Can the World Bank Promote Innovation?

Lant Pritchett

August 24, 2009

Overview:

• Development as accelerated four-fold modernization• Development strategy of transplanted best practice• Risks of “transplanted best practice”

– Isomorphic mimicry– Pre-mature load bearing – Closing off space for innovation– “Cocooning” for success

• Innovation versus isomorphic mimicry: Agents, organizations, and systems– Can external assistance be part of solutions?

Development As Four-Fold Transformation Trajectories in

Functional SpaceEconomic Prosperity,

High Productivity

Social Equality and Tolerance

Polity representswill of the citizens

High AdministrativeCapability

1800

1900

2000

Divergence, Big Time in current levels of output, mapped into history: China is in the 19th century, India pre-USA Civil

War, and Ethiopia in the middle ages.

$0

$10,000

$20,000

$30,000

$40,000

1700 2000

GD

P P

PP

pe

r C

ap

ita

UK USA

India, $2990

1851

China, $5332

1898

Ethiopia, $688 ~ Year 12501929

Mexico, $8165

Economic Trajectory of Leading Country

CurrentCrossSection

TimeNow

GDP per capita (GK 1990$)

USA(29000)

AFG(668)

1950

KOR(15732)

Maximally feasible pace(fastest observed sustained growth

BAU(continuation of current

Pace/level—lack of“development”

Leader’s pace

Accelerated Modernizatio

n:

Growth Faster than th

e Leaders

OptimisticW

ishfu

l thi

nkin

g—to

o

Opt

imist

ic

KOR(854)

USA at G$854In 18th Century

Development as accelerated modernization, economic outcomes space

AFG(645)

2 ppaLong term

Sustained rapid(5-6 ppa)

Getting to Denmark: What do governance trajectories in the

functions space look like?

When was Denmark atPakistan’s current level?1900? 1800? 1700?

Governance trajectories: When Can Afghanistan be Egypt? India? (the median “failed state”

country) Denmark?

?

?

What is a maximal feasible improvement in governance?

Four-fold transformation: Theories of development are about components and their inter-relationships (e.g. one

way—what causes what--or two way causation—virtuous/vicious circles)

Better

Time

Developed:•Prosperous (and High Human Capital)•State responsive to citizens•State high capability•Fair and Tolerant Society

Bad Old Days

Development Strategy as “Transplanted Best Practice”: in the “forms” space

Market economies with goodPolicies and institutions

Legal equalityAcross races, genders

Democracy Civil service Bureaucracies that are

“well managed”

Now

Policy reform(“Washington Consensus”)

CapacityBuilding

Democratization

Social Agenda(s) Theory of change:Adoption of forms that have

proved successful will lead to success

(function follows form)

Risks of Transplanted Best Practice

• Isomorphic mimicry

• Pre-mature load bearing

• Closing off space for innovation

• “Cocooning” for success

Space fornovelty

(E)Valuation ofnovelty

Legitimation

Leadership

Front-line worker use of capacity

Open

Functionality

Demonstrated Success

Wealth Creation

ConcernedFlexibility

Closed

Agenda promotion

Isomorphicmimicry

Rent Seeking/Distribution

Compliance

Agents(leaders, managers,Front-line workers

Organizations (firms, ministries, NGOs)

System Characteristics

Agents, organizations, systems

Space fornovelty

(E)Valuation ofnovelty

Legitimation

Leadership

Front-line worker use of capacity

Competitive markets

Will customers buy it

High growth(profits, revenues)

Entrepreneurial Wealth Creation

Workers committed toOrganization vision and mission

Closed

Agenda promotion

Isomorphicmimicry

Rent Seeking/Distribution

Compliance

Agents(leaders, managers,Front-line workers

Organizations (firms, ministries, NGOs)

System Characteristics

Markets and the “creative destruction” of ecological learning

Conditions for successful C

reative destruction

Two different modes of the scaling of innovation

• Organizational learning (existing firm with dominant position adopts new technology/technique)

• Ecological learning (each firm has one idea and never learns but the system weeds out unsuccessful ideas so that the system productivity rises even if no single firm ever “learns”)

What is isomorphic mimicry?

