Inclusion and growth can reinforce one another – South Africa’s false dilemma

What economic policies are pro-growth? In recent weeks, a heated debate has been raging in South Africa over the pros and cons of a basic income grant. Underlying this debate are some radically different views as to the relationship between growth and inclusion. The debate revolves less around whether accelerated growth is a necessary part of any hopeful way forward for South Africa – on that there is broad agreement –  and more around questions of what it will take to kickstart growth  and, indeed, whether growth plus the existing package of social policies can adequately address the challenge of inclusion.

Having spent the better part of four decades wrestling with this conundrum, I couldn’t resist adding my two-cents-worth to the debate,  in a piece published earlier this month in The Conversation.  This blog piece reproduces part of that piece – and also locates the argument in a broader context.

That growth and inclusion are in tension with one another is commonplace – but the tension plays out to an extreme extent in South Africa. In an April 2021 discussion of  economic policy in South Africa, Harvard University’s Dani Rodrik reflected on:

“…the inadequacy of prevailing economic ideas to effectively address the structural problems that the South African economy faces – a mismatch between what South Africa produces, and what the country’s factor endowments are.  South Africa’s production structure largely is biased towards skill-intensive sectors, while the labor force largely is unskilled…..”

“[A crucial challenge] is to stimulate labor-intensive production…..This is structural transformation in reverse – low-skill activities tend to be non-tradeable, and generally have lower total factor productivity… It requires an industrial policy that promotes productive employment of a very different kind,  the kinds of things we don’t normally associate with industrial competitiveness:  relatively low-productivity activities; small and medium enterprises;  perhaps informal activities that are mostly service-oriented.  This takes us into such new terrain that it is not entirely clear how to proceed….. we don’t know a lot about how to do it…..”.

Rodrik usefully locates South Africa’s challenge within the context of the contemporary globalized economy. However, the dilemma confronting South Africa hardly is new. As Jonny Steinberg put it in a recent article in Business Day:

“South Africa’s labour markets have been unable to provide work for the able-bodied for two generations now. There is no reason to believe they will provide work for all…..”

Three decades ago, I wrote a piece (the first in the World Bank’s informal working paper series on the South Africa economy) that laid out the dilemma, and explored the possibility of addressing it via the promotion of labor-intensive, light manufacturing. (Actually, my pre-occupation with the dilemma dates back to a  SALDRU working paper I wrote in 1981). As I put it the 1992 piece:

“South African manufacturing increasingly has failed to generate jobs, with virtually no increase in employment between 1976 and 1988.  This failure cannot simply be attributed to a poor overall growth performance….. Indeed, between 1976 and 1981 manufacturing growth was associated almost entirely with an increase in capital input, with the capital-labor ratio increasing by almost 75% and virtually no growth in employment….”

The working paper went on to propose:

“….  a strategy for fostering labor-intensive, export-oriented growth….[focused on]…. the upmarket segments of labor-demanding activities….. Policy initiatives may be an important source of encouragement for South Africa’s private sector to invest in the acquisition of competitive capability in labor-rather than capital-intensive sectors of industry.”

Those ideas failed to gain traction at the time I championed them – and indeed, as Rodrik implies, confront an even less propitious global environment in the 2020s. Steinberg describes vividly the contemporary challenge:

“We could go on pretending that we live in the 1960s, and that our welfare system really is for the frail. Or we could say the days of full employment are just around the corner. But that takes us into dubious ethical terrain. Like Vladimir and Estragon, we can keep waiting for Godot while generations of South Africans live and die.”

What, then, is to be done? As I explored in the article in The Conversation (and reproduce in what follows),  in South Africa’s current circumstances pro-inclusion policies may be necessary to kickstart growth.  Albert Hirschman’s classic analysis of  Latin America’s ‘changing tolerance for inequality’ lays out the logic:

““It can happen that society’s tolerance for increasing disparities may initially be substantial [for example, South Africa in the first fifteen years of democracy] post-1994…..] Tolerance for inequality  is extended in the expectation that eventually the disparities will narrow again. … Nonrealization of the expectation that my turn will soon come will at some point result in my ‘becoming furious’ that is, in my turning into an enemy of the established order……

Hirschman distinguished between:

“Two principal tasks or functions  [that] must be accomplished in the course of the growth process. The first is the unbalancing function, the entrepreneurial function, the accumulation function…… Increasing social and income inequalities are an important part of this picture.”

Once hope has curdled into anger and despair, renewing growth will depend on :

the ‘equlibrating’ distributive, or reform function… to correct some of these imbalances,  to improve the welfare and position of groups that have been neglected or squeezed, and at redistribution of wealth and income in general.”

Viewed from this perspective, employment subsidies, basic income grants and other social interventions to address poverty and improve prospects for upward mobility  all become part of an (extended) pro-growth policy.  These don’t come free. They  will require both a move away from pro-austerity fiscal policies, and (in time) some tax increases on higher-income earners  – with the latter dependent for their legitimacy  on the likely effectiveness with which the public sector implements the social agenda. (For more on this last,  see a second recent article in The Conversation – also elaborated in THIS upcoming companion blog piece).  

The US economy: From inclusive growth to an inequality-fueling doomsday machine

Economic inequality and political polarization fuel one another. Recent, co-authored work explored how the collision between strong institutions,  massive inequality and toxic institutions is playing out in South Africa. What relevance might the South Africa experience have for the USA’s current struggle with toxic polarization?

[As part of an ongoing research project on the above question, I’ve immersed myself in recent literature and data as to trends and drivers of US inequality. Though I’d thought myself to be quite well-informed, I found the USA’s economic transformation to be way more far-reaching (with potentially more dire consequences) than I had realized. Perhaps this summary overview will be of interest. Regardless, at this quite early stage of the comparative research, feedback on the way I have summarized and interpreted the evidence on US inequality will be especially useful.]

Driven by a combination of globalization, technological changes, policy choices and changes in norms and institutions, the United States economy has undergone far-reaching structural changes and distributional shifts. Figure 1 (from Branko Milanovic, using the LIS data set)  provides an overview of the distributional shifts, using the Gini coefficient as the summary measure of inequality (higher being more unequal); it distinguishes between gross inequality (income before taxes and transfers) and net inequality (disposable per capita income).  As the figure shows, US inequality has been on the rise since the end of the 1970s.

Figure 2 and Tables 1 and 2 give a more granular perspective of the transformation of the US economy from an inclusive-growth engine into an inequality-generating doomsday machine. The machine has three speeds: accelerating income growth at the top end of the distribution; good-enough dynamism for an upper-middle class educated elite, enabling it to more-or-less hold its own; stagnation or decline for almost everyone else.

As Figure 2 signals, between 1946 and 1980 pre-tax real income grew at an annual average of about 2% across all segments of the distribution, other than the very top where income growth was slower. However, subsequent to 1980, growth became concentrated in the top 1 percent of the distribution and, within that, in the top 0.01 percent of the distribution. As per Emmanuel Saez and Gabriel Zucman (who constructed the figure), between 1980 and 2018,  “for the bottom 50 percent as a whole, growth in pre-tax income [between 1980 and 2018]  has been only 0.2 percent per year. Excluding the elderly (aged 65 or more), average bottom 50 percent pre-tax income has declined slightly since 1980.”

Table 1 compares the distribution of pre-tax income in 1979 and 2019 (data are from the World Inequality Database).  Between 1979 and 2019, the US economy almost trebled in size.  Over that time, the share of (pre-tax) income  accruing to the top 10 percent rose from 34.7 to 45.5 percent (with 8 of the 11 point gain going to the top 1 percent). As the right-hand column of the table signals, 51.5%of the total increment in real income over the 40-year period  went to the most affluent 10 percent; less than 10 percent of the gains accrued to the bottom half of the population.

Disaggregating further, Table 2 draws on data from the Congressional Research Service to summarize changes in earnings between 1979 and 2019 for the representative (median) employee, across a variety of employment categories,. Over the 40-year-period, median earnings for employees with an advanced degree increased by 27 percent; for all women, median earnings increased by 28.9%. Men and workers without an advanced degree did not fare well: the median hourly wage for men was stagnant; earnings for the median employee with less than a Bachelor’s degree declined.  Combining two sub-groups (the combination is one with particular salience for political economy analysis of America’s current travails…..),  between 1979 and 2014, the real earnings of the median white male employee in the 25-54 age range with less than a college degree fell by 23.4 percent.

What accounts for the far-reaching distributional changes between 1979 and 2019? The data in Figure 2 and Table 1 are for pre-tax income, so the explanation cannot be found in policy-driven changes in taxes and transfers. Nor do accelerating globalization and far-reaching technological change provide an adequate explanation:  Europe also was affected by changes in technology and trade; however, as shown in Figure 3 (published by The Economist, using WID data), its (pre-tax) distributional changes were far more modest.

An emerging consensus emphasizes the role of ‘pre-distributional’ policies, norms and institutions in accounting for much of the US-Europe distributional divergence.   Here is how  Lucas Chancel (at the Paris School of Economics and co-director of the World Inequality Database ) made the case in a chapter in Olivier Blanchard and Dani Rodrik’s recent co-edited book,   Combating Inequality:

“To understand the US-EU inequality gap one must look at policies impacting pretax income growth….(specifically) inequality differences in access to higher education and training…. differences in the organization of health systems…. in labor market institutions (including minimum wage rules, the power of trade unions and collective bargaining agreements to set wages at the sectoral level)…and the distribution of power in corporate governance bodies.”

