slow growing


-vulnerable to shocks


-small, centralized gov't


-inequality


-insecure property rights

Coordination goods

Goods that allow people to organize politically.


e.g.




-freedom of speech & press




-freedom of assembly




-higher education



Corruption

‘Misuse of public office for private gain in violation of rules’(Manion)

Petty corruption

Corruption carried out on a small scale andwithin established social frameworks and governing norms.




E.g. exchange ofsmall improper gifts or use of personal connections to obtain favors.




Common in developing countries due to the low pay of civil servants.

Grand corruption

Corruption carried out at the highest levels ofgovernment in a way that requires significant subversion of the political,legal and economic systems

Rule of law

Ruling according to laws that arecomprehensive and transparent. Characterized by


-property rights


-Corruption control


-legal codes


-judicial independence


-lawenforcement

Characteristics of good governance

-Transparency


-Representation


-Rule of Law


-Accountability & CorruptionControl


-Participation


-Consensus orientated


-Outcomes: (Effective and efficient, Responsive,Equitable)

Rule of Mandates

Officials are given policy priorities (e.g. security) that they need to put above any lower priorities (e.g. free elections).



Particularly in China, although an action/policy might be "illegal," it may serve a higher mandate (e.g. political stability).


Why was Hong Kong able to reduce corruption?

Established an Independent Commission (Detection andPunishment)



Amnesty (Coalition-Building)




Public Education promoting non-corrupt society (Cultural Change)




Institutional Changes (Prevention)

Treisman The Architecture ofGovernment: Rethinking Political Decentralization. 2007

“to date there are almost no solidlyestablished, general empirical findings about the consequences ofdecentralisation"




i.e. Decentralization in and of itself does not ensure a less corrupt, more efficient government.


That depends on the accompanying policies.

decentralization

Devolution by central government of specificfunctions, with all the administrative, political and economic attributes thatthese entail, to democratic regional and local governments that are independentof the centre within a geographic and functional domain. (Faguet and sanchez2008)

Old Public Administration

-hierarchicalBureaucracy.


-Large scale


-MaxWeber→ superior to all alternatives for large state, for profit and non-profitorganisations.




→ imposes collective rules on societiesand provide them with universalservices.

New Public Management

-Officials are motivated byself-interest/opportunism rather than a duty to the public.




a) Different kinds of internalincentive systems


b) Decentralized alternatives basedon competitive markets.

DiJohn (2007) Political Economy of IndustrialPolicy in Venezuela.

Venezuela's failure to develop was not due to its state-led import substitution or "natural resource curse," but it's lack of discipline when selecting which groups would receive lower subsidies + it's history of clientelism => suboptimal productivity.

Brett - State Failure & Success inUganda. and Zimbabwe.: Logic of Political Decay and Reconstruction in Africa

1. Liberalization stabilized and helped Uganda grow, but it hurt Zimbabwe --> history and context will determine a development policy's effectiveness.




2. Africa is not doomed to political economic disorder; it can be reversed.




3. Structural weaknesses will inhibit the transition to liberal democratic capitalism.

Qian(2003): How reform worked in China

China did not subscribe to "best practice" and was willing to adapt when something didn't work.




→ imperfect institutions fit the economic and political reality//functioning as stepping stones in transition towards goal (gradualism) Rodrik.

AJR (2003), An African Success story: Botswana

· Botswana adopted policies that promoted accumulation,investment, and socially efficient resource exploitation




These institutions helped it develop much better than its neighbors despite having the classic pre-conditions for the natural resource, tropical geography, and landlocked with bad neighbors curses.

Easterly (2003) The Political Economy of Growthwithout Development: A case study of Pakistan

Pakistan = 3rd largest recipient of development aid between 1960 - 1999




-Huge social inequality and little progress in human rights, education, literacy, mortality, etc)




-Despite that, there was 2.2% average growth




-Elites had little incentive to promote equality.




-Social division led to disagreement over public goods type, quality, and mode of provision.