• Evolutionary analogy: bugs avoid being eaten by birds by (a) developing glands that secrete poison and (b) signal that they are poisonous

• Once established other bugs may simply develop the signal, not the poison

Space fornovelty

(E)Valuation ofnovelty

Legitimation

Leadership

Front-line worker use of capacity

Open

Functionality

Demonstrated Success

Wealth Creation

ConcernedFlexibility

Closed

Agenda promotion

Isomorphicmimicry

Rent Seeking/Distribution

Compliance

Agents(leaders, managers,Front-line workers

Organizations (firms, ministries, NGOs)

System Characteristics

When is isomorphic mimicry an optimal organizational strategy?

Three types of “isomorphism” (Dimaggio and Powell)

• “Normative”

• “Coercive”

• “Mimetic”

Space fornovelty

(E)Valuation ofnovelty

Legitimation

Leadership

Front-line worker use of capacity

Open

Functionality

Demonstrated Success

Wealth Creation

ConcernedFlexibility

Closed

Agenda promotion

Isomorphicmimicry

Rent Seeking/Budget maximizing

Compliance

Agents(leaders, managers,Front-line workers

Organizations (firms, ministries, NGOs)

System Characteristics

Where are “governance” reforms (e.g. civil service reform, procurement) in their effect on the environment for

functional development?

Rep

lica

tin

g e

xist

ing

fo

rms

and

pro

cess

es o

r ac

tual

Fu

nct

ion

alit

y?

Dubash (2008): “Independent” regulation of electricity

• Pushed by WB as “coercive” isomorphism—conditioned adoption of best practice (with domestic allies with mixed motives)

• Adopted in “mimetic” fashion in other contexts (AP, Delhi)

• Since this was a “transplanted best practice” that did not arise as an endogenous solution in existing conditions it has not functioned as planned (though may eventually function as not plannted)

Pre-mature load bearing: Spartans, Paper Tigers and

Keystone Cops

What is “administrative capability”? Notional Policy is Designed, Realized Policy is an outcome

Realized States of the World

Notional policy(de jure)

Actions by agents of the state

Direct organizations of implementation

(e.g. agencies,Ministries)

Front-line Providers

(e.g. policemen,Teachers)

Background institutions (e.g. judiciary, legislative oversight,

professional associations, civil society

Realized policy(de facto)

What is “organizational capability”?

• Policies are mappings from factual conditions of the world to actions by agents of the state

• Organizational capability is the extent to which realized policy—actions actually taken by the agents--achieves the organization’s goals

• Individual “capacity”—the ability to recognize the state of the world and the optimal action w.r.t. to that state is just one element of “organizational capability”

Two dimensions of organizational capability: in “theory” and in

“practice” Ability to inflict damage on the enemy

Battlefield stress (e.g. fogof war, casualties)

Army

Disorganized Mob

Sharply non-linear dynamicof army “capability” under engagement stress

Maximum

Spartans

Paper Tiger

How do you build organizational capability?

Compliance with tax collectors(lack of bribery)

Incentives for agentsfrom tax (rate, complexity)

Build organizational Capability (ability to withstand stress)—

professionalization, identity, unit cohesion

Bui

ld in

divi

dual

cap

acity

to

build

O

rgan

izat

iona

l Cap

abili

ty

How do you destroy organizational capability? Premature load bearing

Law enforcement

Available rewards to Non-compliance for individualagents

PoliceForce

Organized crime in uniform

Sharply non-linear dynamicof “capability” under stress

How do you destroy organizational capability? Premature load bearing

Tax collectionagency

Available rewards to Non-compliance for individualagents

Customs

Rent collectors

Sharply non-linear dynamicof “capability” under stress

Existing tax code

Maximally Feasible tax code

Training

No amount of trainingIs going to increase organizational

Capability when the stress of existing Regulation far exceeds capacity

India examples (rigorous studies)

• Driver’s licenses

• Health worker (ANM) attendance in Rajasthan (“Band-aid on a corpse”)

• Hammer and Das on health workers

What does “training” as the augmentation of “individual capacities” do to realized policy when organizational

capability is weak?