Back in 2007, Paul Krugman provided an early, quote-worthy interpretation of the US experience along related lines:

“Surely deindustrialization must explain the decline of unions….Except that it doesn’t. Most of the decline in union membership comes from a collapse of unionization within manufacturing, from 39 percent of workers in 1973 to 13 percent in 2005…..Business interests, which seemed to have reached an accommodation with the labor movement in the 1960s, went on the offensive against unions beginning in the 1970s….hardball tactics….at least one in every twenty workers who voted for a union was illegally fired….” (p. 150)

“CEOs have seen their income rise from about thirty times that of the average worker in 1970 to more than three hundred times as much [in 2005]…… [This change] is largely due to changes in institutions,  and in norms such as the once powerful but now weak belief that having the boss make vastly more than the workers is bad for morale…. The existence of powerful unions acted as a restraint on the incomes of both management and stockholders.….. Unions that might once have walked out to protest against executive bonuses had been crushed by years of union-busting” (p. 145).

Finally, we come to the impact on inequality of fiscal policy.  Figure 4  reports on trends in taxation across the earnings distribution, disaggregating within the top 1%; it uses a comprehensive data set that incorporates federal, state and local tax. Here is how Saez and Zucman (who constructed the figure) describe the resulting pattern:

“The US tax system used to be slightly progressive for the bottom 99 percent of the income distribution, but highly progressive within the top 1 percent….In 1950, for example, the top 10 percent, excluding the top 1 percent, paid average taxes rates of around 25 percent, while the top 0.01 percent paid almost 70 percent of its income in taxes. In 2018, the US tax system looks like a giant flat tax that becomes regressive at the very top end”.

The path from the tax progressivity of the 1950s to the current regime has been circuitous and somewhat opaque. Data on trends in average effective Federal tax rates since 1979 show that the top rate shifted  with the political winds.  Back in 1979, the average effective Federal tax rate paid by the top 1 percent on income of all types (ie the percentage of total taxable income of the top 1% actually paid in Federal taxes) was 35 percent. By 1986, after the Reagan tax cuts, it had fallen to 25 percent. In the mid-1990s, the Clinton years, it was back up to 35 percent. It fell again (to 28 percent) during the George W. Bush presidency. It was back up to 33 percent under Obama – and then down again, in the Trump years, to 25.4 percent.

The rates of taxation on corporate profits also influence distributional outcomes. The Federal corporate tax rate declined from  45 percent in the late 1970s, to 35 percent from the latter 1980s until 2017, and then to 21 percent in the Trump years. Decisions as to whether and how to incorporate untaxed and undistributed corporate profits affects estimates of the extent of overall tax progressivity. Saez and Zucman assign these profits to the underlying shareholders. Having done so, they conclude that the system becomes increasingly regressive, “because of the demise of the federal corporate tax, which in 2018 collected only 1.5 percent of national income, down from 5-7 percent in the 1950s”.

On the expenditure side, as Figure 1 illustrated, redistributive fiscal policy can help reduce the Gini coefficient,. Back in 2007, Krugman estimated that:

“The United States spends less than 3% of GDP on programs that reduce inequality among those under 65.  To match what Canada does we would have to spend additional 2.5%; to match what most of Europe does would require an extra 4% of GDP; to match the Scandinavian countries, and additional 9%.”

Health care reforms aside, as of this writing the USA commitment to a  stronger set of inequality-reducing programs has not changed for the better.

In sum, for about three decades after the Second World War, the American economy seemed to be a well-oiled machine that, notwithstanding many political ups-and-downs, continually produced broad-based growth. Then things changed. While real GDP nearly trebled between 1979 and 2019, more than half of the gains went to the top 10 percent; their pre-tax real income almost quadrupled, and their effective real tax rates declined. About one in five dollars of their gains was paid in taxes. Meanwhile, for broad swathes of the labor force (males especially), real hourly earnings declined.  Even without (yet) delving into the specific political economy causal mechanisms,  that economic polarization of this magnitude has been accompanied by accelerating political polarization  should come as no surprise.

South Africa’s changing tolerance for inequality

South Africa, along with many other countries, is struggling to renew hope in the wake of a difficult downward spiral. This struggle  is the focus of our new, co-authored  paper, to be launched on April 7th at a virtual event featuring Trudi Makhaya (economic adviser to President Ramaphosa) and Harvard’s Dani Rodrik. (Here’s a link to the event.)  

South Africa’s recent experience illustrates powerfully the fragility of hope. In the 1990s, the country was an iconic case of democratization. The subsequent collision between strong institutions and massive inequality makes its experience potentially of relevance not only for other middle-income countries, but also for many higher-income countries wrestling with a combination of a declining tolerance for high or rising inequality and institutions that seemed strong in the past but find their legitimacy increasingly being questioned.  

In a benign scenario, ideas, institutions, and growth all reinforce a hopeful, virtuous spiral. Ideas offer hope, encouraging cooperation, the pursuit of opportunities for win-win gains.  Institutions provide credibility that the bargains underpinning cooperation will be monitored and enforced. Together, ideas and institutions provide credible commitment, fueling economic growth. However, the benign scenario does not reckon with the ways in which persistent high inequality, accompanied by unresolved tensions between the distribution of economic and political power can both put pressure on institutions and catalyze a lurch from hope to anger. The consequence can be a cascading set of pressures, and an accelerating downward spiral. Turnaround calls for going beyond ‘with the grain’ approaches, and embracing a far-reaching vision and strategy of renewal.

The new paper, “South Africa: When Strong Institutions and Massive Inequalities Collide”,  co-authored with Alan Hirsch, Vinothan Naidoo and Musa Nxele has been published by the Carnegie Endowment for International Peace, in collaboration with the University of Cape Town’s Nelson Mandela School of Public Governance. It will be launched on April 7th at 10am (US East Coast time), at an open virtual event to be co-hosted by the CEIP’s Tom Carothers and Zainab Usman, and Faizel Ismail of the Mandela School, with Trudi Makhaya and Dani Rodrik as discussants.  A  modified version of the paper’s executive summary follows below

***

For South Africa’s first fifteen years of democracy, the combination of a shared willingness among stakeholders to believe in the power of cooperation and effective institutions that helped make promises of co-operation seem credible enabled the country to move beyond counterproductive conflict and pursue win-win outcomes. Growth began to accelerate, providing the fiscal means for addressing absolute poverty (as per Table 1), and offering some new opportunities for expanding the middle class. There were, however, some stark limitations in what was achieved. The poorest four deciles remain largely unemployed or underemployed, and mostly live in rural areas (designated during the apartheid era as “reserves” or “homelands”) and informal settlements around towns or cities.

Table 1. Some gains in reducing poverty, 1996-2011

19962011
Absolute poverty, with daily hunger28%11%
Access to:
 – electricity

58%

85%
 – piped water56%91%
Immunization coverage68%98%
Secondary school enrollment50%75%
Access to social grants (old age, child support, disability)2.4 million15 million

South Africa’s political settlement was built around four distinct sub-bargains:

  • A deal between the established (overwhelmingly white) economic elite and the country’s new political leadership. This included commitments to sustain the rule of law (including protection of private property), and to gradual ongoing economic transformation (including an elaborate program to support black economic empowerment, BEE).
  • A deal among the new political elites within the majority political party, the African National Congress (ANC).  The ANC is a broad tent encompassing many ideological proclivities; degrees of public-spiritedness; and regional, ethnic, and economic interests. Its implicit promise was that its formal structures, plus the structures of government, would channel this diversity toward a shared national purpose.
  • A promise of upward mobility. One aspect was a commitment to protect the interests of new (predominantly black) middle class insiders. Another aspect was a promise that a combination of education, job creation, and an end to racial discrimination would open up readily accessible opportunities for those on the cusp of middle-class status.  
  • A promise to reduce extreme poverty. A post-minority-rule redirection of public resources and services would benefit the whole population.

All of these sub-bargains except for the last one, which was pursued at least into the 2010s, were built on shaky foundations. Many BEE transactions straddled the boundary between rules-based and more personalized deal-making; who should participate in BEE initiatives became part of the ANC’s inter-elite conflict. Adapting to a transformed political order created new pressures for the public sector. Had South Africa been able to enjoy a combination of visionary leadership and East Asian rates of rapid economic growth for a sustained period, the expansion of opportunity throughout society might have trumped the limitations of the aspirational commitments. In reality, the country only briefly reached an annual rate of 5 percent from 2005 to 2008.

In 2009 Jacob Zuma became president, having won a bitterly contested struggle for ANC leadership. He inherited an economy that, though buffeted by the 2007/2008 financial crisis, seemingly was fundamentally sound. Indeed, in the initial years of Zuma’s presidency—which included the wildly successful, celebratory atmosphere of South Africa’s June 2010 hosting of the soccer World Cup—it seemed likely that the country would continue its positive trajectory and might even begin a new phase of renewal. 

However, a hopeful scenario was overtaken by a combination of events, deep-seated ongoing challenges caused by South Africa’s continuing extreme inequality, and Jacob Zuma’s approach to leadership.  The events comprised a change in presidential leadership and South Africa’s undisciplined and uncoordinated response to the global financial crisis, which short-circuited a virtuous circle of an economy and society on the mend. Subsequent to the global crisis, South Africa  failed to build momentum and (contrary to other MICs) stagnated, signaling that the global shock is not sufficient to account for the subsequent reversal.

