ThePoliticalEconomyofGoodGovernanceMichaelM.Atkinson
MurrayFulton
Johnson-ShoyamaGraduateSchoolofPublicPolicy
UniversityofSaskatchewanCampus
PaperpresentedattheICPP3Conference
Singapore
June28-30,2017
Abstract
Inrecentyearstherehasbeenamarkedincreaseininterestinwhatconstitutes
goodgovernment,goodgovernanceandqualityofgovernment.Inadditiontoa
broadconsensusthatgovernmentisnolongerthekeyplayeringoverningthe
economy,aconcernhasemergedthatpursuingeconomicgrowthalonewillnot
generatethebestoutcomesforsociety.Inthispaperweexaminethesequestions
throughapoliticaleconomymodelofgovernanceinwhichpower,economicpayoffs
andgovernancearrangementsco-develop.Usingthismodelweexplorehow
corruptionandignoranceaffectthetwounderlyingpoliticaleconomyproblemsof
wealthgenerationandwealthdistribution.Weshow,asotherauthorshavedone,
howcorruptiongeneratesoutcomesthatfailtogrowthepie,whileatthesametime
generatingdistributionaloutcomesthatarehighlydisadvantageous.Wethenshow
howignorancecanhaveoneoftwoeffects,dependingonthecontext.Intheone
case,ignorance—throughitsimpactontransactioncosts—canresultinafailureof
thepietogrow,oftenwithdetrimentaldistributionalimpacts.Intheothercase,
ignorancecanleadtoincreasesinthesizeofthepie,albeitatthecostof
redistributingthebenefitsofthisgrowthtoaparticulargrouptosuchanextentthat
politicalinstabilityensues.
ThePoliticalEconomyofGoodGovernanceIntroduction
Thelasttwentyyearshaveseenaburgeoninginterestinwhatconstitutesgood
government,goodgovernanceandqualityofgovernment.Agooddealofthis
enthusiasmfor“governance”isaproductofadiminishedfaithinconstitutionally
mandatedpublicauthorities.Asthe20thcenturydrewtoaclose,theriseofnew
governancerelationshipssuchasNewPublicManagementreflectedabeliefthatthe
state’smonopolyoncoerciondidnottranslatesmoothlyintoamonopolyon
knowledge,expertiseorjudgement.By2000abroadconsensushademergedthat
governmentwasnolongerthe“cockpitfromwhichsocietyisgoverned”(Klijnand
Koppenjan2000,135).
Themakingandimplementingofpolicyisnowsharedamongavarietyofstateand
non-stateactors,andtheconceptofgovernancehasquicklybecomeameansof
capturingshiftsinthelocusofauthoritybetween,forexample,thestateand
markets,politiciansandexperts,bureaucratsandstakeholders(Levi-Faur2012).
Howtosteerandcontrolgovernmentwasnolongertheonlytopicorissuefor
studentsofpublicpolicy.Instead,productiveandefficientexchangeamongoldand
new,sometimeshybridized,entitiesbegantoloomlargeasanobjectofgovernance.
Conceptslike“networkgovernance”wereintroducedtocapturethese
developments,whileconceptslike“globalgovernance”and“multilevelgovernance”
reflectedthegrowingimportanceofregulatoryandfinancialrelationsamong
governments.
Inlinewiththisfocusonrelationshipsandtheorganizationofsystemsina
productivemanner,theconceptofgoodgovernancewasembracedbyinternational
agencies(e.g.,theWorldBank)andtheprivatesectorasasignalofthelikelihoodof
acountry,andparticularlyadevelopingcountry,achievingeconomicgrowthand
societalwell-being.Inthiscase,akeyquestionwaswhetherthosewithpowerand
influenceinthecountrywouldpursuepoliciesthatwouldachievethereobjectives.
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Afloodofmetricshasbeenproposedtoestimatetheextentofgoodgovernancein
differentcountries,withtheallocationofaidbytheinternationaldonorcommunity
andinvestmentbyprivatesectorfirmsfrequentlypremisedontheseindicators.
Morerecentlyanadditionalissuehasemergedinthegovernancediscussion.The
keyquestioninthiscaseislargelyfocusedondevelopedcountriesandisconcerned,
notwithwhethergrowthwilloccur,butwhethergrowthcanbemadeinclusive.As
theOECD(2017,1)comments,“Weareatacriticalcrossroad.Foryears,wecounted
oneconomicgrowthastheonlyengineofprosperity,failingtorealisethatthis
modelwasleavingmanybehind;specificallythebottom40%.Inacontextwhere
globalmarketsandincreasedconnectivityofeconomicstructureswereskewedto
benefitaminorityofpeopleandfirms,disempoweredcitizensandcommunities
calledahalt.”Topursuebothgrowthandinclusiveness,theOECDiscallingfora
“profoundreappraisalofthepolicymakingprocess.”
Theseobservationspromptthequestions:Whatdoesitmeantotalkabout
“governancearrangements?”Whatis“goodgovernance?”Andhowdoesthisrelate
topolicy?Onthefirstpoint,alldefinitionsofgovernancerefer,directlyorindirectly,
torulesthatdeterminetheexerciseofauthorityinthetakingofcollectivedecisions.
Whileamoredetaileddefinitionwillbegivenbelow,fornowitissufficienttonote
thatgovernancearrangementsstipulate,moreorlessprecisely,howvariousvoices
areheard,howdecisionsaremadeandhowaccountsarerendered(Instituteon
Governance2017).Inshort,governancedefineswhohasthepowertodetermine
what.
Fromthiscommondefinitionalbase,studentsofgovernancehaveproceededina
numberofdifferentdirectionsdependingonwhattheybelievetobethemost
pressingproblemsthatgovernancearrangementsareintendedtosolve.Our
positionisthatgovernancehastodealwithtwokeyissuesthathavelongbeenthe
focusofattentioninpoliticaleconomy—incomeandwealthgeneration(howto
enlargethepie),andincomeandwealthdistribution(howtodistributethepie).