-2 -1.5 -1 -.5 0 .5

Ric

hM

idd

leP

oo

r

Hospitals

PHC's

Private

Hospitals

PHC's

Private

Hospitals

PHC's

Private

Locality-Income and InstitutionCompetence and Effort

Clinical Competence Effort-in-Practice

Training can (possibly)Slide the blue dots, when….

The private sectoroutperforms in red triangles with much lower blue dots already

Premature load bearing destroys organizational capability: “Water in

the Regulations”0

10

20

30

40

50

Days to Im

port - E

nte

rprise S

urv

eys

16 23 24 26 30 32 33 34 42 43 48 54 58 66 67 68 71 95 Days to Import - Doing Business

excludes outside values

A “45 degree” line in thisGraph—perfect and uniformcompliance

De jure policy from official regulations

Rea

lized

pol

icy

as t

old

by f

irms

The worst reported actual delaysare ¼ the official reported minimum

Pre-mature load bearing leads to complete

Divergence of“de jure” and “de facto”

• The “actual” and “realized” policy diverge• The “de jure” appearances are maintained in

engagements with external actors to maintain legitimacy

• Destroys morale, cynicism, potential leadership flees the sector—”managerial” reform no longer possible

• Perfect Storm: Both users and front-line providers are dissatisfied.

Existing actual distribution onFailed state index, with Egypt As 25th percentile, Turkey as 50th)

Fastest observedTrajectory in historical experience in functionalspace

Start with AFGIn 2009

25th percentile

Rate of improvement Implied by internationalcommunity actions in post conflict (e.g in and out in three years with “forms” of good governance in place)

Wish

ful thinkin

g

What is possiblein “forms” space

The state

Politicians Policymakers

Providers

Frontline organizations

Citizens/Clients

Non poor Poor

ManagementCoalition/Inclusion

Com

pact

Client Power

Polit

ics

Long route of accountability

Short route

Three useful aphorisms: closing off space for innovation

Flow of Services(in transaction intensive service provision)

Just because the tire is flat doesn’t mean the hole is on the bottom

It ain’t what you don’t know that gets you, its what you do know that just ain’t so

Crazy is doing thesame thing and expecting different results

What is the response to demonstrable weak policy implementation (e.g. poor services, corruption)

• “More of the same” (more funding into existing organizations)

• “Capacity building” (training, more “technical assistance”)

• “Organizational Reform” (org chart changes, process re-engineering)

• “Cocooning” (channeling aid efforts through project specific parallel mechanisms (e.g. “community driven development”))

“Cocooning” for success

• “Scheme” based project implementation in order for rapid implementation of asset creation

• Parallel institutional structures—with no plan for eventual convgence

• “Wall and scaffolding”

Space fornovelty

(E)Valuation ofnovelty

Legitimation

Leadership

Front-line worker use of capacity

Open

Functionality

Demonstrated Success

Wealth Creation

ConcernedFlexibility

Closed

Agenda promotion

Isomorphicmimicry

Rent Seeking/Distribution

Compliance

Agents(leaders, managers,Front-line workers

Organizations (firms, ministries, NGOs)

System Characteristics

External actors are part of the solution—when “the solution” (TBPw/IM is the problem)

Easy to say….• Have an articulated theory of functional change that can answer the

“why” question for all actors in the critical path of arrows of accountability

• Increase space for novelty—with the potential for ecological learning (e.g. NGO experimentation, pilots, etc. don’t help if all the grass is being eaten)

• Increase the way in which novelty is evaluated (from “development fad fetish” to evaluation on function (NOT “Big E”)

• Decrease the scope for isomorphic legitimation—e.g. no points for org-chart convergence, adoption of “best practice” processes, etc.

• Make space for risk taking, value creating, leadership