The deep-seated ongoing challenge was the country’s persistent inequality. As Table 2 details, as of the mid-2010s less than a quarter of the total population, including essentially all white South Africans, enjoyed a standard of living that was middle class or better. More than all other middle-income countries, South Africans are either affluent or poor, with limited opportunities to move up the economic ladder.  There was ample reason for the majority of South Africans to feel that, notwithstanding the promises of mutual benefit, the deck remained stacked against them. This increased the vulnerability of South Africa’s political settlement.

Table 2. South Africa’s 2014 Population Distribution, by Ethnicity and Class

 TotalAfricanOther blackWhite
Chronic poor49.5%46.9%2.5%0%
Transient poor121020.1
Vulnerable151320
Middle class209.546.5
Elite3.50.60.52.4
% population100%80%11%9%
Source: Schotte, Zizzamia and Leibbrandt (SALDRU, 2017)

Over the course of his nine years in office, Jacob Zuma governed in an increasingly personalized way, with increasing recourse to polarizing rhetoric. When Zuma took office, many who backed him hoped that he would bring an inclusive, coalition-building, popular touch to leadership—a contrast to Mbeki’s remote, technocratic, and somewhat imperious style. In the event, Zuma proved to be a cunning, ruthless, and charismatic tactician.

The paper describes in detail three successive turns that set in motion what looked to be  an accelerating downward spiral of decline:

  • Rising pressure on institutions, sparked by the continuing ambiguities and unresolved tensions in the bargains between economic and political elites, and among the various influential sub-groups within the ANC itself.
  • A rising tide of disillusion when per capita income growth entered and remained in negative territory. Zero-sum contestation over public positions and resources at the national, provincial and local levels became acute.  Those on the cusp of the formal economy found themselves unable to consolidate middle-class status;  unemployment steadily increased.
  • An ideational turn toward anger, catalyzed by both genuine grievance and political opportunism. In the face of thwarted opportunity, an increasing number of South Africa’s population came to see the privilege enjoyed by the mostly white economic elite—and the tide of apparent corruption that seemed to be the only way that new elites could share in that privilege—as a provocation. In turn, opportunistic ethno-populist political entrepreneurs sought to use the disillusion to strengthen their position within inter-elite political struggles.

All the elements seemed to be in place for a fourth turn – a  rapidly accelerating cumulative slide, with weakened economic performance, institutional decay, anger and ethno-populism feeding on one another. The December 2017 election of Cyril Ramaphosa as leader of the ANC and his subsequent accession to the country’s presidency signaled a pause to this slide. However, three years later, President Ramaphosa has not been able to move decisively beyond a promise to “stop the rot” and offer a renewed positive vision. Hard hit also by the Covid-19 pandemic, the country is not out of the woods.

What has been missing so far has been a vision capable of renewing hope across South African society. The path of least resistance for established elites would be to return to “the basics,” reembracing the trajectory of the Mandela and Mbeki presidencies. However, for reasons detailed in the paper, such a muddling-through scenario is unlikely to have the broad-based political support needed for it to be sustainable over the medium term.

The paper suggests  a credible promise of upward mobility for a wide spectrum of society as the centerpiece of a next-generation inclusive development strategy for South Africa.  In the first fifteen or so years of democracy, the elimination of racial barriers and the country’s accelerating growth were sufficient to usher in a season of hope. However, once the low-hanging fruit of the opportunity opened up by the end of apartheid’s racial privileges was gone, the limited economic prospects of those outside the elite became evident. A credible promise of upward mobility would offer a vision of hope and possibility for better lives across society as a whole, renewing perceptions as to the legitimacy of the social and economic order. (The paper details some aspects of a strategy along these lines.)

South Africa’s experience suggests four potentially useful propositions for the many countries struggling to maintain a positive social, political, and economic trajectory in the face of a declining tolerance for high or rising inequality.

  1. The trajectory of change is a knife-edge. There is the potential to set in motion virtuous circles of positive interactions among ideas, institutions, and economic growth. At the same time, there is a substantial risk that unaddressed distributional imbalances can set in motion a cumulative downward spiral of decline.
  • Ideas matter—a hopeful vision of change, when combined with a “good enough” responsiveness to distributional concerns, can be sufficient to launch a positive trajectory.
  • Both ideas and institutions can be shields against adversity—but only up to a point. Hopeful ideas can evoke positive agency and help mobilize for collective action. Institutions can function as shock absorbers. However, both need reinforcement, including ongoing attention to festering imbalances.
  • Initiating a new cycle of renewal requires a set of ideas and actions which address in a “good enough” way the imbalances which had resulted in derailment.

Leadership needs to risk of mobilizing new coalitions capable of overcoming the vested interests that stymie inclusive change. Can South Africa’s leadership—and can leadership in other countries, where a similar sense of disillusion has taken hold—summon the necessary boldness to rise to this challenge?

*****

For the authors’ presentation, and Trudi Makhaya and Dani Rodrik’s perspectives on the paper, join the co-sponsored Carnegie and Mandela School event, on April 7th or view the session (via this link) at some later time

“Collective Action, meet Political Settlements”

How to characterize context, the foundational platforms on which development proceeds? Two important new books highlight progress in answering this key question.  The  concepts of collective action and political settlements  are core to both books, and turn out to be deeply intertwined – indeed each is the missing puzzle piece that completes the other.

This post focuses principally on one of the two books, William Ferguson’s The Political Economy of Collective Action, Inequality and Development, published in 2020 by Stanford University Press. The second book, Understanding Development: the Promise of Political Settlements, will be published by Oxford University Press later in 2021.  It is the capstone volume of the decade-long DfiD-funded and University of Manchester-based Effective States and Inclusive Development (ESID) research program; Tim Kelsall is the 2021 book’s lead author. [Previews of the book’s core analytical contributions are available in two working papers produced by Kelsall and two of the book’s co-authors  – one on the theory with Matthias vom Hau, the other  on the empirical methodology, with Nicolai Schulz. The other co-authors of the book are myself, Bill Ferguson and Sam Hickey.]

Bill and I reconnected in 2015, 26 years after our paths briefly crossed at Williams College’s Department of Economics. We discovered that we had been exploring similar intellectual terrain, though from radically different perspectives: Bill as a scholar and teaching professor at Grinnell College; me as a practitioner and researcher at the World Bank. Bill’s  focus has been on how  the lens of collective action can be used  to explore a very wide range of  economic, political and social challenges. His work turned out to fill a vexing gap in the ESID program

Bill’s book is an encyclopedic synthesis of cutting edge literature at the intersection of development economics, new institutional economics and political science. It is a synthesis which transcends the synthesis genre.  It is systematic, careful in its definitions, rigorously argued. It connects the dots in a way which gives new life to the field of economic development. (Don’t just take it from me; Kaushik Basu, Dani Rodrik and other scholars have given the book glowing recommendations.)    

In a 2013 book,  Collective Action and Exchange: a Game-Theoretic Approach to Contemporary Political Economy, Bill made the case for  the far-reaching relevance of a collective action lens for the study of political economy. Here in five propositions (each supplemented by quotes from his new book) is the essence:

First, collective action problems (CAPs) are ubiquitous:

“Economic and political development requires resolution of underlying CAPs. CAPs arise whenever individuals pursuing their own interests, generate undesirable outcomes for one or more groups. Relevant groups include nations, cities, communities, tribes, clubs, companies, nonprofit and religious organizations, colleagues and friends. Examples include: addressing climate change at international, national, and local levels; reducing international conflict; deciding who makes the coffee at work or who washes the dishes at home;  reducing crime, pollution and traffic jams; providing basic public services such as potable water, roads, parks, disease control, R&D, and adequate education and health care; resolving disputes; and achieving political reform”. (p.17)

Development, and social thriving more broadly, thus depends (including in high-income countries such as the United States…..) on a society’s ability to address CAPs, on its capacity to co-operate.

Second, resolving CAPs is challenging. There are 1st order and 2nd order challenges:

“1st order CAPs involve multiple manifestations of free riding and social conflict. Resolving them involves forging implicit or explicit arrangements – among parties whose interests usually differ – for distributing the associated costs and benefits….. Effective agreements require credibility, and perceived inequities within agreements often foster conflict….. 2nd order CAPs involving arranging the coordination and enforcement that renders agreements possible….. The anticipation of problematic co-ordination or enforcement often undermines the will to negotiate or even consider any resolution.” (pp. 17-18)

Third, resolution of CAPs lies in the domain of institutions, which Ferguson (2020) defines expansively as:

“…a combination of mutually understood and self-enforcing beliefs, decision rules, conventions, social norms and/or formal rules that jointly specify or prescribe behavioral regularities….Institutions are ‘technologies’ that signal social co-ordination and prescriptions for managing conflict; they allow society and individuals to pursue long-term goals – even in the face of changing circumstances”. (p 22)

Fourth, ‘institutional systems’ can be stable for long periods of time;

“Institutional systems are relatively stable configurations of formal institutions, informal institutions and organizations that generate social regularities…..These deeply embedded mechanisms interact with distributions of power….  Shared cognitive and behavioral patterns reproduce and persist via correlated patterns of thought and activity….. These dense interactions generate a punctuated equilibrium dynamic….” (pp. 28; 35)

Fifth change in institutional systems takes the form of punctuated equilibrium

“The social choreography [which sustains institutional systems]  may adapt slowly or not at all to changing conditions….Dramatic change requires co-ordinated and often near simultaneous re-evaluative learning and reconfiguration of practices across large groups…. Yet, once change gathers momentum, once it crosses a critical-mass threshold, shifts can facilitate dramatic change”. (pp. 28; 35-36)

In our 2015 meeting, Bill described his plans for a new book which aimed to explore systematically how  differences in context shaped both which CAPs were addressed, and how they were addressed. The typological thinking he envisaged was squarely in my wheelhouse. I had been wrestling for decades,  as both researcher and practitioner at the World Bank, with the challenge of distinguishing among different contexts  – and had recently synthesized what I had learned in  my 2014 book, Working with the Grain. After completing that book,  I continued working on a variety of applications and extensions of the approach with the ESID research program, a team which shared a commitment to trying to make progress at the interface of theory and practice, adding value to each.  Bill’s work was an opportunity to bring an additional scholarly perspective to the  ESID effort; I was happy to encourage  the ESID team to work with him.