Stiglitz's critique of Washington Consensus

- Failures in sub-SaharanAfrica and Latin America = doubts about the WC strategy


-Liberalization done without right pre-conditions (e.g.: liberalization of agricultural prices in Africa w/o functioning markets)


- lackof transparency of IMF & WB


-IMF continued to advocate for marketliberalization after the adverse effects on stability became clear


- If badly done, privatization can reduce growth and lowersocial welfare (e.g.: privatization after the fall of the Soviet Union)

Beijing Consensus

an alternative —especially for developing countries — to the Washington consensus ofmarket-friendly policies promoted by the IMF, WB

State Capitalism

as an economic system inwhich commercial (i.e. for-profit) economic activity is undertaken by thestate, with management and organization of the means of production in acapitalist manner

Dependency Theory

resources flow from a"periphery" of poor and underdeveloped states to a "core"of wealthy states (rich get richer and the poor get poorer).

Import substitution industrialization (ISI)

-trade and economicpolicy that advocates replacing foreign imports with domestic production to reduce dependency on foreign markets.

Which global political and economicpressures contributed to the turn to neoliberalism in the 1980s and 1990s?

Fall of USSR = capitalism won vs. communism




Oil Crisis




Failure of ISI in Latin America

What is a comparativeadvantage?

-David Ricardo


-One country has lower indirect (opportunity) cost of producing than another country

Export-led growth model

aiming to speed up theindustrialization process of a country by exporting goods for which the nation has a comparative advantage

Predatory State



o Preoccupation with“rent-seeking” (corruption) by elite who victimize the rest of society




o Small group of personally connected elites control thestate




oPredation hindersstates




e.g. Zaire (Democratic Republic of the Congo): Joseph Sekoand his group of affiliates derived a vast amount of wealth from the state whilethe GNP declined annually by 2.1% (Evans 1989).

Developmental State

o The state takes an active role in development o Bureaucratic rules of the OPM (Weber praises them)


o Most qualified are those that make the decisions for the state


o Informal networks are also important because they createorganizations that work well together§ Japan is cited as an example of the developmental state (Evans 1989).

Social Business

Cause-driven rather than profit driven




Not a charity – it has to recover its full costs while achieving its social objective

3 kinds of social businesses

-- owned by investors → social benefit through the goods and services that are provided




-- Profitmaximizing but owned by the poor or disadvantaged -social benefitderived from ownership → financial benefit generated helps those in need




-- A combination of both above

Upward-Downwardaccountability of NGOs

Relationshipwith donors, foundations, and governments → focus on spending




--Downward/Clientaccountability


--Relationships with group to whom NGOsprovide services

Internal/External accountability of NGOs

External:·Obligation to meet standard§




Internal:·“Felt responsibility” →NGOs are value-driven and should beaccountable to these values

Functional/strategic accountability of NGOs

Functional:·Accounting for resources, resource useand immediate impact (accountability focusing on the short term impact)




Strategic: ·Impact of NGOs actions on other organizations/widerenvironment (accountability focusing on the long term impact)

5 Accountability mechanisms used by NGOs

Tools (applied for a limitedtime, tangible, can be repeated)




1. Disclosure report→ upward and downward (to a lesser degree) accountability




2. Performance assessment andevaluation → Upward, potential for Downward




3.Social auditing→ To NGOs themselves, downward and upward to stakeholders




“Process” (broad, less tangible and time bond, course ofaction rather than distinct end-result)




4. Participation→ Downward from NGOs to clients, internally, potential for downward fromfunders to NGOs




5. Self-regulationTo NGOs themselves, downward and upward to stakeholders

Private Good

rival and exclusive (e.g. a pen - if you buy it, no one else can use it (exclusive), but you have to pay for it and there’s a limited supply (rival)

Public Good

Neither rival nor exclusive (e.g. national defense - if you don’t pay taxes, you still benefit)

Common Pool Good

e.g. grass for cattle grazing - rival (many cattle herders can use it), but not exclusive (anyone can use it).

Free Rider

Someone who benefits from resources, goods, or services without payingfor the cost of the benefit

Modern Institution

o Focus on the individual


o Liberal institutions


o Equal right/freedom in political,economic and social sphere

Traditional institutions

o Focus on the collective


o Collective as the norms


o Utility of the individual is secondary tothat of the group


o They are difficult to challenge formally:create relation of dependency that canlead to abuse of power

Clientelism

· Faceto face exchange relationship between unequal parties.


· The relationship is born out of necessity& mutual benefits



o The Patronhas a high level of influence and providessocial insurance/protection


o The clientowns few or no resources and providescheap labour/social support