What are the priorities for strengthening South Africa’s public sector?

Building public sector capability is again rising on the agenda, in South Africa and elsewhere. The topic has been a longstanding pre-occupation of mine – as practitioner, as researcher, and in my teaching. I’ve especially emphasized the importance of looking beyond proximate causes (eg weak ‘capacity’ and institutional forms) – and to focus (also) on underlying causes (“public sectors are embedded in politics”) and reform initiatives that can effectively address these underlying causes. Here’s a mouthful that will guide my research agenda in this area going forward “socially-embedded bureaucratic autonomy”.

A year ago, I published a piece in The Conversation on what it will take to renew South Africa’s public sector. “https://theconversation.com/beyond-the-cabinet-reshuffle-what-will-it-take-to-renew-south-africas-public-sector-165777 In the rush of everything happening at the time, I neglected to include it in my blog series. So here it is. And here is a link to a TV interview with eNCA that builds on the piece. https://www.youtube.com/watch?v=pFhltdDorhk

Between South Africa’s frying pan and America’s fire

Fueled by hope, I spent the 2010s travelling back-and-forth between South Africa and the USA, sharing  an optimistic approach to integrating governance and development strategies with mid-career practitioners at both SAIS and the Mandela School. But the subsequent decade unfolded in unexpectedly toxic ways in both countries. It felt important to complement with-the-grain pragmatism with an exploration of underlying challenges. A 2021 co-authored paper explored why things turned rancid in South Africa.  My new paper –  How Inequality and Polarization Interact: America’s Challenges Through a South African Lensalso published by the Carnegie Endowment for International Peace – takes a comparative perspective.  This post lays out five personal take-aways from the comparison. (Here’s a link to the paper’s executive summary).

Take-away #1:  Far more than is the case for contemporary South Africa,  America’s current wounds – increases in inequality since the 1980s, and their attendant social and political correlates –   have been self-inflicted.

Back in the 1970s, I had been  drawn to the USA by its openness, its commitment to freedom, equal dignity and equal justice for all – everything that the South Africa I left behind was not.  With its 1990s ‘rainbow miracle’ transformation from apartheid to constitutional democracy, South Africa became a new  beacon of possibility for people around the world who value democratic governance and inclusive societies. However,  the country’s subsequent reversals were not wholly unexpected. Three decades after the end of apartheid,  South Africa remains among the world’s most unequal countries, and its fraught racial history continues to fester – though the rawness and relative recency of the anti-apartheid struggle perhaps continues to offer some immunization against a further-accelerating downward spiral.   

For the United States, however, the converse may be true. In the decades subsequent to World War II, the combination of an equitably growing economy and a vibrant civil rights movement had fostered the hope of deepening economic and social inclusion. But  beginning in the 1980s, the benefits of growth became increasingly skewed, and  ‘culture wars’ became increasingly virulent. Complacency bred of long stability may have lulled America  into  political recklessness at the inequality-ethnicity intersection – a recklessness that risks plunging the country into disaster.

Take-away #2:  In both South Africa and the USA, the drivers of polarization have been multiple and mutually reinforcing; essentialist explanations that focus narrowly only on a single dimension –  economic, institutional,  cultural or racial  – and ignore the others are, at best, seriously incomplete.

The Carnegie paper distinguishes between polarization’s demand-side and its supply-side.  The demand-side comprises the way citizens engage politically – as shaped by power, by their perceptions of the fairness of economic outcomes, and by whether they frame identity  in inclusive or in us/them ways.  The supply-side comprises political entrepreneurs and the ideas they champion –  ideas about how the world works; ideas about identity. Mutually-reinforcing interactions between the demand- and supply-sides can become increasingly toxic – potentially even to the point of a doom loop that destroys constitutional democracy.

Take-away #3: Both South Africa and the USA need to be more pro-active in renewing economic inclusion  – but  making the shift from an inequality-fueling to an inclusion-supporting economy is less daunting than it might seem.

When considered through the lens of the interaction between inequality and ideas, pro-inclusion policies are less important as ends in themselves than for how they affect the willingness  of citizens to accept the rules of the game (including the distribution of economic outcomes) as broadly legitimate.  As South Africa’s rainbow miracle turnaround in the 1990s and early 2000s shows, a turn from anger to hope does not need a comprehensive package of pro-equity reforms. Rather, reforms that foster “good-enough inclusion”—some immediate gains that signal that things have changed, combined with credible signals that longer-term structural change is underway—can set in motion a virtuous spiral, which can be sustained as long as the momentum of  positive policy change continues to unfold over time.