Intensive interaction among the ESID research team had revealed that our shared enthusiasm for a ‘political settlements’ perspective translated into neither a shared, precise definition of such settlements nor a shared, consistent typology. I increasingly had come to realize that, anchored as it was in the discourses of governance and new institutional economics (a reflection of both my intellectual roots and the realities of the World Bank), the approach I laid out in Working with the Grain  underplayed the role of power.

After a few years of collective angst within the ESID team,   Tim Kelsall, together with Matthias vom Hau, made a key step towards resolving this troubling ambiguity. As detailed in their working paper, they  proposed a new definition of a political settlement (PS) as:

an ongoing agreement (or acquiescence) among a society’s most powerful groups over a set of political and economic institutions expected to generate for them a minimally acceptable level of benefits, and which thereby ends or prevents generalized civil war and/or political and economic disorder”.

Accompanying this definition was a careful effort to distinguish among three aspects of power: the power of an elite leadership bloc in relation to opponents and other influential actors; the power of leaders in relation to followers; and the extent of incorporation of non-elites. These careful distinctions among different aspects of power provided the basis for a modified typology, although some ambiguities remained as to how institutions were incorporated.

Bringing together Bill’s CAP-focused approach and the ESID PS discourse turned out to add substantial value to each. For Bill, it created the opportunity to graft onto his work a typology which had gone through multiple  iterations, both conceptual and applied. For the ESID team, engagement with Bill offered a way of bring an extra conceptual dimension to PS work. Here is how Ferguson (2020) summarizes the CAP-PS synthesis:  

“Political settlements are the foundations of social order….. The basic configuration of a PS, reflecting the distribution of power and the composition of included and excluded groups, fundamentally shapes, circumscribes, and conditions  the creation, reform, maintenance, and demise of political and economic institutions…  The two-dimensional, four quadrant PS typology points to critical, quadrant-specific tensions and sets of CAPs that condition, complicate and impede political and economic development” (assembled from pp. 37, 168, 235; 238).

To some, the above might seem abstract, only of academic interest. My experience as a development practitioner leads me to the opposite conclusion. Development practice has long been bedeviled by a pre-occupation with normative ‘best practice’ prescriptions. While the limits of ‘best practice’ approaches are now widely recognized, as the saying goes ‘you can’t beat something with nothing’.  As I suggested in Working with the Grain, to juxtapose ‘best practice’ against an argument that  “….every country is unique and that there is little to be learned in one setting that can be helpful in another is a prescription for despair. The challenge is to find an orienting framework that is capable of filling the gap between hubris one the one hand and despair disguised as humility on the other.” (p.8) 

Making this shift has been no easy task. The journey (about which I offer a personal account in this post) has been long and circuitous;  many practitioners resist typological thinking.  It is thus crucial that the proposed successor be intellectually robust. This, in my view, has been decisively addressed by Ferguson (2020) and Kelsall et. al. (2021).

Kelsall et. al. and Ferguson  build on the CAP-PS marriage, but in very different ways.  Kelsall et. al.  use the platform as the basis for elaborating and applying an empirical methodology to benchmark, track and contrast political settlements in 42 countries – and to  test econometrically the causal impact of  political settlements on development performance. (Click here for Schulz and Kelsall’s preview.)  Ferguson uses theory to explore in-depth  the relevance of a CAP-PS approach for a variety of fundamental development topics, including:

  • why development is ‘unbalanced’, and generates a variety of spatial, sectoral and distribution inequalities;
  • the sources of power, how unequal distributions of power emerge, and how they shape the creation, evolution and demise of economic and political institutions;
  • the role of ideas, with particular emphasis on how ‘mental models’ influence political interactions and the evolution of institutions;
  • how interactions between power, ideas and political settlements can lead to significant, but not insurmountable, constraints on development
  • how, in settings seemingly locked-into a low-level political economy equilibrium, policy innovations might nonetheless help loosen binding constraints to development; and
  • the variety of ways in which business-state relations can support development across different contexts, via different combinations of rules and deals.

Ferguson (2020)  can be a hard slog: concepts and connections cascade one after the other, relentlessly. But I found that a sustained investment of time and intellectual energy more than repaid the effort. My research and writing moves back-and-forth between laying out  over-arching conceptual frameworks, and drilling into the details of specific development problems. This hopefully has some advantages. But its weakness can be a certain amount of hand-waving, of not being clear enough about the connections between different levels of analysis. Ferguson (2020) provides solid ground: carefully constructed connections across the different parts, carefully anchored in cutting edge literature. I expect that, for years to come, his book will have a prominent place on my bookshelf, both as guide and as a source of inspiration.

Governance and development – new progress in the search for middle ground

2021 holds the promise of  many new beginnings, including  for work at the interface of governance and development. But how to avoid this moment becoming yet another in an endless cycle of pendulum swings  between alternating ideas?   

In the 1980s structural adjustment was thought to be the panacea which would solve development’s problems. In the 1990s the panacea was ‘good governance’.  Both  worked out badly. Much has subsequently been learned about better ways forward. This time round, perhaps we can heed the dictum that the way to avoid endlessly repeating history is to learn from it.

AA Milne, in a classic story, tells of Winnie the Pooh and Piglet’s quest to find the mythical heffalump. For development  scholar-practitioners working at the governance-development interface, the heffalump quest has been to try and give structure, without being simplistic, to the range of messy realities out of which development might arise –  and thereby to help make practical  the exhortation that policymaking and implementation should be based on ‘good fit’ not ‘best practice’.  

As a pair of important new books spell out (see here for a complementary post), the development heffalump has been sighted. The heffalump has a name, ‘political settlements’. It is well-grounded  in a coherent theoretical literature. A solid body of work fleshes it out empirically. What follows are some explorer’s notes – a personal account of part of the quest that has led to the heffalump sighting, plus some reflections on a new frontier which the quest has brought into view.  

Phase I: 1986-1997 –   pre-history.   A year spent doing research in Korea and Taiwan in the mid-1980s crystallized for me the importance of looking beyond conventional Washington Consensus development prescriptions.  Between 1990 and 1994 (having joined the World Bank),   I co-led with Pablo Spiller a research project which aimed to distil practical insights from the new institutional economics (NIE) for the regulation of utilities; the research culminated in a widely cited co-authored article, and our co-edited book, Regulations, Institutions and Commitment(Cambridge U Press, 1994).  A central conclusion:

Utility performance turns out to be best when countries have achieved a good fit between their institutions and regulatory design, and worst when regulatory design proceeds without attention to institutional realities.”

The World Bank’s 1997 World Development Report, The State in a Changing World (for which I was part of the core team), provided an opportunity to further refine, synthesize and apply the emerging ideas about ‘good fit’. Thus, as per the 1997  WDR:

Matching role to capability is not a simple message of dismantling the state….It involves choosing how to do things – how to deliver basic services, provide infrastructure, regulate the economy-and not just whether to do them at all. The choices here are many, and must be tailored to the circumstance of each country…. There is no one-size-fits-all formula….There are institution-intensive and institution-light approaches to regulation and industrial policy. The choice of approach might appropriately vary with a country’s institutional capability. (pp.3-4; 75)

The challenge was to turn these fine-sounding nostrums into practice.

Phase II: 1998-2008 – a search for practical entry points for governance change. The 1997 WDR helped spur a major expansion of the World Bank’s work on governance and public sector reform, including expanded programs in each of the Bank’s regional vice presidencies; I became manager of a 20+ person team providing support to governments across Africa.

The rich diversity of African countries made it crucial to find a way of thinking more systematically about ‘good fit’ options for making governance and developmental gains.  In a 2002 Working Paper, “Patterns of Governance in Africa”,  using the responses to a survey conducted for the 1997 WDR, I  constructed a typology of 22 African countries, distinguishing between political dimensions of governance (the extent of formal rule-bound-governance, and the ‘credibility’ of political authority)  and administrative dimensions (the quality of bureaucracy). A 2004 book, (co-edited with Sahr Kpundeh), Building State Capacity in Africa, World Bank Institute Development Studies (2004) sought to derive lessons for improving governance from  a variety of World Bank supported public sector reform and capacity building initiatives. Rather than begin with normative prescriptions of what  ‘should’ be done, the book focused on ‘what happened, and why’ vis-à-vis specific efforts to strengthen governance – and suggested what  might be feasible entry points across different contexts.