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Thesetwoissuescorrespondroughlytothepurposeofeconomics—thecreationof
wealth—andthepurposeofpolitics—theorderlyresolutionofconflict.Ascanbe
seenfromtheOECDquotationabove,areappraisaliscurrentlyunderwayastothe
relativeimportanceofthesetwoissues.
Addressingthesetwoproblemsrequirestheneedtodealwithtwoapparently
chronicconditionsinpublicaffairs:corruptionandignorance.Ofthesetwo,
corruptionhasreceivedthemostattention.Corruption,asdistinctfromnegligence
orincompetence,doesnotsimplyhappen;thereisastrongvolitionalcomponent.
Corruptionoccurswhenpublicofficials—betheyelectedorappointed—setaside
theirformal,office-defined,responsibilitiestopursuesomeformofpersonal
advancementdefinedbroadlyenoughtoincludetheadvancementofone’spolitical
andpersonalinterestsaswellastheinterestsoffriends,relativesandassociates.In
thecaseofgrandcorruption,itistheabuseofpowerbyelitesthatisimportant,as
eliteschangetherulesofthegameinawaythatbenefitsthem(bothfinanciallyand
intermsofobtainingandconsolidatingpower)(Atkinson2011a).Inthecaseof
pettycorruption,itistheabuseofpowerbyofficialsatkeypointsinthe
bureaucracyastheywithholdorprovideservicesthatcreatestheopportunityfor
bribesandpayments(ShleiferandVishny1993).
Ignorancehasanumberofdimensions.Itcanrefertoaninabilitytoacquireand
applyreadilyavailableknowledgetodecisionsituations—inthissenseignorance
canbeequatedwithincompetenceandperhapsevennegligence.Ignorance,
however,canalsobebasedonacalculatedandrationalchoicetodeclinetobe
informed—ifthisignoranceprovidespersonaladvancementthenitsharessome
aspectswithcorruption.
Moreinterestingly,perhaps,ignorancecanalsoarisefromtheabsenceofavailable
informationorknowledge.Understoodthisway,ignoranceisoftenafunctionof
uncertainty,theinabilitytoaccuratelyanticipatetheprobabilitiesofoutcomesgiven
someaction.Ignoranceinthissecondsenseiscompoundedbybiases.Asaresultof
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biases,citizensandleaderslookforevidencethatconfirmspositionstheyalready
hold,placeahighervalueontheircurrentpositionsthanisobjectivelyjustifiable
andoverweighttheevidencemostrecentlyobtained(Kahneman2011,Kahneman
etal.2011).Liketherestofus,policymakerslookforreasonstobelievetheirinitial
hunchesarecorrectandreversepreferencesdependinguponhowoptionsare
presented.Inaddition,wedrawconclusionsbasedonpersonallyevocativebut
statisticallydubiousevidence,sometimesreferredtoas“probabilityneglect”(Brest,
2013:487).
Oneofthemostsignificantproblemstoemergeasaresultofthissecondformof
ignoranceisthepersistentholdthatthestatusquohasonpolicymakers,andindeed
thegeneralpublic.Whetherasaresultofinstitutionalnormsthatstraightjacket
people’sthinkingorcognitivelossaversion,thereisaplethoraofwaysinwhichfull
andcompleteknowledgeofthesituationisnotbroughttobearonaproblem.The
resultsarelostopportunitiesand/orinappropriateresponsestotheproblemsat
hand(Atkinson2011b).
Theworkinghypothesisofgovernanceresearchisthatsomegovernance
arrangementsarebetterthanothersatdealingwithcorruptionandignorance.More
specifically,theproblemwithcorruptionandignoranceisthattheyproducebad
policies–i.e.,policiesthatfailtoimprovethelivesofthepeopleinacountry.Indeed,
ourviewisthatgovernanceisapopularconcept(andlikelytoremainso)inpart
becauseofitsnormativeorientation.Itisnotnecessarytoaddtheword“good”to
governancetoappreciatethatitsstudentsandpractitionersareinterestedinboth
assessingandreformingcurrentgovernancearrangements.Inshort,governanceis
aconceptpregnantwithideasforreform;theterm“goodgovernance”makesthese
implicitnormativecommitmentsexplicit.
Thisnormativedimensionshowsupinawidevarietyofsituations.Pluralists,for
example,havelongarguedthatgoverningisacomplextaskthatinevitablyinvolves
groupsandorganizationsembeddedinsociety(Bevir2010).Aclearpreferencefora
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dispersalofauthorityoftenaccompaniestheseassessments(Montpetit2016).Early
studentsofcorporategovernanceweremotivatednotjusttodescribeauthority
relations,butalsotosuggestwaysofensuringthatpredatorymanagersdidnot
exploitshareholdersandstakeholders(SchleiferandVishny1997).For
internationaldevelopmentagencies,governanceisnotsimplyamatterofevaluating
capacity;itsuggestsasetofcriteriatobeemployedindeterminingwhodoesand
doesnotreceiveassistanceandunderwhatconditions.
Goodgovernanceimpliesconsciousalterationsinauthorityrelationstoachieve
desiredoutcomes.Makingthesealterationsandadjustments,however,requires
actiononthepartofthosewhoarecurrentlypartofthegovernanceregime,either
astheholdersorthesubjectsofauthority.Admonitionsregardinggoodgovernance
issuefromconsultants,internationalorganizations,andacademics,butchangesin
governancearrangementsmustcomefromthosewhoaresubjecttothem.In
conceptualterms,governancearrangementsareendogenouslydeterminedalong
withthepowerandauthorityrelationshipsinsideasystem.
Itistrue,ofcourse,thattheerainwhichgovernancearrangementscouldbe
imposedfromwithoutisnotcompletelyover.Inthemid-2000stheWorldBankand
severaldonorcountriesshiftedtheirdevelopmentstrategyfromtheinducementof
goodgovernanceviafinancialaidtotherequirementofgoodgovernanceasa
preconditionofaid(Nanda2006).Butwhereimperialorcolonialgovernments
couldatonetimeinsistonwhowouldhaveauthorityandhowitwouldbe
exercised,thisstrategyisnowunsustainable,inpartbecausetheproductsof
impositionhavebeendeeplydisappointingandinsomecasesdisastrous(Scott
1998).Todaytheadoptionofgovernancearrangements,andsubsequentchangesto
them,aretypicallynegotiated,albeitbythosewhohaveverydifferentpower
resources(Moe2015).Powerisalwaysavariable,sowhileitisquitecommonfor
governanceandadministrationadvocatestospeakof“bestpractices,”whatis
“good”ingoodgovernanceisamatterofinterpretationbythosewhoareembedded
inthesystem.