Take-away #4: The influence of economic elites, though often obscured beneath the headlines,  has been central in both countries – for both good and ill. 

In South Africa, as Alan Hirsch and I explored in depth,  South Africa’s business establishment played a leading role in helping to midwife negotiations between the white minority government and the ANC.  In the USA, organized business was an important part of the elite consensus that fueled three decades of inclusive economic growth subsequent to World War II. In recent decades however, a segment of the elite  has actively financed  political entrepreneurs who have skillfully championed a combination of polarizing cultural discourse and distributionally regressive economic policies. This is a classic example of elite capture, a phenomenon familiar to scholars of comparative politics.  Paralleling what happened in 1980s South Africa, might America’s economic elites wake up to these risks and become more open to inclusive renewal?

Take-away #5: In settings that are open politically, turnaround will be achieved less by directly engaging  polarization’s most toxic champions, than by working around them.

Mass political mobilization was pivotal to South Africa’s shaking loose the shackles of apartheid – and new calls to the barricades might seem to be the obvious response to current political and governmental dysfunction.   However,  different times and different challenges call for different responses.  Currently, both the South African and U.S. governments are, at least aspirationally, committed not to accelerating polarization but to strengthening both inclusion and the institutional foundations of democracy. In such contexts, some compelling research suggests that what is called for is not fighting polarization with more polarization but lowering the temperature by fostering deliberative discourse, focused on positive, hope-evoking options. As happened once before in the USA,  the aim would be for a myriad of collaborative, problem-focused grassroots initiatives  to serve as potential building blocks for  a twenty-first-century social movement– a  movement that views cooperation in pursuit of win-win possibilities not as weakness but as key to the sustainability of thriving, open, and inclusive societies.

America’s Governance Challenges Through a South African Lens – summary

This is the executive summary of my new paper published by the Carnegie Endowment for International Piece. For my more personal take on the parallels between South Africa and the USA, and their implications, click HERE.

Over the past decade, toxic interactions between persistent inequality, racial tensions, and political polarization have undercut the promise of South Africa’s so-called rainbow miracle transition from apartheid to democracy. South Africa’s recent history sheds light on the United States’ recent political travails. It illustrates how interactions between inclusion and inequality on the one hand and political ideas and entrepreneurship on the other can fuel positive spirals of hope, economic dynamism, and political legitimacy—but can also trigger vicious, downward spirals of disillusion, anger, and political polarization.

Polarization has both a demand-side and a supply-side.  The demand-side comprises the way citizens engage politically – as shaped by power, by their perceptions of the fairness of economic outcomes, and by whether they frame identity  in inclusive or in us/them ways.  The supply-side comprises political entrepreneurs and the ideas they champion –  ideas about how the world works; ideas about identity. In both South Africa and the USA, the demand- and supply-sides of polarization have been mutually-reinforcing.  

South Africa was able to transition from a society structured around racial oppression into a nonracial democracy whose new government promised “a better life for all.” Especially remarkable was the speed with which one set of national ideas appeared to give way to its polar opposite. From a society marked by racial dominance and oppression, there emerged the aspiration to build an inclusive, cooperative social order, underpinned by the principles of equal dignity and shared citizenship.

In the initial glow of transition, South Africa’s citizens could hope for a better life for themselves and their children. In time, though, the promise wore thin. It became increasingly evident that the economic deck would continue to be stacked, and that the possibility of upward mobility would remain quite limited. Fueled by massive continuing inequities in wealth, income, and opportunity, South Africans increasingly turned from hope to anger.

In the United States, a steady and equitably growing economy and a vibrant civil rights movement had fostered the hope of social and economic inclusion. But that hope turned to anger as the benefits of growth became increasingly skewed from the 1980s onward. In 2019, the U.S. economy was more unequal than it had been since the 1920s. Younger generations could no longer expect that their lives would be better than those of their parents. Such economic adversity and associated status anxiety can trigger a heightened propensity for us-versus-them ways of engaging the world.

In both South Africa and the United States, polarization was fueled by divisive political entrepreneurs, and in both countries, these entrepreneurs leveraged inequality in ways that added fuel to the fire. In the 2010s, South Africa went through a new ideational reckoning, in part to correct the view that the transition to democracy had washed the country’s apartheid history clean. But opportunistic political entrepreneurs also pushed an increasingly polarized and re-racialized political discourse and pressure on public institutions, with predictable economic consequences. South Africa’s economy slid into sustained stagnation.