The framework for distinguishing among divergent governance trajectories subsequently was incorporated in the joint World Bank-IMF publication  Global Monitoring Report 2006  in a special section (for which I was lead author) on “Governance as Part of Global Monitoring”. The framework distinguished heuristically between those contexts with early gains in bureaucratic capability, and (hopefully) later gains in the quality of checks and balances institutions, and those where checks and balances led, and bureaucratic capability (hopefully) followed.  Some of these lessons were incorporated into the World Bank Group’s 2007 Governance and Anti-Corruption strategy.

Phase III: 2006-2014 – engaging with  gurus. Two sustained  encounters helped strengthen the academic underpinnings of an emerging, inductive, bootstrapped approach to ‘good fit’.In 2005, I began co-teaching a course on ‘development strategies’ at Johns Hopkins School of Advanced International Studies with Frank Fukuyama (a course I continue teaching to this day). In 2008, after three years of co-teaching , we co-authored a  paper, “Development Strategies: Integrating Governance and Growth”, World Bank Policy Research Working Paper Number 5196, January 2010”.  As per its abstract, the paper “takes a broad view of the interactions between economic, political and social constraints. It lays out four distinctive sequences via which the different dimensions might interact and evolve over time, and provides country-specific illustrations of each.” The working paper provided a useful platform both for Frank’s subsequent work, and  for mine.  

In parallel,  Douglass North, John Wallis, Barry Weingast and others had begun a research project which aimed  to explore the relevance for developing countries of the analytic framework laid out their landmark 2009  book, Violence and Social Orders, The results were published in the 2013 book, In the Shadow of Violence.  (Part of the project team, I contributed a chapter on Zambia and Mozambique; the book also includes a chapter on Bangladesh by Mushtaq Khan, one of the pioneers of ‘political settlements’ analysis.)  Though their 2009 book focused principally on a transition from ‘limited’ to ‘open access orders’ (OAOs), the 2013 book had as its point of departure the understanding that:

“… the principal development problem is making improvements within the LAO framework…..The first development problem focuses on the movement of LAOs from fragile to basic, from basic to mature, and from mature into the doorstep conditions. Attempting to skip these steps and focus instead on the transition from an LAO to an OAO is more likely to fail than succeed”. (p.346)

Working with the Grain, published in 2014, two years after I left the World Bank, built directly on the work with Fukuyama, and with North, Khan and colleagues. Organized around a typology for distinguishing among contexts,  one of its principal goals was to provide an orienting framework for practitioners, “…capable of filling the gap between ‘best practices’ hubris on the one hand, and, on the other, the despair disguised as humility [that follows from] the notion that every country is unique and that there is little to be learned in one setting that can be helpful in another”.  (p.8) 

At least on the surface, there was strong momentum within the World Bank to put into practice the ideas which had been incubating over the previous decade: over 300 staff signed up to participate in  an in-house ‘political economy community of practice’; ample funds were made available for country and sector teams to incorporate political diagnostics into their operational work. In practice, though, for reasons explored in depth by Carothers and Gramont (2013), there continued to be sharp limits on the part of most in the Bank to embrace political economy work, beyond generality and lip service.

Phase IV: 2012-2020 – refining. 2012 saw the commencement of the Effective States and Inclusive Development research program, a 26-country  partnership, funded by DfiD, and based at the University of Manchester;  I worked closely with ESID throughout the subsequent eight years.  The ESID team was committed to working at the interface of theory and practice, adding value to each; ‘political settlements’ analysis provided the organizing conceptual framework.

Within a few years of start-up it became evident that the ESID research team’s shared enthusiasm for a ‘political settlements’ perspective translated into neither a shared, precise definition of such settlements nor a shared, consistent typology.  After a few years of collective angst, the  team settled on a new definition of a ‘political settlement’ as:

an ongoing agreement (or acquiescence) among a society’s most powerful groups over a set of political and economic institutions expected to generate for them a minimally acceptable level of benefits, and which thereby ends or prevents generalized civil war and/or political and economic disorder”.

Later in 2021, Oxford University Press will publish ESID’s capstone book, Tim Kelsall et al Understanding Development: the Promise of Political Settlements. (In the  interim, Kelsall’s co-authored  working papers –one on the conceptual framework, with Matthias vom Hau;  the other on the empirical methodology, with Nicolai Schulz – provide an overview.)  William Ferguson’s 2020 book, The Political Economy of Collective Action, Inequality and Development is an ambitious effort to integrate political settlements and the analysis of collective action. (See here for my summary overview of that book’s core ideas.) In my view, the above definition, its elaboration and empirical application together  comprise a landmark in the maturation of political settlements analysis – a sighting of the Heffalump.

Lessons and new frontiers. Over the past half-dozen years, my thinking has evolved vis-à-vis both the ‘static’ and ‘dynamic’ aspects of the typology laid in  Working with the Grain.  Considered from a static perspective, the WWG typology can be viewed as a way to categorize  country types, with “distinctive incentives, constraints and frontier challenges and thus distinctive ‘good fit’ policy actions that are both worthwhile and feasible, given country-specific realities”.  The WWG typology is best viewed as an example of ‘ideal-type’ thinking – a  simplifying device which is not intended to be comprehensive. There is, however, one key distinction – between power and institutions – which is blurred in WWG, and on which (spurred in large part by the ESID program)  my thinking has evolved substantially.  

As a complementary post (linked here) details, the insights which Bill Ferguson brought into the ESID program were key to clarifying the power-institutions nexus. As per Ferguson:

  • development challenges can usefully be framed in terms of collective action challenges;
  • whether and how these challenges are resolved is shaped by power;
  • institutions provide the mechanism for resolving  collective action challenges;
  • strong pre-existing institutions can support resolution; and
  • pressure on institutions can result from misalignment between the structure of power, and the distribution of outcomes supported by the prevailing institutions, the institutions

The last of these  has important implications for how development trajectories unfold over time.

WWG’s approach to the longer-run was optimistic; it focused “on how governance and growth interact…framed in terms of a virtuous circle:  initiating change, building momentum, sustaining momentum”.  Virtuous circles are nice, of course – indeed, a central purpose of an incremental, with-the-grain approach to policymaking and implementation is to sustain a positive trajectory.  But if imbalances between the allocation of power and the distribution of benefits become too large, the result will be crisis – and on this (and on ways out of crisis) WWG had little to say.

Spurred by the crises which many countries the world over have confronted in recent years (not least the two countries with which I am most intimately connected, South Africa and the USA), a central pre-occupation of my recent work has been on development’s “crisis-renewal” watersheds. This exploration has taken me beyond WWG’s focus on institutions,  and beyond ESID’s focus on the power-institutions nexus, to a quest to better understand the ‘independent’ role of ideas. Depending on the context, ideas can be  glue holding a political settlement together, a source of rigidity blocking change, a solvent unlocking change, and an effervescent inspiration bringing renewal.

This hardly is virgin terrain: Keynes, Hirschman, North and Rodrik all have made important contributions (summarized here).  The role of ideas in political settlements analysis has been explored within the ESID family,  by both Ferguson and by Tom Lavers. Insofar as I might have anything to add, my intent, following the general pattern of my work, is to move back and forth between the general and the specific. For both South Africa and the USA:  How, in recent years, have ideas  interacted with institutions and power? What role have they played in fueling downward spirals? How (in the spirit of a bias for hope) might ideas provide fuel for renewal? The hunt beckons.

Ethiopia and the World Bank in the 2000s

The role of donors in Ethiopia has emerged as a focus of an ongoing debate on authoritarian aid. (See here and here) As part of a broader wariness of where  moralizing hubris  can lead, I made a decision a few years ago to focus my work on the challenges of ‘messy democracies’ (which, evidently as of 2021, includes the USA and other Northern countries). Though I don’t intend to engage with the current controversy, between 1999 and 2008 I was quite centrally involved with the World Bank’s engagement in Ethiopia, especially from a governance perspective; I subsequently  wrote about that experience. Here, as a contribution to the current debate, is the relevant extract from my 2014 book, Working with the Grain.

“Ethiopia – planting seeds of bottom-up accountability.  Between 2000 and 2010, aid inflows averaged about 5-8 percent of total annual income (in the range of $1 billion annually) – and accounted for about one-third of public expenditures. When it comes to aid, mutuality often  plays out in a troublingly superficial way: political support from citizens of donor countries depends importantly on the aid effort’s ability to evoke among ‘Northern’ taxpayers a warm feeling of doing the right thing.

Prior to Ethiopia’s 2005 election, the country had become a poster-child of ‘good’ aid. Back in the 1970s, along with Bangladesh it had been the country where images of starving children had evoked a rash of ‘live aid’ rock concerts and feel-good donations. For a while, the brutality of the  repressive military Derg regime undercut the narrative. But finally, with the emergence in Meles Zenawi of  a new-generation-leader committed to development, the narrative could come together.  The strength of   commitment by donors to Meles Zenawi’s government was evident both in the amount of aid, and in the form in which it was given. Ethoiopia became a leading example of new, cutting edge approaches to development aid. 