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Thisrealistperspective,whichpermeatesourentirediscussionofgovernance,does
notmeanthatgoodgovernanceissimplyamatterofwhatisgoodforme.Ideas
abouthowtheworldworksandhowitshouldworkcannotbecategorically
dismissedsimplybecausetheydonotaccordwiththeshort-terminterestsofthose
inpower.Thosewhoarenotinpowerarelistening,observingandexperiencingthe
resultsofthecurrentdistributionofauthority.Soargumentsforgoodgovernance
practicesmustresonatewithavarietyofaudiences,allofwhomwanttobe
persuadedthattheirpayoffisjust,reasonableoratleasttolerable.
Torecap,governancearrangements,alongwithpowerandauthority,are
determinedendogenouslyinasystem.Thesegovernancearrangementsmustdeal
withissuesofcorruptionandignoranceinamannerthatbothallowsthepieto
grow(theeconomicsproblem)andallowsforthepietobedistributedinamanner
thatisacceptabletoparticipants(thepoliticsproblem).Thepurposeofthenexttwo
sectionsofthepaperistodeveloptheseideasmorefully.
Inthenextsectionweprovideadefinitionofgovernancethatmakesgood
governanceanempiricalratherthandefinitionalmatter.Armedwiththisdefinition,
weexaminehowpowerandgovernancearrangementsco-develop.Inthe
subsequentsectionweexplorehowcorruptionandignoranceaffectthetwo
underlyingpoliticaleconomyproblemsofwealthgenerationandwealth
distribution.Weshow,asotherauthorshavedone,howcorruptiongenerates
outcomesthatfailtogrowthepie,whileatthesametimegeneratingdistributional
outcomesthatarehighlydisadvantageous.Wethenshowhowignorancecanhave
oneoftwoeffects,dependingonthecontext.Intheonecase,ignorance—throughits
impactontransactioncosts—canresultinafailureofthepietogrow,oftenwith
detrimentaldistributionalimpacts.Intheothercase,ignorancecanleadtoincreases
inthesizeofthepie,albeitatthecostofredistributingthebenefitsofthisgrowthto
aparticulargrouptosuchanextentthatpoliticalinstabilityensues.
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APoliticalEconomyModelofGoodGovernance
Thestartingpointforapoliticaleconomyofgoodgovernanceisthatgovernance—
thedistributionofauthorityinsocietiesandorganizations—canonlybeunderstood
astheproductofbothpoliticalandeconomicvariables.Debatesaboutwhat
constitutesandcreatesgoodgovernanceareratheremptywithoutsomeindication
ofwhatgovernanceisseekingtoachieve.Fromapoliticaleconomicpointofview
whatweseektoachievearegovernancearrangementsthatmeetbasicneedsor,as
BrianBarry(2005)putsit,“vitalinterests.”Therearemanyinterpretationsofwhat
vitalinterestsneedtobemetandthelistcangrowquitelong.Toshortenit,
consideragainthepurposeofeconomics—thecreationanddistributionofwealth—
andthepurposeofpolitics—theorderlyresolutionofconflict.Thesearethecore
criteriathatsetthetermsofdebateforapoliticaleconomyapproachtogood
governance.Manypositivevaluesandnormsarecorollaries,including
accountability,efficiency,andimpartiality.
Thereisadangerinconceptualizinggoodgovernanceaswhateverproduces,for
example,economicgrowthoraparticulardistributionofwealth.AsRothstein
(2011,2013)pointsout,thiskindoffunctionalistdefinitioncreatesatautology.One
wayofavoidingthistautologyistodefinewhatis“good”aboutgoodgovernancein
termsofjustice,equityorsomeothertranscendentvalue.InRothstein’scase,good
governancearrangementsarethosethatadheretothenormofimpartiality;others
arguefor“universality”orsimilarcriteria.Thisisanunobjectionableapproachto
definitionalmatters,butitbearsemphasizingthatgovernmentarrangementsthat
meetcriteriaofproceduraljusticebutfailtodeliverthepolitical-economic
outcomesdiscussedaboveareunlikelytosurvive.GrahamWilson(2008)putsthe
argumentthisway:“Intherealworld…theapparentlyplausiblegoalofmaking
policyonlyaccordingtopre-specifiedcriteriaandrulesisnotonlyimpossiblebut
likelytoresultinpoorgovernance.”Proceduresareimportant,butsoareresults.
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Ourapproachistodefinegovernanceintermsofarrangementsandprocedures—
institutions,norms,rulesandroles—andmakegoodgovernanceanempiricalrather
thanadefinitionalmatter.Thuswedefinegovernanceasthesetofformaland
informalarrangementsbywhichpowerisallocatedandexercisedinanysystemwith
interdependentactors(e.g.,anationstate,network,ororganization).Ifthese
arrangementsaregood,theyareabletocreatewealthandensureitisdistributedin
anamountandamanneracceptabletosociety.
Inourframework,weadoptNorth’sview(1991,1993)thatinstitutionsconstitute
therulesofthegameofthepoliticalandeconomicsystem,whileorganizations—be
theypublic,private,co-operative,non-profit—aretheprincipalplayersinthegame.
Institutions—therulesofthegame—determinehowpowerandauthorityare
distributedandthemannerinwhichinformationisgathered,interpretedandused
indecision-making.Governanceistheexpressionofthispowerandauthority.