Paralleling South Africa, America’s political entrepreneurs also cultivated an us-versus-them divisiveness. However, unlike in South Africa, political entrepreneurs and economic elites in the United States also used their divisive rhetoric as a way to persuade voters to embrace inequality-increasing policies that might otherwise not have won support. By the late 2010s, the risks were palpable in both South Africa and the United States of an accelerating breakdown of the norms and institutions that sustain inclusive political settlements.

But lessons can be overlearned. Mass political mobilization was pivotal to South Africa’s shaking loose the shackles of apartheid—and new calls to the barricades might seem to be the obvious response to current political and governmental dysfunction. However, different times and different challenges call for different responses. In both contemporary South Africa and contemporary America, the frontier challenge is not to overthrow an unjust polit[1]ical order but to renew preexisting formal commitments to the idea that citizenship implies some shared purpose. Renewal of this kind might best be realized not by confrontation but rather by a social movement centered around a vision of shared citizenship, a movement that views cooperation in pursuit of win-win possibilities not as weakness but as the key to the sustainability of thriving, open, and inclusive societies.

Between South Africa’s frying pan and America’s fire

Fueled by hope, I spent the 2010s travelling back-and-forth between South Africa and the USA, sharing  an optimistic approach to integrating governance and development strategies with mid-career practitioners at both SAIS and the Mandela School. But the subsequent decade unfolded in unexpectedly toxic ways in both countries. It felt important to complement with-the-grain pragmatism with an exploration of underlying challenges. A 2021 co-authored paper explored why things turned rancid in South Africa.  My new paper –  How Inequality and Polarization Interact: America’s Challenges Through a South African Lens, also published by the Carnegie Endowment for International Peace – takes a comparative perspective.  This post lays out five personal take-aways from the comparison. (Here’s a link to the paper’s executive summary).

Take-away #1:  Far more than is the case for contemporary South Africa,  America’s current wounds – increases in inequality since the 1980s, and their attendant social and political correlates –   have been self-inflicted.

Back in the 1970s, I had been  drawn to the USA by its openness, its commitment to freedom, equal dignity and equal justice for all – everything that the South Africa I left behind was not.  With its 1990s ‘rainbow miracle’ transformation from apartheid to constitutional democracy, South Africa became a new  beacon of possibility for people around the world who value democratic governance and inclusive societies. However,  the country’s subsequent reversals were not wholly unexpected. Three decades after the end of apartheid,  South Africa remains among the world’s most unequal countries, and its fraught racial history continues to fester – though the rawness and relative recency of the anti-apartheid struggle perhaps continues to offer some immunization against a further-accelerating downward spiral.   

For the United States, however, the converse may be true. In the decades subsequent to World War II, the combination of an equitably growing economy and a vibrant civil rights movement had fostered the hope of deepening economic and social inclusion. But  beginning in the 1980s, the benefits of growth became increasingly skewed, and  ‘culture wars’ became increasingly virulent. Complacency bred of long stability may have lulled America  into  political recklessness at the inequality-ethnicity intersection – a recklessness that risks plunging the country into disaster.

Take-away #2:  In both South Africa and the USA, the drivers of polarization have been multiple and mutually reinforcing; essentialist explanations that focus narrowly only on a single dimension –  economic, institutional,  cultural or racial  – and ignore the others are, at best, seriously incomplete.

The Carnegie paper distinguishes between polarization’s demand-side and its supply-side.  The demand-side comprises the way citizens engage politically – as shaped by power, by their perceptions of the fairness of economic outcomes, and by whether they frame identity  in inclusive or in us/them ways.  The supply-side comprises political entrepreneurs and the ideas they champion –  ideas about how the world works; ideas about identity. Mutually-reinforcing interactions between the demand- and supply-sides can become increasingly toxic – potentially even to the point of a doom loop that destroys constitutional democracy.

Take-away #3: Both South Africa and the USA need to be more pro-active in renewing economic inclusion  – but  making the shift from an inequality-fueling to an inclusion-supporting economy is less daunting than it might seem.

When considered through the lens of the interaction between inequality and ideas, pro-inclusion policies are less important as ends in themselves than for how they affect the willingness  of citizens to accept the rules of the game (including the distribution of economic outcomes) as broadly legitimate.  As South Africa’s rainbow miracle turnaround in the 1990s and early 2000s shows, a turn from anger to hope does not need a comprehensive package of pro-equity reforms. Rather, reforms that foster “good-enough inclusion”—some immediate gains that signal that things have changed, combined with credible signals that longer-term structural change is underway—can set in motion a virtuous spiral, which can be sustained as long as the momentum of  positive policy change continues to unfold over time.

