Good governance key to overcoming challenges in developing countries, says World Bank

The World Bank has urged developing countries and international development agencies to rethink their approach to governance, as a key to overcoming challenges related to security, growth and equity. As part of that, governments should harness private sector expertise. The “2017 World Development Report: Governance and the Law” has explored how unequal distribution of power in a society interferes with policies’ effectiveness. It said power asymmetries help explain, for example, why model anti-corruption laws and agencies often fail to curb corruption, why decentralisation does not always improve municipal services; or why well-crafted fiscal policies may not reduce volatility and generate long-term savings. The report noted that when policies and technical solutions fail to achieve intended outcomes, institutions often take the blame, however countries and donors need to think more broadly to improve governance so that policies succeed. “As demand for effective service delivery, good infrastructure and fair institutions continues to rise, it is vital that governments use scarce resources as efficiently and transparently as possible,” World Bank group president Jim Yong Kim said. “This means harnessing private sector expertise, working closely with civil society and redoubling our efforts in the fight against corruption. Without better governance, our goals of ending extreme poverty and boosting shared prosperity will be out of reach.” The report looks at country examples, including state building in Somalia, anti-corruption efforts in Nigeria, growth challenges in China and slums and exclusion in India’s cities. It identifies three winning ingredients of effective policies: commitment, coordination and cooperation. As three core functions to produce better governance outcomes, institutions need to: Bolster commitment to policies in the face of changing circumstances. This would help, for example, in cases where decision makers spend windfall revenues instead of saving them for the future, or when leaders renege on peacebuilding agreements in the absence of binding enforcement. Enhance coordination to change expectations and elicit socially desirable actions by all. Challenges occur in many contexts, from finance to industrial clusters and urban planning. Financial stability, for example, relies on beliefs about credibility. Just consider how despite the rationale for leaving their money in the bank during times of distress, the public may rush to withdraw their deposits if they believe that others will too – ultimately causing the banks to lose liquidity and crash. Encourage cooperation: Effective policies help promote cooperation by limiting opportunistic behaviour such as tax evasion – often through credible mechanisms of rewards or penalties. Individuals may have incentives to behave opportunistically. Not paying taxes does not prevent them from enjoying public services that others are funding. Similarly, when groups fail to benefit from policies or feel short-changed (for example, by low-quality public services), it can further weaken compliance.

Good governance key to overcoming challenges in developing countries, says World Bank

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