Governanceaffectsthecreationanddistributionofwealththroughpolicy.Policyis
thesubstantiveexpressionofdecisionstakenbygovernment—e.g.,thetaxesthat
areimposed,theprogramsthatarelaunched,andtheregulationsthatareset.Policy
dealsdirectlywiththeactivitiesundertakenbythestate(e.g.,theprovisionofpublic
services),oritcanseektoaffectthemannerinwhichorganizations(e.g.,for-profits,
non-profits,NGOs,co-operatives)orindividualsbehave.Regardlessofthepath,
policychoicesaffecteconomicperformanceandthemannerinwhicheconomic
benefitsaredistributedamongthevariouseconomicactors.
Policycanbeexpectedtovaryconsiderablyacrossdifferentgovernancestructures,
aswellaswithinsimilargovernancestructuresatdifferentpointsintime.Policy
differencesoccurbecausedifferentinstitutionsaffectthenatureofthegovernance
systemsinplace,andhencethewaythatpowerisallocatedandexercised.This
allocationandexerciseofpoweraffectsdecision-makingthroughoutthepolicy
cycle—i.e.,attheagendasettingstage,atthepolicyselectionstage,andatthepolicy
implementationstage.
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Figure1,whichisadaptedfromAcemogluandRobinson(2006),outlinesthe
endogeneityofgovernancestructuresandpoliticalandeconomicpower,aswellas
themannerinwhichgovernanceaffectseconomicperformanceandthedistribution
ofresourcesthroughpolicy.Governancearrangementsinperiodt,alongwiththe
politicalinstitutionsandtheresourcedistributioninperiodt,determinethe
distributionofpoliticalandeconomicpowerinthatperiod.Thedistributionof
power,inturn,establishestheeconomicinstitutionsinperiodt,aswellasthe
politicalinstitutionsandgovernancearrangementsinperiodt+1.Throughpolicy
choices,theeconomicinstitutionsinperiodtdefinetheeconomicperformancein
periodtandthedistributionofresourcesinperiodt+1.Withthepolitical
institutions,thedistributionofresourcesandthegovernancearrangementsin
periodt+1determined,theprocessbeginsagain.
Whiletheobjectiveofgoodgovernanceistogenerateeconomicperformanceand
resourcedistributionoutcomesthatareacceptabletosociety,thereisnoguarantee
thatthegovernancearrangementsgeneratedbythefeedbackloopsoutlinedin
Figure1willproducetheseresults.Akeyreasonispower.Ifthe“good”outcomes
aredetrimentaltopeoplewithpower,thenthesepeoplewillnotchoosegovernance
Source:AcemogluandRobinson(2006)Figure1ThePoliticalEconomyofGovernanceArrangements
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structuresthatgeneratetheseoutcomes.Mungiu-Pippidi(2015,11)makesthis
argumentusingthemetaphorthat“goodgovernanceislikebuildingabarn:itjust
needsaplanandsomebuilders.Theconceptthatsomepeoplewithconsiderable
powermayopposetheconstructionofthebarnastheybenefitfromitsabsenceis
seldomdiscussed.”
Thepowerofinfluentialgroupstoblockprojectsthatarebeneficialtoothersbut
notthemselves,whetheritisinvestmentsortheintroductionofdifferent
governanceregimes,haslongbeenanissueofdiscussioninthepoliticaleconomy
andpolicyliterature(Robinson1998;Acemoglu2003).Aswewillseeinthenext
section,thisproblemalsoneedstobeconsideredalongsideadifferent,albeit
related,issue,namelyhowisitpossibleforthosewithpoweringovernance
arrangementstoselectoutcomesthat,whilebeneficialtothem,aredetrimentalto
othergroupsinsociety.
TheEconomicsandPoliticsofGovernance
Toexaminethetwoquestionsposedabove,wedevelopatheoreticalframework
thatmodelsthewayinwhichgovernancestructuresaffectthepoliciesthatare
chosenandtheresultingdistributionofpowerandpayoffs.Tocapturethese
features,anumberofassumptionsandsimplificationsarerequired.Westartwith
outliningtheseelements.
Consideracountrywithtwogroups,XandY.Thiscountryhasavailabletoit,
atleastinprinciple,avarietyof“technologies”thatcanbeimplemented—these
technologiescouldbephysicalinfrastructuresuchasrailroads,ortheycould
representwaysofdoingthings,suchastheimplementationofparticularpoliciesor
themannerinwhichactivitiesareorganized.Eachofthetechnologiesresultsinthe
creationofacertainlevelofwealthandthedistributionofthiswealthbetweenthe
twogroups.
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Foreachtechnology,thedistributionofthegeneratedwealthbetweenXandYcan
beillustratedasapointinFigure2.Suppose,forinstance,thatthepayoffstoXandY
forthecurrenttechnologyaregivenbypoint“a.”Pointslocatedaboveandtothe
rightofthe45°linepassingthrough“a”representpayoffsfromtechnologiesthat
wouldenlargethepie;pointsbelowandtotheleftofthe45°linerepresentpayoffs
fromtechnologiesthatshrinkthepie.
Governancearrangementsreflecttheallocationofpowerandauthorityheldby
differentgroups.Thisallocationisdeterminedinpartbythelargerinstitutional
environmentinwhichthegroupsoperate(e.g.,well-definedpropertyrights;
democraticinstitutions),sincethisenvironmentdeterminesdejurepower.The
relativeresourcesavailabletogroupsalsodeterminepowerandauthority;afailure
tomaintaintheseresourcesmeansalossofpower.
Therelativeresourcesavailabletogroupsaredeterminedbytherelativepayoffs
thataregeneratedfromthedecisionsthataremade.AcemogluandRobinson
(2013)arguethatthecreationofrentsprovidestheincentivetocreate
organizationstocapturetheserents(forasimilarpoint,seeRobinson1998).Thus,
thegreateraretherentsthatarecreatedforonegrouprelativetoanother,the
greateristheincentiveforthisgrouptoorganizeandthegreaterpoweritcanthen
beexpectedtoobtain.Theseobservationssuggestthatthedistributionofthe
benefitsfromnewtechnologiesmatterstothegroups,notjustbecauseofthe
returnspersethataregenerated,butalsobecauseofthepowerthattheserentswill
generateinthefuture.
