Governance, Growth, and Development Decision-making - School of ...

Thinking about Governance
Dani Rodrik
A deep insight that has emerged out of the disappointments
of the Washington Consensus is that
successful policy reform is at its core governance
reform. Reforms in the areas of, say, trade or fiscal
policy require much more than just cuts in tariffs
and a balancing of the budget. If you want to
achieve lasting change and have a real impact on the behavior of
those agents that determine the success of reform, you must change
the “rules of the game”—the manner in which trade policy is made
or fiscal policy is conducted. This insight, assisted and reinforced
by the academic literature on institutions and growth, has in turn
produced a new development agenda focused on a broad list of
governance reforms. These reforms target a lengthy list of objectives,
including reducing corruption, improving the rule of law,
increasing the accountability and effectiveness of public institutions,
and enhancing access and voice of the citizenry. The agenda is neatly
captured and quantified by the Kaufmann-Kraay Governance Indicators
data set.
Much of this is for the good. In particular, the tilt towards governance
has the virtue that it helps shift the focus of reforms towards
objectives that are desirable end-goals in and of themselves. The
items on the original Washington Consensus agenda were all of instrumental
value at best. Playing around with tariff and tax schedules
and with the composition of public expenditure is worthwhile only
to the extent that it achieves other objectives we really care about:
increased growth, reduced poverty, improved equity. By contrast, it
would be hard to take issue with the intrinsic importance of improved
governance along its various dimensions: rule of law, transparency,
voice, accountability, effective government. We might even
say good governance is development itself. Combine it with material
well-being, and we attain the Nirvana of advanced societies.
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