Take-away #4: The influence of economic elites, though often obscured beneath the headlines,  has been central in both countries – for both good and ill. 

In South Africa, as Alan Hirsch and I explored in depth,  South Africa’s business establishment played a leading role in helping to midwife negotiations between the white minority government and the ANC.  In the USA, organized business was an important part of the elite consensus that fueled three decades of inclusive economic growth subsequent to World War II. In recent decades however, a segment of the elite  has actively financed  political entrepreneurs who have skillfully championed a combination of polarizing cultural discourse and distributionally regressive economic policies. This is a classic example of elite capture, a phenomenon familiar to scholars of comparative politics.  Paralleling what happened in 1980s South Africa, might America’s economic elites wake up to these risks and become more open to inclusive renewal?

Take-away #5: In settings that are open politically, turnaround will be achieved less by directly engaging  polarization’s most toxic champions, than by working around them.

Mass political mobilization was pivotal to South Africa’s shaking loose the shackles of apartheid – and new calls to the barricades might seem to be the obvious response to current political and governmental dysfunction.   However,  different times and different challenges call for different responses.  Currently, both the South African and U.S. governments are, at least aspirationally, committed not to accelerating polarization but to strengthening both inclusion and the institutional foundations of democracy. In such contexts, some compelling research suggests that what is called for is not fighting polarization with more polarization but lowering the temperature by fostering deliberative discourse, focused on positive, hope-evoking options. As happened once before in the USA,  the aim would be for a myriad of collaborative, problem-focused grassroots initiatives  to serve as potential building blocks for  a twenty-first-century social movement– a  movement that views cooperation in pursuit of win-win possibilities not as weakness but as key to the sustainability of thriving, open, and inclusive societies.

Virtuous circles and downward spirals  – the power of ideas & the limits of technocracy

What will it take to shake loose the distemper of our times, and initiate a virtuous spiral of renewal? In a recent UNU-WIDER webinar, Alan Hirsch and I explored why a narrow focus on growth and good governance will not be enough to get South Africa (and, by analogy, other countries similarly trapped in a vicious cycle of disillusion and despair) back on the path of building a thriving, inclusive society.  Conventional policy discourses are well-suited to address  circumstances and  questions such as these: How to maintain rapid growth, while making it increasingly inclusive? Assuming  political and social stability,  and taking a medium-to-long-term horizon, what policy and expenditure decisions will best achieve the country’s development goals?  These are public policy challenges for a season of hope.

However,  South Africa  (and numerous other countries) no longer is in a season of hope.  Growth has ground to a halt; inequality festers; institutions decay; the threat of accelerating turmoil looms. The frontier challenge is not one of making mid-course adjustments, while sustaining momentum; it is a challenge of renewal, of setting in motion  a new virtuous spiral. Addressing this challenge needs a broader approach to crafting a way forward than is provided by the conventional tools – one that goes  beyond the technical details of policy,  and looks also at policy’s inter-relationship with perceptions, expectations and power.  The UNU-WIDER webinar and a background multi-author Carnegie paper South Africa: When Strong Institutions and Massive Inequalities Collide” use this broader perspective to explore how South Africa might find its way back onto a path of inclusive growth.  This post lays out the underlying logic.

Perceptions and power – the ideas that people have about how the world works and their place in it – play a central role in driving the ebb and flow of economic and political momentum. As the figure below highlights,  interactions among four drivers are the fuel for virtuous (and vicious) spirals: 

  • Ideational driver #1: whether political and policy choices are perceived as zero-sum, or prioritize a search for win-win, co-operative options;
  • Ideational driver #2: perceptions across a broad swathe of a country’s citizenry as to the legitimacy and fairness of prevailing political and institutional arrangements;
  • Ideational driver #3: whether expectations of the future are optimistic or pessimistic.

And  (as influenced by each of the above)

  •  The strength of political leadership’s decision-making authority.

Consider ideational driver #1: All-too-often political discourse is framed in zero-sum, ‘my-way-or-the-highway’ terms. This is mistaken. As Bill Ferguson has spelled out in detail, an extraordinarily wide range of public challenges (from budgeting, to the governance of public agencies, to community service provision)   are better understood through the lens of co-operation and its challenges.  

What shapes the propensity to co-operate? As game theory teaches,  one key determinant of whether win-win or more narrowly zero-sum approaches predominate comprises the time horizon of protagonists. Longer time horizons, and thus repeated interactions, support co-operative outcomes. This time horizon is influenced directly by ideational drivers #2 and #3.