Alsoimportantinthepoliticaleconomyofthesocietyistheextenttowhichagroup
canbedeprivedofeconomicbenefitsbeforetheyrebelinapoliticallydestabilizing
manner.Dependingonthecountryandthecontext,thisrebellionmighttakethe
formofactiverevolt(suchaswasthecasewiththeArabSpring),ofseekingpolitical
separation(suchaswasthecaseintheU.S.CivilWar),orofelectingnon-
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mainstreampoliticians(ashasbeenthecaseintheUnitedStatesandanumberof
Europeancountries).
TheseideasarecapturedinFigure2.Let’sexaminefirstthepossibilityofrebellion.
Theline0dshowsthevariouscombinationsofpayoffstoXandYthatwouldmakeX
indifferentbetweenrebellingandnotrebelling,whiletheline0eshowsthevarious
combinationsofpayoffstoXandYthatwouldmakeYindifferentbetweenrebelling
andnotrebelling.Theareabetweenthesetwolinesthusrepresentsthesetof
payoffsforwhichthepoliticalstructureisstable.
Nowconsiderthequestionofmaintainingpower.Theareabetweenlinesabandac
representsthepayoffcombinationsthat,ifchosen,wouldresultinnochangeinthe
powerheldbythetwogroups.Pointsabovethelineabwouldleadtoanincreasein
powerforY(andhencealossofpowerforX),whilepointsbelowacwouldleadto
anincreaseinpowerforX(andalossofpowerforY).
ThepositionandshapeofthelinesabandacinFigure2dependonthepowerthe
twogroupspossessat“a,”aswellasgeneralfeaturesoftheeconomicandpolitical
environmentinthecountryunderconsideration.Panel(i)showsasituationwhere,
Figure2PayoffsandPower
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at“a,”XhasrelativelymorepowerthandoesY;thiscasealsoassumesthatthe
relativepowerofXandYislargelydeterminedbytheresources/payoffstowhich
theyhaveaccess;dejuresourcesofpowerarerelativelysmall.
Incontrast,panel(ii)showsasituationwherethepowerheldbyXandYat“a”is
muchmoreequal.Inaddition,agooddealofthepowereachgrouppossessesisde
jureinnatureandisnotasheavilydeterminedbyresources.Forinstance,panel(ii)
mightreflectacountrywithstrongdemocraticinstitutions,oneinwhichaccessto
economicresourceshasonlyasmalleffectonthelikelihoodofelectoralsuccessfor
eitherXorY.Insuchaworld,eitherXandYcould,fromtimetotime,introduce
technologiesthatwouldresultinlossestotheothergroupandyetnotalterrelative
power.Suchmovesarepossibleaslongasthereisanexpectationthatatsomepoint
inthefuturethegroupthatpreviouslysufferedalosswouldbeabletointroducea
technologythatwouldbenefititwhileimposingalossonthefirstgroup.
TheframeworkpresentedinFigure2canbeusedtoshowhowgovernance
arrangements,thedistributionofpower,andeconomicbenefitsarejointly
determinedandevolveovertime.Twocaseswillbeconsidered—corruptionand
ignorance—eachcorrespondingtooneofthetwochronicconditionsoutlined
earlierinthepaper.
Corruption
Inourexaminationofcorruptionweconsidertwodifferentinformalarrangements
fortheexerciseofpower.Inthefirstarrangement,peoplefollowformalrulesthat
aredefinedbytheofficetheyoccupy;monitoringmechanismsandpenaltiesprovide
supportfortheserules.Inthesecondarrangement,peoplemakedecisionsbasedon
personaladvancement.
Point“a”inFigure3capturesthedistributionofbenefitsthatemergefromthe
secondofthesegovernancearrangements;itcanbecharacterizedasahigh
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corruptionoutcome.Point“b”capturesthedistributionofbenefitsthatemergefrom
thefirstgovernancearrangement;itcanbeviewedasalowcorruptionstate.The
lowcorruptionstatecreatesmorewealth(asMauro(1995)shows,corruptionis
associatedwithlowereconomicgrowthrates),withasomewhatmoreeven
distributionofthebenefitsbetweenXandY.
Binmore(2003)arguesthateitheroutcome“a”or“b”couldemergeasan
equilibriumdependingonthesetofexpectationsthatareinplace.Following-
Pippidi(2006)andPerssonetal.(2012),corruptbehaviorcanbeunderstoodas
beingtheappropriatestrategyforindividualsincountrieswheretheexpectationis
thatcorruptionisrife.AsPerssonetal.(2012,450)indicate,“insofarascorruption
istheexpectedbehaviorinaparticularsociety,weshouldexpectthekey
instrumentstocurbcorruptioninlinewiththeprincipal-agentanticorruption
framework—thatis,monitoringdevicesandpunishmentregimes—tobelargely
ineffectivesincetherewillsimplybenoactorsthathaveanincentivetoenforce
them.”Thus,althoughothergovernancemechanisms,suchasoffice-definedrules,
couldsupportlowerlevelsofcorruption,thereisnoincentiveforplayers
Figure3CorruptionandGovernance
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individuallytochangetheirbehaviour.Instead,whatisneededtomovefrom“a”to
“b”isanewsetofexpectationsthateveryoneadopts.
Inadditionto“a”beinganequilibriumfromwhichescapeisonlypossibleifall
partiesadoptanewsetofcommonexpectations,“a”hasthepropertythatit
providesgreaterbenefitsandmorepowertoXthandoes“b.”AsillustratedinFigure
3,amovefrom“a”to“b”wouldinvolvemovingoutsidethelensinwhichpolitical
powerisheldconstantandmovingtoapointwherethepowerofXwoulddecrease.
SincesuchamovemakesXworseoffintermsofbothpayoffsandpower,Xwould
notbeexpectedtosupportthedevelopmentofgovernancestructuresassociated
with“b.”
Itcanalsobenotedthatif“a”ispushedtoofardownandtotheleft,itmaylieunder
thelinewhererebelliononthepartofYbecomesapossibility.Inthiscase,
corruptionisnotastableoutcome.Furtherdiscussionofnon-stablecasesis
providedinalatersection.