A common criticism of aid is that it supports gold-plated enclaves (complete with the donor country nameplate)  in the form of  initiatives which destroy the capacity of national governments by undercutting the recipient government’s ability and willingness to make choices, and by  luring the most talented people away from the public sector. In response to this criticism, in countries where governments seemed committed and capable, donors increasingly were moving to provide aid as annual ‘budget support’ for the country’s expressed priorities. (This isn’t quite the blank check it seems. It provides a platform for in-depth dialogue between donors and recipient governments as to priorities and performance. As champions of budget support pointed out, having some influence over all of government spending was surely likely to do more to combat poverty than having direct control over what rarely amounted to more than 5-10 percent of the total spend.) Meles’s commitment to development, plus the country’s track record of managing resources prudently, had made Ethiopia a major recipient of budget support.

But in the violent aftermath of the 2005 election, the positive story came undone. It became politically impossible to write an annual budget support check; that would signal seemingly unqualified support for the Meles regime. Instead, the clamor arose for donors to withdraw support entirely from Ethiopia. What was to be done? Donors adopted a two-part response.

One part was a fig-leaf of sorts. In place of budget support, and without cutting aggregate levels, donors embraced a new aid model for Ethiopia: the protection of basic services. Formally, there were two large differences between the old and new models. Aid no longer was made available for general purposes: it was specifically targeted to support a scaling-up of social sectors by paying the costs of teachers and health workers. Better yet, in Ethiopia’s radically devolved formal constitutional arrangements,  education and health were the functions of regional governments, the support provided was no longer going directly to Meles. In practice, though, budget revenues that aren’t used for one thing can be used for another. Provincial levels had no independent revenue-raising capabilities, and teachers and health workers were already being paid indirectly by the center through inter-governmental transfers. But budget fungibility is an argument  for technicians. Viewed through a more political lens, the advantages are large vis-à-vis donor country electorates of reframing aid  in terms of direct support for teachers, nurses and doctors.  

The second part of the donor response also might initially have seemed symbolic – though it was especially difficult to negotiate with the Ethiopian government. In return for large-scale continuing aid support for the provision of basic services, donors pressed hard for the introduction of a variety of bottom-up mechanisms to enable citizens and civil society organizations to monitor whether public resources indeed were delivering on their intended purposes.

Implementation was a long, slow process; for four years, there were repeated disagreements between donors and government, and associated delays. But, remarkably, the Ethiopian authorities themselves increasingly have embraced the bottom-up approach. As of 2012, over 3,000 officials from across the country had been trained in how to design and implement good practices in local-level financial transparency and accountability; over 50,000 local leaders have been sensitized as to how they can proactively monitor public spending; over 90 percent of all local governments were posting budgets.

To be sure,  no one would confuse contemporary Ethiopia with a vibrant, multi-party democracy along the lines of contemporary Korea.  Meles’ regime was not one to make the same mistake twice. Going into elections in 2010, there was little doubt as to the outcome. In the event,  the EPRDF won close to two-thirds of the vote, and 99% of the seats in national and regional parliaments. But the journey of development along the dominant trajectory can be a long and surprising one. In the early 1960s, no one would have predicted that forty years later Korea would be a thriving multi-party democracy. Whether Ethiopia can sustain a further two decades of stability and broad-based, inclusive economic growth is  enormously uncertain – and Meles’ untimely death only underscores the risks. But if Ethiopia is able to remain on its current trajectory, the seeds of better governance which have been planted over the past two decades – a de jure democratic constitution with strong formal checks and balances; and a de facto willingness to explore how bottom-up transparency can help hold public officials accountable for performance – could yet be early harbingers of a profoundly transformed polity and society.” (2014; pp. 65-67)

Anti-Corruption for Adults

A new publication  from the World Bank offers a view of the past, present and future of work on anti-corruption. The vista left me feeling surprisingly hopeful.

‘Anti-corruption’ never has been my favorite topic; its discourse has, to my ears, often seemed  too self-righteous, potentially counterproductive in its polarizing, Manichean certainties.  But Enhancing Government Effectiveness and Transparency: The Fight Against Corruption, published by the Bank in September 2020 is different.

From the start, unlike  many anti-corruption dicta (some of which, as a one-time insider, I helped to write) the report foreswears any grand statement of what is to be done. Rather, it frames its purpose as:

“ to equip public sector officials and civil society with a set of approaches, entry points and tools that can be drawn upon and adapted to their specific country context….. By design, many of the examples are taken from countries and sectors where corruption remains widespread but where public officials and civil society have not given up battling it.”

There is a sense of sobriety, of sharing hard-won insights.  No quick fixes. No ‘best practice’ technocratic solutions ready to be parachuted in. There is recognition of the centrality of context:  

“Political realities  constrain the menu of policy responses from which leaders may choose…… Technical solutions alone are insufficient to have an impact on corruption, nor can they be merely transplanted from one country context to another”

 “Many high-profile anti-corruption strategies have proven to be ineffective and only give a veneer of government action…..Progress is not linear and reforms could suffer due to political setbacks and/or institutional weaknesses, yet even basic efforts could provide a foundation on which to build.”

‘Magic bullets’ from times past are given no special treatment:

“Pervasive institutional limitations raise questions as to whether the model of a stand-alone multi-functional anti-corruption agency is the right one…..”

“While many countries have asset and interest declaration systems, there is limited evidence of their effectiveness. Most AID systems have yet to live up to their potential.”

Indeed:

“Progress in the fight against corruption is not necessarily from the large government-wide announcements and initiatives that garner extensive press coverage, but from the more focused efforts and more subtle changes that governments and communities make that may go unobserved.”

Having thus cleared the air, the report directs attention to practical entry points for change, organized around  brief overviews and in-depth case studies for each of fifteen anti-corruption-related topics. Even though the authors explicitly foreswear the ambition to offer  a grand synthesis, there seemed (at least to this reader) to be an implicit  unifying thread – the idea that entry points emerge and expand  through creative interaction across multiple dimensions, with pride of place given to interactions  among sector-level initiatives, stakeholder engagement, and ‘govtech’.

On sector-level interventions:

“Unpacking sector-specific issues is crucial to diagnose the root causes of corruption in public services and design appropriate interventions. Even within a sector, a reform could be narrowly focused on rooting out a particular issue, such as bribery in surgery waiting lists, or adopt a multi-pronged approach to focus on the entire service.”

On multistakeholder engagement:

“Mobilizing citizens and stakeholders and strengthening their hand through greater project transparency and openness can build momentum, and change the political economy and cultural considerations that have allowed corrupt practices to happen.

On ‘Govtech’ (which includes the mainstreaming within the public sector of digitization, big data,  cloud computing, artificial intelligence, machine learning, biometrics and digital payments):

“The broadening and deepening of global digitization of governments and citizens is changing the face of public sector governance and its impact on anti-corruption.”

If the ‘govtech’ approach is too-narrowly tech-oriented, the result could be little more than:

 “mere window-dressing…..giving only a veneer of government action…..The traction of digital technologies in reducing fraud and corruption depends on institutional context. Any system will only be as good as the practices that complement it….. Impactful reforms usually require a combination of several layered or sequenced interventions.”

“Framing technology-supported reforms as a public services delivery agenda, rather than an anti-corruption crusade, may  be a more disarming approach in light of the existence of the vested interests benefiting from corruption.”

Two especially evocative cases illustrate how a sector-specific focus, multistakeholder engagement and govtech  can reinforce one another:

Empresas Publicas de Medellin, a municipally-owned infrastructure utility in Colombia:

“EPM proactively makes itself accountable to citizens and shareholders through a series of transparency initiatives, digitization, and customer-engagement practices. Citizens in the community consider themselves to be the real owners of the company and look out for, and protect it, from interference that could be detrimental to its purpose, including a surveillance committee to observe and control the mayor’s decisions and actions that could negatively affect the company.”

“In 2018, in an annual Citizen Perception Survey,  88% of the Medellin population had a favorable image of EPM…. In 2019, EPM created a new communication channel called ‘Transparent Contact’ where citizens could report acts of fraud and corruption involving officials and contractors through a web page, a free hotline, email or fax.”

The National Health System of Ukraine, established in early 2018:

“The NHSU includes an eHealth system for digital health records and reimbursement, initially developed and tested by Transparency International Ukraine… ‘Money follows the patient’ – all public facilities and any private facilities requiring or desiring public financial support had to sign up. Patients signed a declaration with their practitioner, presenting official documentation. Declarations were confirmed using patients mobile phones connected to their registered addresses. Signed declarations underwent central vetting using algorithms to prevent fraudulent or multiple submissions.

“An Affordable Medicines Program provided patients with information about which medicines were covered by the NHSU, and which were not. This increased overall access to medicines and led to a huge reduction in patient co-payments. In July 2019, over four million electronic prescriptions were filled under the NHSU reimbursement program, and over 3 million e-prescriptions issued by pharmacies were reimbursed.”

An October 2018 poll found that 7% of polled patients paid a bribe, compared with 20% in August 2017.”

A focus on the practical is a welcome corrective to hubris.  But, in a world hungry for hope, is it enough? The report’s answer is clear:

“The evidence is overwhelming  that sector specific interventions alone are generally insufficient. Corruption at the sectoral level may flourish because of broader social norms and a governance ecosystem that either tolerates or encourages corruption.”