Ideational driver #2’s relevance is highlighted by Francis Fukuyama. Perceptions of legitimacy and fairness are foundational for a thriving society, he argues, because:

“Political power is the product not just of the resources and numbers of citizens that a society can command but also the degree to which the legitimacy of leaders and institutions is recognized. Legitimacy means that the people who make up the society recognize the fundamental justice of the system as a whole and are willing to abide by its rules….”

These perceptions are, of course, subject to change. As Albert Hirschman taught us, perceptions of fairness and legitimacy need periodic reinforcement, else hope can all too readily turn to anger – with, as per the figure, the ideational turn cascading throughout society.

Ideational driver #3 was a centerpiece of John Maynard Keynes’ analysis of the  influence of expectations of the future (and their volatility) on private investment and economic growth. As Keynes put it:

“[Private] investment depends on judgments about the future which do not rest on an adequate or secure foundation……..Our theory of the future is subject to sudden and violent changes. The practice of calmness and immobility, of certainty and security, suddenly breaks down. New fears and hopes will, without warning, take charge of human conduct…..”

Interactions between expectations and growth on the one hand, and ideational drivers #1 and #2 on the other,  are two-way.   In one direction: rapid growth (especially when it is inclusive) enhances opportunities, fuels hope and lengthens the time horizons of both emerging elites and non-elites. In the other: a more co-operative orientation among elites and enhanced perceptions of legitimacy and fairness on the part of a broad swathe of society each can bring greater optimism as to what the future may hold, thereby helping to fuel private investment.

The fourth driver – the decision-making authority of political leadership – both fuels and is fueled by the other three. As the figure suggests,  political leaders can support a virtuous circle by being decisive in their decision-making. The degree of decisiveness depends, in part, on how a leader chooses to lead. It also depends on the context within which that leader is embedded: Hopeful expectations; commitments among elites to co-operate, despite their differences; and a perception across society that the rules of the game are legitimate and fair – all of these add to the ability of political leaders to effect change.

How to get a virtuous spiral underway? This takes more than understanding the drivers and their interdependencies – the crucial challenge is  to identify entry points capable of providing sufficient momentum to kickstart the process. Momentum won’t be shifted by yet another round of pronouncements of policy intent. Their limitation isn’t only one of the unlikelihood of action, there is  a chicken-and-egg problem.  Even were the standard menu of growth, governance and inclusive reforms to be implemented, it would take some time for them to have a discernible effect on peoples’ lives – but until that effect is evident, the reforms will do little to move the needle on the ideational drivers. And the medium-run on which reform packages focus is unlikely to arrive unless action is sufficiently bold to shift expectations.

One way to rapidly reshape expectations is to address directly the challenge of fairness and legitimacy. How to do so in ways that fuel hope rather than fear, anger, recrimination and pushback by elites threatened by change? Key in the South African context is for reforms along the lines of what we call in the Carnegie paper ‘growth-compatible redress’.  Such redress would include initiatives that can make an immediate difference in the lives of the marginalized, complemented (or perhaps even superseded) by approaches to  redress that are sustainable and supportive of investment in capabilities over the longer-term, thereby helping to accelerate upward mobility – with the package underpinned by more conventional policy and governance reforms. (Appendix B of the Carnegie paper, pp. 73-76, provides more detail of what such reforms might comprise.)

Expectations might also be shifted in virtuous-circle-initiating ways through action on the leadership and governance fronts. While rebuilding institutional capacity takes time, credible signals that the game has changed can be sent quickly, and can rapidly alter incentives and behavior. Bold actions that leaders might take to signal such a shift could include:

  • A willingness to work in coalition with rivals – as a potent and highly visible way to strengthen mutual accountability.
  • A corresponding willingness to  break loose from the deadweight of so-called allies stuck in endless stale discourses whose practical consequence is a reproduction of the status quo and a defense of narrow parochial interests. And
  • A broader invitation for a new kind of active citizenship across a broad range of stakeholders – one that prioritizes co-operation around win-win possibilities.

(Click here for some additional discussion of these options.)

As an economist by training, I know that it can be discomfiting to turn attention away from the seemingly solid ground of technocratic discourse towards the more squishy terrain of perceptions and power. Yet doing the same thing again and again and expecting a different result the next time is not a recipe for success. Can societies stuck in a deep hole  of disillusion, anger and despair find the political and policy imagination and moral courage to do things differently? 

 Here is a link to a recording of  the 2 November, 2021 UNU-WIDER webinar with Alan Hirsch, “When Good Governance is Not Enough: Can South Africa Meet the Challenge of Economic Inclusion”

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, Political Settlements and Development: Theory, Evidence, Implications 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.