Takentogether,theunwillingnessofadominantgrouptochangetherulesandthe
difficultyofgettinganewsetofexpectationsadoptedbyeveryonemakeescape
frompositionslike“b”verydifficult(althoughnotimpossible,asManion2003
shows).Ashasbeenstressed,position“a”embodiesacombinationofaparticular
governancestructure,aparticularpowerarrangement,aparticularlevelofwealth
andaparticulardistributionofthiswealth.Effortstochangeoneortwoofthese
features,withoutaddressingallthefeatures,isalmostcertaintobeunsuccessful.
Ignorance
Inadditiontocorruption,theotherchronicconditionthatleadstopooroutcomesis
ignorance.Inthissectionweconsiderignorancefromtwodifferentperspectives:
onewherethecombinationofignoranceandconcernsaboutpowerresultingood
technologies(i.e.,onesthatwouldleadtobetteroutcomesforbothgroups)not
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beingadoptedandonewherethecombinationofignoranceandpowerresultsin
outcomesthatcanthreatenpoliticalstability.Thefirstperspectivewillbeexamined
undertheheadingoftransactioncosts,whilethesecondperspectivewillbe
examinedundertheheadingoffailuretoforeseeconflict.
TransactionCosts
Figure4illustratesthecasewherethecombinationofignoranceandconcernsabout
powerresultingoodtechnologiesnotbeingadopted.Supposeacountryiscurrently
locatedatpoint“a”andthatanewtechnologycouldbeintroducedthatwouldmove
theeconomyto“b.”Supposealsothatthegovernancestructureinplacereflectsthe
factthatXhasmorepowerthanY.AscanbeseenfromFigure4,thetechnologythat
generatespoint“b”isnotlikelytobeacceptabletoX.Thereasonisthatpoint“b”
liesabovethelensinwhichrelativepowerremainsconstant;thus,if“b”weretobe
chosen,Xcanbeexpectedtolosepowerandwithittheabilitytogeneratebenefits
inthefuture.Thus,totheextentthatXhastheabilitytoblocktheintroductionof
thenewtechnology,itwoulddoso.Note,however,thatblockingthistechnology
Figure4Power,GovernanceandTransactionCosts
17
meansthatthecountryfailstoexpanditseconomy—ineconomicterms,thesizeof
thepieisnotincreased.
Inthestricteconomicsphere,theCoasetheoremprovidesasolutiontosuch
problems(Coase1960).ThissolutionrequiresYtocompensateXsothatXbenefits
sufficientlytoagreetotheintroductionofthetechnology.Forinstance,adealthat
movesthetwogroupstopoint“c”wouldallowbothXandYtobenefit.TheCoase
outcome,however,canfallapartduetotransactioncosts.Transactioncostsarethe
costsofspecifying,monitoring,carryingout,andenforcingatransaction(seeDixit
1996)foranexcellentdiscussion).AsCoase(1960)argues,ifthesecostsare
sufficientlyhigh,theycanexhaustthebenefitsobtainedfromthenewtechnology
anditwillnotbechosen.ThisoutcomecanbeillustratedinFigure4bynotingthatif
transactioncostsarepresent,point“c”doesnotlieonthe45°linerunningthrough
“b,”butinsteadliesbelowthisline.Ifthetransactioncostsarehighenough,“c”
wouldbelocatedbelowthe45°linerunningthrough“a,”andbothXandYwould
prefertheoriginaltechnology.
AnotherreasonforthefailureoftheCoaseoutcomeisthatthebargainthatmoves
theoutcomefrom“b”to“c”wouldhavetoinvolveashiftinpoweraswellaspayoffs
inorderforittobeacceptabletoX.Asoutlinedabove,point“b”isassociatedwith
greaterpowerforY—indeed,itisthisgreaterpowerforYthatcausesXtorejectthe
technology.IfthebargainbetweenXandYonlyinvolvesatransferofpayoffs,thenit
maynotaddressthekeyissuethatcausedXtorejectthetechnologyinthefirst
place.Instead,whatwouldberequiredisatransferofpayoffsinawaythatalso
involvesatransferofpowersothatXisnotdisadvantagedinthatregard.As
Acemoglu(2003)andAcemogluandRobinson(2001,2013)discuss,suchtransfers
typicallyinvolvetheintroductionofadditionalcostssothat“c”liesbelowthe45°
linerunningthrough“b,”evenintheabsenceofthetransactioncostsdiscussed
above.Fromaneconomicperspective,theneedtoprovidecompensationintermsof
poweris,ineffect,atransactioncost.Noticethatattemptstoremovethepolitical
elementfromthebargainbetweenXandYarelikelytoresultinoverallpoorer
18
performancefortheeconomy,sincedoingsowouldresultintheeconomy
remainingat“a”insteadofmovingto“c.”
Ignoranceplaysakeyroleindeterminingthetransactioncostsdiscussedabove.
Transactioncostscantakemanyforms,includingproblemsindistributingthe
benefitsefficiently,challengesinseeingandorganizingthearrangementsneededto
allowabargaintobereached,andasoutlinedabove,difficultiesinmakingcredible
commitments(i.e.,ensuringthatX’spowerispreserved).Withoutactivesolutions
totheseproblems—i.e.,withoutgoodpolicies—agreementsaredifficulttoreach
andthestatusquoremainsentrenched.
Consider,forinstance,thedifficultiesthatexistinidentifyingtheopportunitiesfor
mutualgain,inprovidingassuranceofbenefits,andinfindingnovelwaystomake
thetransfersthatarenecessarytoachieveagreement.Thosewhostandtolosefrom
apolicychangearelikelytoresistitunlessthereissubstantialcompensation(this
problemisexacerbatedbecauseoflossaversion(Flyvberg2009).Atthesametime,
thosewhostandtogainwillbereluctanttopaythecostsofcompensation
themselvessincegainsareoftenuncertain(Trebilcock2014).Themorethese
difficultiescanbereduced,thegreateristhelikelihoodthat“c”wouldbeselected.In
addition,itisnecessarytofindwaystoaddressthepoliticalproblemofprovidingX
withtheassurancethatitspowerwillnotbediminished.Dealingwiththeseissues
meansdealingwiththeignoranceproblem,sinceitisonlybytrulyunderstanding
thenatureoftheproblemandfindingcreativewaystoaddressitthatasolutioncan
befound.