Though it is not the central focus, there are some tantalizing hints in the report as to what  might  be a mode of engagement capable of making the whole greater than the sum of its parts:

 “Through a sustained and broad-based movement, country examples demonstrate that change can happen at both the project and society level…. What is needed above all, is the commitment of all parties to engage proactively in the fight against corruption through collaboration, innovation and mutual trust”

More from me some other time on a deliberative, coalition-building, norm-strengthening approach to governance work.

****

How did the World Bank’s October 2020 anti-corruption report manage to avoid the chronic disease of descent into cliché that all-too-often afflicts reports of this kind?  

In my experience, the best of the World Bank is to be found in engaging individually with its staff –  most of those who work on governance bring deep reservoirs of experience, thoughtfulness, professionalism and commitment to their efforts. In recent years, governance practitioners have been sobered, humbled.  Paradoxically, this may have opened up space. Perhaps the loss of center stage has made possible a shift in the balance between wheat and chaff.  As the great singer-songwriter Leonard Cohen put it in his song, Anthem:  

Ring the bells that still can ring.
Forget your perfect offering.
There is a crack, a crack in everything.
That’s how the light gets in.

My congratulations and appreciation to all involved in this fresh, hope-evoking publication.

 

Learning from populism’s four moral struggles

Ethno-populistAntidote
Who are “the people”?exclusionary“We the people
FOR what are the people struggling?Affirmation via identityA thriving, inclusive society
AGAINST what are the people struggling?The ‘evil’ otherEntrenched power asymmetries  
HOW are the people struggling?Angry demagogyDeliberatively

While I’ve not become a born-again populist, a sea change in the tenor of political discourse has led me to explore some uncomfortable terrain: What might be usefully be learned for the task of democratic renewal from the resurgence of populism in country after country? (This is an updated version of a post originally published in January, 2020)

I have come to understand that the health of societies and polities depends on  modes of discourse which raise the stakes beyond what a narrowly pragmatic way of engaging with the world can offer. As Harvard economist Dani Rodrik put it:

Any model of political economy in which organized interests do not figure prominently is likely to remain vacuous and incomplete….. But a mapping from interests to outcomes, depends on many unstated assumptions about the ideas of political agents”.

The way populists use ideas is far more potent as a call to political action than  a narrowly pragmatic pre-occupation with material interests. Populists frame politics as:

 the people in a moral struggle against elites” .

Moral, emotionally-charged language fits uncomfortably with the (seemingly) reasoned discourse with which many of us are most comfortable. However, as Berkeley professor George Lakoff  has emphasized, “political thought begins with moral premises”. Rather than recoil,  the challenge for non-populists is to engage in ‘moral struggles’ in ways which can support democratic renewal, fostering hope rather than fueling rage.  

This post distills some ideas as to how this might be done, organized around  four questions suggested by the logic of populism:

  • Who are the ‘people’?
  • Against what do the people struggle?
  • For what do the people struggle?
  • How do the people struggle?

Who are the ‘people’? The notion of the ‘people’ is (as per a recent book by Columbia University’s Nadia Urbinati) a “stubborn ambiguity” at the heart of political discourse – one which populists are adept at exploiting. The ‘people’ can be characterized variously as those who enjoy legal standing (i.e. those in whose name laws are made and enforced); as the socio-historical body that lives in a specific territory (i.e. the ‘nation’); or as some subset of the broader legal or socio-historical entities. Populist leaders set themselves the task, as Urbinati puts it, of:

 “the extraction of the ‘true people’ from the empirical people… Their notion of the people corresponds to ‘the right people’: this is the only people they plan to speak for.”

Rather than separating out a sub-group (the ‘true people’) from everyone else,  a very different way of mobilizing  ‘the people’ for a moral struggle is to embrace  an inclusive vision of “we the people”, of an active citizenry.  South Africa’s ‘united democratic front‘ which mobilized against apartheid South Africa offers a powerful, recent example of a, “we the people” struggle by an inclusive, active citizenry.

‘Active’ entails more than voting in national elections; it includes engagement at local, state and national levels; in civic organizations; and, crucially, in political parties. ‘Citizen’ entails a sense of shared obligation, a willingness to play by rules shared with other fellow-citizens – and a clear, broadly accepted framework which lays out eligibility criteria and mechanisms for transitioning from non-citizen to citizen status. (yes: immigration policy….). A sense, as a synonym for active citizenship, of civic patriotism.

Against what do the people struggle? For populists, the moral struggle is against the peoples’ enemies – those who exploit the people, humiliate them, deprive them of their just patrimony. The fuel comes from anger: vanquish the enemy, and all will be well. But once an oppositional framing has been introduced, the demon of us-versus-them polarization lurks exceedingly close to the surface – and (as I explored in an earlier post in this series) the consequences of its unleashing can all-too-readily become a catastrophic downward spiral. 

Viewed from a non-populist perspective, the struggle ‘against’ need not be personalized, but could aim instead to combat entrenched asymmetries of power which undercut  equal rights and opportunities of citizens, both economically and politically.  The  World Bank’s  2017 World Development Report, Governance and the Lawlaid out some hard truths about power asymmetries and their consequences with surprising frankness. As the WDR put it:  

The unequal distribution of power—power asymmetry—can influence policy effectiveness….the negative manifestations of power asymmetries are reflected in capture, clientelism, and exclusion”.

For countries with a strong-enough institutional platform, a struggle ‘against’ could usefully focus on a revitalization of anti-monopoly policies,  and reform of the rules governing the financing of political campaigns (including limiting the role of ‘dark money’ in politics).

For what do the people struggle? For populists, the struggle ‘for’ generally is the mirror image of the struggle ‘against’ – fueled by a false promise that once the enemies of ‘the people’ are defeated,  all will be well.  By contrast, the struggle ‘for’ is central to a non-populist vision of a thriving  democracy. It is a struggle for equal opportunity and equal dignity as citizens – for a polity, economy and society within which all citizens can work to shape their own lives,  and participate peacefully in the shaping of their societies, according to their distinctive visions of freedom and justice.  It is a ‘moral struggle’, built not on resentment, but on a foundation of empathy and mutual obligation among citizens. 

Central to the non-populist struggle ‘for’ is the classic tension between markets and the public sphere. Markets offer economic freedom and a platform for accelerated economic growth –  but left unchecked are likely to be accompanied by rising inequalities and power asymmetries. An active public sphere not only sustains a level playing field, it also is the locus for economic and social policy reforms aimed at strengthening inclusion and opportunity for all citizens:

  • Strengthening ladders of opportunity, via additional public investment in early childhood development; primary, secondary and tertiary education;  technical and vocational education; and on-the-job learning.
  • Support to help those left behind to navigate change, including strengthened social insurance; a minimum safety net; and active labor market policies.
  • Pro-active efforts at redistribution, including capital endowment and income support policies, and tax reforms which expand fiscal revenues and enhance the progressivity of the tax system

There is ample scope to debate the details of each of these, to broaden (or contract) the list. Whatever the details, what is needed is an openness to far-reaching innovation, responsive to 21st century challenges to inclusion and equal dignity – globalization, accelerating technological change, the rise of network industries, information (and dis-information) abundance,  and ongoing climate crises.

How do the people struggle? Both for populists and for non-populists, ends and means are inseparable. All-too-often, populist leaders present themselves as ‘tribunes of the people’, who uniquely manifest the peoples’ will  –  and then target democracy’s guardrails as the mechanism through which the elite establishment frustrates the achievement of what the people need.  Compromise with the enemy establishment becomes betrayal.  Concentration of power in the leader’s hands becomes the natural way to realize their vision.  The erosion of norms and institutions of restraint is a feature, not a bug.

For non-populists, by contrast, both  ends and means point in the direction of institutional stewardship, fostering co-operation rather than fueling conflict. This is well-captured in how two Nobel Prize winners, Douglass North and Oliver Williamson, define institutions, namely as:

“…humanly devised constraints which govern human interaction….. an effort to craft order, thereby to mitigate conflict and realize mutual gains.”

As means, institutions provide the necessary foundation for an inclusive economy and society, capable of offering  equal opportunity and the prospect of a better life for all their citizens. As ends, commitment to equal dignity is inseparable from waging a moral struggle in ways which respect guardrails of restraint on the abuse of power.  

Insofar as respect for institutions is central to the way in which non-populists struggle, it seemingly poses a dilemma –  requiring them to struggle against toxic populism with one hand tied behind their back. Might it not be better to defeat toxic populism by fighting fire with fire? Perhaps surprisingly, as the last post in this series explores, the answer is an unequivocal “no”.

Co-operation collapses, institutions implode, consequences cascade

We cannot know our own country unless we see it in relation to somewhere else. For those of us who came to the USA from countries with more difficult histories, what currently is unfolding is a flashing red light, a wailing siren, a five alarm fire.

“America’s institutions remain strong” was a refrain I heard repeatedly in recent travels outside my usual professional and social bubble. This view, and the complacency it fuels, is profoundly misguided.

Institutions – “humanly devised constraints that structure human interaction” –  are anchored in a shared commitment to limit conflict.  The checks and balances architecture  laid out in the US constitution provides a vital formal guardrail – but the foundation on which the edifice ultimately rests comprises a shared understanding among stakeholders that they will abide also by tacit, conflict-containing norms.  In today’s USA, those norms are at –  perhaps already beyond – breaking point.  When conflict-containing  norms break down, then look out below.

An increasing body of excellent scholarship has used a comparative lens to understand the USA’s governance crisis. (See HEREHERE and HERE). In this piece, I add a personal perspective. Forty-three years ago, aged 23, I landed at Boston’s Logan airport, leaving behind a country then deeply in the grip of apartheid’s tyranny,  in search of my version of the American dream, citizenship in ‘a more perfect union’.  I continue to hope against hope that America’s better angels may yet prevail. But sustaining this hope is becoming increasingly difficult.

Two sets of entrenched habits of thought and action risk propelling the USA into an abyss. The first comprises a reckless propensity to polarize.  Integral to a thriving society is  a platform of shared commitment to the common benefit, to providing the myriad public goods which underpin a thriving society.  Views will vary  as to which public goods to provide, and how to provide them. With compromise, a society can thrive. But if protagonists adopt  ‘my-way-or-the-highway’ approaches to collective discourse,  social problems fester indefinitely.  (Aficionados of game theory will recognize this as a description of the game of ‘battle’.)

Failure to address deeply-rooted social problems has been the reality in many countries –  but not, I always assumed, of the USA. Yet currently the United States finds itself unable to achieve  sufficient consensus to make progress on any of a  myriad of pressing challenges: immigration reform, health care reform (including, as the covid19 pandemic has revealed, ongoing underinvestment in public health capability); investment in infrastructure; reforms to improve learning outcomes; protection of the environment;  support for basic research; social insurance; the list goes on and on…..

At the limit,  an unbounded, unconstrained willingness to  do what it takes to impose my-way-or-the-highway solutions –   to threaten and intimidate, including the threat of inflicting massive, mutual destruction – risks a slippery slope towards disaster. (Aficionados of game theory will recognize this as a description of the game of ‘chicken’.)   The absence of a coherent public domain is not laissez faire capitalism. It is the destruction of  the institutional platform which enables a market-economy  to function. It is the loss of the  predictability which provides the basis for thriving, vibrant human life. It is an accelerating destruction of  wealth; social capital; culture; knowledge; the institutional foundations of civilization. The specter of state collapse and a descent into violence comes into view.

A second set of entrenched habits of thought and action,  a sub-species of the first, may not lead all the way to state collapse – they risk driving the USA into a made-in-America variant of state capture.  Here I have in mind a cluster of ideas and interests which demonize the public sphere.  Being non-American born, and schooled in an eclectic economics tradition,  I take for granted the virtues of a mixed economy, with distinct public and private realms. So the depth of American distrust of government has come as a surprise   – though I’ve increasingly come to understand that it has roots both new and old: new in that it has been fueled by the billions of dollars spent by the Koch brothers propagating libertarian ideas (see HERE and HERE);  old in that distrust in government has long had a hold on the American psyche,  as Gary Wills has documented.

Libertarian world views offer no adequate response to changes in the economy in recent decades,  spurred by a combination of globalization and technological change (see HEREHERE and HERE) which have put new pressures on middle class livelihoods.  Rather than work to construct a new vision,  what has emerged among the protagonists of limited government has been the collapse of any sense of shades of gray. Inclusive policies of a kind which are uncontroversial in all other high-income countries become demonized as slippery slopes on ‘the road to serfdom’. Dwight Eisenhower and Richard Nixon become left-wing fellow travelers. This would be farcical were it not for the consequences.

A pre-occupation with keeping taxes low, at whatever price, has led to the political swamp –  an openness to policies and ideologies profoundly antithetical to what had seemed to be deeply-held national values.  What is unfolding resembles nothing so much as a made-in-America variant of state capture – a toxic hybrid of ethno-nationalism and a corrupt, praetorian politics.

Ethno-nationalism and praetorian politics draw on distinctive American legacies: Huey Long, Father Coughlin and the violent white supremacist Jim Crow South (plus more genteel variants of superiority, rooted in a culturally-narrow vision of American exceptionalism). But what currently is unfolding resembles political currents which are  distinctly non-American:  the European ethno-nationalist fascist movements of the first half of the twentieth century (which in Hungary, Poland and other countries are making their own comeback);  cults of personality of a kind which are all-too-familiar in Latin American or African ‘big man’ politics.  Those of us who have lived and worked in such settings know that this generally ends badly.

***

Like most immigrants, I was drawn to America by  what seemed to be a happy combination of bold risk-taking and a pragmatic, can-do spirit, a sunny optimism. More than I knew when I came to these shores, darker impulses also festered beneath the surface; now they threaten to overwhelm.  It doesn’t have to be that way.

What drew me to America may have been an incomplete picture, but it was not false. Though currently in eclipse, the better angels of America’s nature could again be ascendant. Here is what I wish for: that the American center holds; that politicians of the center win a sweeping electoral victory, and renew the American polity, economy and society by learning from political practices which made America great in the 20th century:

  • The ‘bold, persistent, experimentation’ which characterized the far-reaching, inclusive reforms which comprised the New Deal of the 1930s – reforms which were vilified at the time by those on the right but which,  as Franklin Delano Roosevelt himself put it, “saved the system of private profit and free enterprise after it had been dragged to the brink of ruin.”
  • The non-violent activism of the 1950s and 1960s  civil rights movement, which offers an inspiring example of what can be achieved by embracing and universalizing,  rather than crashing through,  deeply-held (if imperfectly realized) American values of tolerance, respect for the individual, and the equal dignity of all people.
  • A civic-minded corporate culture,  part of a broader embrace of a mixed economy –  an embrace which Yale and Berkeley political scientists Jacob Hacker and Paul Pierson usefully remind us in their  book American Amnesia was a key pillar of mid-twentieth-century American prosperity  (with strong support from a variety of business organizations, including the  Committee for Economic Development the Business Advisory Council, and the American Chamber of Commerce).
  • Legislative compromise in pursuit of the collective good, including Republican Dwight Eisenhower’s National Interstate Highway Act, which authorized 41,000 miles of new road construction; white southern Democrat Lyndon Johnson’s championing of the 1965 Voting Rights Act; and  Republican Richard Nixon’s  creation of the Environmental Protection Agency and championing of an expanded, modernized welfare system (including early support for a variant of Universal Basic Income).

These practices made America great (for many, not all…..)  in the twentieth century. Inclusive 21st century variants could provide a platform for renewal, for building  a thriving, inclusive and environmentally sustainable society, one which offers equal dignity and opportunity for all – and, in so doing,  could make America great again.

The cascading consequences of co-operation’s collapse

What happens when co-operation collapses? Where might this lead? Bill Ferguson’s recent efforts to interpret political settlements analysis through the  analytical lens of collective action and game theory offers useful insights. Drawing on Bill’s work, what follows summarizes three simple ‘games’ which illustrate how a collapse of co-operation  can lead to disaster. (This piece is not wholly self-standing; its aim is to provide some game-theoretic details referenced in the principal/companion piece, “Co-operation collapses, institutions implode, consequences cascade”.

    GROUP B  
    Co-operate Defect
GROUP A Co-operate 2,2 -1,3
  Defect 3,-1 0,0

Game #1 – how an abandonment of co-operation can lead to the collapse of rule-bound governance.  As Nobel-prize-winning economic Douglass North taught us, institutions – “humanly devised constraints which govern human interactions” – comprise a system of rules. But having agreed on a set of rules, will the participants abide by them? In classic free-rider fashion, each participant could get higher benefits by defecting from the co-operative agreement; but the incentive structure induces both to defect, leaving both worse-off compared to the co-operative equilibrium.  Benefits matrix #1 above illustrates. (This is, of course, the classic ‘prisoners dilemma’ game.)   Formal check and balance institutions (including the rule of law)  comprise the classic mechanism for guarding against opportunism, including vis-à-vis  market transactions.  However, when political leaders with  control over the levers of governmental authority defect from the co-operative agreement, then  guardrails of restraint can all-too-readily give way.    

Game #2: how a collapse of co-operation can result in a failure to provide  to provide the myriad public goods which are integral to a thriving society. Public provision requires multiple stakeholders  to agree both as to which public goods to provide, and how to provide them. Views may vary; political institutions provide the decision-making mechanisms to enable stakeholders to  reach sufficient agreement to move forward.  Consider what can happen, though, if participants adopt ‘my-way-or-the-highway approaches to collective discourse.  Benefits matrix #2 illustrates with an example where both participants are supportive of provision, but differ as to their preferred modality of provision. If neither is willing to compromise the result will be non-provision, leaving both worse off. (This is an illustration of game theory’s classic ‘battle’ game.)

    GROUP B  
    Option A Option B
GROUP A Option A 2,1 0,0
  Option B 0,0 1,2

Game #3 – how a collapse of co-operation can produce catastrophe, including state collapse and a descent into violence. In this game, as  benefits matrix #3 illustrates, the insistence of protagonists goes beyond an willingness to compromise to achieve joint gains (in which at least one party achieves less than their potential maximum benefit. In this game (the game of ‘chicken’) each protagonist embraces an unbounded, unconstrained willingness to  do what it takes, to threaten and intimidate – including the threat of inflicting massive, mutual destruction – to force acquiescence by others to some preferred outcome. As benefits matrix #3 illustrates, if one player backs off, then bullying behavior is rewarded. However, if neither player is willing to acquiesce to the other, indeed if each is willing to go to any length, including violence, in pursuit of his preferred outcome, the result for everybody involved could be disastrous.

    GROUP B  
    Co-operate Fight
GROUP A Co-operate 2,2    0, 4
  Fight 4,0 -4, -4