Thepresenceoftransactioncostsmeansthat,aswasthecaseforcorruption,
governancearrangements,powerstructuresandeconomicoutcomesarejointly
determined.Thechoiceoftechnology,whichisdeterminedbythegovernance
structure,affectsthebenefitsthatareavailableaswellasthepowerthatgroups
possess.Or,asCoase(1960)argued,whentransactioncostarepresent,decisions
aboutthesizeofthepiecannotbeseparatedfromdecisionsaboutthedistribution
19
ofthepie.Theconclusionfromtheaboveanalysisisthatpoliticalconsiderations
meanthattransactioncostswillalmostalwaysexist,whichmeansthatthe
separationofthepurelyeconomicquestion(thesizeofthepie)fromthepolitical
question(conflictoveritsdistribution)cannotoccur.Ignorancebecomesakey
factorwhenthislinkageisnotrecognizedand/orwhenattemptstoaddressthis
linkagearenotgivensufficientemphasis.
Anumberofauthorshavearguedthatdemocraticregimesproducebetteroutcomes
becauseamorecognitivelydiversesetofdecisionmakerstypicallyprovidesgreater
epistemiccapacitythanabetterqualifiedbutsmaller,lessdiverseelite.Adiversity
ofexperience,identityandmodesofreasoningallcontributetobettercollective
outcomes(Page2007;HongandPage2012),butwhatisreallyimportantis
cognitivediversity,thedifferentmodelsthatpeopleemployininterpretinghowthe
worldworksorshouldbeunderstood(Landemore2013,160).
Whiletheepistemiccapacityofdemocraciesisadvantageousintermsoflowering
transactioncosts,democraciesofferanotheradvantage—theyenlargethesetof
outcomesthatareacceptabletobothXandY,makingiteasierforbothgroupsto
supportnewtechnologiesthathavedifferentialbenefits.Thenotionthatwell-
functioningdemocraciescanenlargethesetofacceptableoutcomesisseenby
comparingpanel(i)and(ii)inFigure3.Theenlargementoftheacceptableoutcome
spaceoccursbecausemoreofthepoliticalwork(i.e.,dealingwithconflict)canbe
doneoutsideoftheeconomicsphere,therebyopeninggreateropportunitiesto
enlargethepie.
Takentogether,thesetwoadvantagessignificantlyincreasethelikelihoodthat
democraticregimescanoperateinamannerthatbothenlargesthepieandallows
foritsdistributioninamannerthatislessfraughtwithconflict.Aswewillseeinthe
nextsection,regimesthatarelessthatfullydemocraticmayalsobesuccessfulat
enlargingthepie;however,todosomaycomeatthecostofcreatingmoreconflict.
Itistothisquestionthatwenowturn.
20
FailuretoForeseeConflict
Figure5illustratesthecasewhere,contrarytothesituationmodeledinFigure4,
thepowerbalanceinacountrydoesnotpreventtheadoptionofanewtechnology
thatwouldenlargethepie.Asinthepreviouscase,thecountrystartswiththe
payoffsgivenbypoint“a.”Theintroductionofthenewtechnologywouldresultin
payoffsgivenby“b.”IfXhasthepowertoapprovetheintroductionofthe
technology,thenitwouldbeexpectedthatitwoulddoso—point“b”provides
higherpayoffsandmorepowerthandoes“a.”
This“solution”tomaximizingthesizeofthepie—namelyprovidingpowerand
authoritytothosewhobenefitfromthetechnology—wasnotedbybothCoase
(1960)andRobinson(1998).Whiletheproblemofmaximizingthesizeofthepieis
addressed,itispossiblethatdoingsocouldresultinsignificantconflict.Indeed,the
conflictcouldbesuchthatitwouldleadtorebellionbyY.
Figure5Power,GovernanceandtheFailuretoForeseeConflict
21
Amoveto“b”increasesboththepowerandthepayoffsforX,anddecreasesthe
powerandpayoffsforY.AlthoughYisworseoff,itwouldneverthelessacceptthe
movefrom“a”to“b,”since“b”islocatedwithintheregionthatdenotespolitical
stability.ItusefulatthispointtoexaminewhyYwouldacceptamovethatmakesit
worseoff.
Oneoftheanswerstothisquestionwasexaminedearlierinourdiscussionof
corruption.Sincegovernancearrangementscanbethoughtofasequilibria,thenit
followsthatallthepartiessubjecttothisarrangementwillhaveanincentiveto
complywiththearrangementandthedecisionsthatarisefromit.Notethatthis
incentivetocomplyexistsattheindividuallevel.Whileitmightbepossibleforthe
individualsinYtoactcollectivelyinadifferentwayandachieveadifferentoutcome,
individuallyeachmemberofYisbestoffabidingbythegovernancearrangementin
place.
Anotherreasonrebellionisnotchosenisthatitiscostly(AcemogluandRobinson
2006).EvenifthefreeriderproblemscouldbesolvedandthemembersofYcould
actcollectively,rebellionisonlychoseniftheexpectedbenefitsofrebellion(which
aredeterminedbytheprobabilityofsuccessoftherebellionandthegainsthatcan
beexpectedifsuccessful)aregreaterthanthecosts.Sincethecostsareoften
significant,rebellionisoftennotapreferredoption.
Afurtherreasonforcomplianceisthenatureofgovernancearrangements.Recall
ourgovernancedefinition—governanceisthesetofformalandinformal
arrangementsbywhichpowerisallocatedandexercisedinanysystemwith
interdependentactors.Culturally,formalandinformalarrangementsaremorethan
justthespecificationofhowthingsareorganized.Instead,formalandinformal
arrangementstypicallytakeonavalueintheirownright.
Thesourceofthisvalueisanormpsychology(Henrich2015).Thispsychology,
whichistheoutcomeofevolutionovermillionsofyears,meansthatpeople
22
intuitivelyassumethesocialworldisrulegoverned,eveniftherulesarenotknown,
andthatviolationoftheserulesislikelytohavenegativeconsequences.Asaresult
oftheirbeliefintheexistenceofrules,peopleinferthatthebehaviorofothersis
affectedbytheserules.Aspeoplelearnthesenormsandrules,thesenormsand
rulesareatleastpartiallyinternalizedsothattheybecomegoalstobeachieved.
Thispsychologicalbehaviormeansthatonceagovernancearrangementis
established,abidingbyitbecomesanobjectiveinitself.Asaresult,governance
arrangementscanbesustainedforlongperiodsoftime,evenwhentheyroutinely
generateoutcomesthataredetrimentaltoparticularindividualsandgroups.In
short,thevalueofmaintainingtheruleoffsetsthecostassociatedwithdoingso.
Henrich(2015)pointsoutthatthepeoplemosteffectiveatestablishingnormsand
rulesthatotherswillfollowarethosethatpossesseitherdominanceorprestige.
Dominancetypicallyreliesonthreatsandcoercionforinfluenceandismarkedby
aggressiveandegocentricbehavior.Prestige,incontrast,typicallyinvolves
persuasionanddeferentialagreement,andismarkedbygenerousandcooperative
behavior.Whatisinterestingaboutprestigeisitemergesfromwhatisdeemedtobe
importantandvaluableinaspecificdomain—thus,hockeystars,rockmusiciansand
greatthinkerscanallenjoyprestige.AsHenrich(2015,139)notes,“Whilenot
infinitelymalleable,whatconstitutesavalueddomainisamazinglyflexible.The
differentialsuccessofsocietiesandinstitutionswillhinge,inpart,onwhatdomains
arevalued.”
IfweapplyHenrich’sobservationtogovernance,wewouldconcludethatdifferent
governancearrangementscouldemergesimplyasaresultofwhoenjoyedprestige
ordominanceinaparticularsituation.Theseprestigiousordominantindividuals
wouldestablishnormsandrulesthatotherswouldnotjustmimic,butwould
ultimatelyadoptasgoalstobeachieved.Thus,differentsocietiescanbeexpectedto
developnotjustdifferentnorms,buttodevelopnormsthatemphasizeandreward
differentthings.Theconsequenceisthatdifferentsocietiescanbeexpectedto
23
followdifferentpaths;someofthesepathswillinvolvesignificantdisparitiesin
payoffsandpower.
Thepresenceofagovernanceequilibrium,theproblemsofcollectiveaction,the
costsofrebellionandthepsychologicalvalueattachedtonormsallprovidereasons
whythedistributionofpowerandauthoritycanbequiteskewedinX’sfavorand
yetnotresultinrebellionbyY.Atsomepoint,however,itisexpectedthatthepayoff
andpowerdistributionwillbesoskewedthatrebellionbecomesapossibility.The
lines0dand0einFigure2showthelocusofpayoffsatwhichrebellionoccurs.
Thepossibilityofrebellionbecomesimportantwhenthesituationportrayedin
Figure5isexamineddynamically.Asnotedabove,themovefrom“a”to“b”results
inmorepowerandgreaterpayoffsforX.Italsocreatesanewstatusquoat“b.”
Point“b,”ofcourse,hasassociatedwithitanarea—alens—inwhichthepowerofX
andYdonotchange.Theshiftofthislensdownandtotherightmeansthatit
becomesunlikelythattechnologiesthatgenerateoutcomeslike“c”wouldnowbe
acceptabletoX,eventhoughtheywouldhavebeenacceptablewhenthestarting
pointwas“a.”Instead,thetechnologiesthatareacceptabletoXareonesthat
generateoutcomeslike“d.”
Payoffslike“d,”ofcourse,resultinafurtherskewingofpowerandpayoffsinfavor
ofX.InFigure5,“d”islocatedbelowthepoliticalstabilityline,indicatingYisnow
sufficientlydisadvantagedthatrebellionbecomesanoption.Thepotentialfora
majordisruptionofthepoliticalequilibriumnowexists,evenastheeconomyis
growing.
ThisoutcomerequiresthatXdoesnotanticipatethepoliticalupheavalthatwould
resultfrommovingto“d.”Isthisreasonable?WouldXnotrationallyunderstandthe
problemsthatwouldoccurbycrossingthepoliticalstabilitylineandrefuseto
acceptatechnologythatproducestheseresults?
24
ThereareanumberofreasonstoexpectXwouldnotberationalinthissense.One
reasonisthatXmayhavearelativelyshorttimehorizonandthusbeimpatientto
obtainthepayoffsandpowerassociatedwith“d.”Ifthisimpatienceislargeenough,
thepossibilityofrebellioncouldbediscountedsufficientlytoallow“d”tobechosen.
Asecondreasonisacollectiveactionproblem.AlthoughthemembersofXmayhold
considerablepowerthroughthegovernancestructuresthatareinplace,no
individualmemberofXseesallthesituationswheremovesarebeingmadeto
pointslike“d.”Asaresult,eachindividualfailstoseethefullextentoftheproblem
untilitoccurs.
AthirdreasonisthatsituationsliketheonedescribedinFigure5typicallydonot
occurveryoften.Indeed,giventhepoliticalstabilitythathasbeenassumedpriorto
thepointintimewhenthecrossoveroccurs,therewouldhavebeennoexperience
withrebellionandonlyavaguesenseofwheretheboundarylinelies.Theproblem
herecanbecharacterizedasoneofuncertainty—thereissimplynosolidbasison
whichtomakeinferencesaboutwillhappeninthefuture.
Afourthreasonisalsolinkedtoignorance.Evenifthesignalsarepresentthata
societyisgettingclosetothepoliticalinstabilityline,theymaybeincorrectly
interpretedbecauseofcognitivebiases—examplesincludetheavailabilitybias,the
representativebias,theconfirmationbiasandtheself-interestbias.
Oneobvioussolutiontoallfourproblems,andparticularlythelasttwo,isgreater
epistemiccapacityforthemembersofX.Thecollectionandanalysisofdataonthe
extentoftheunequaldistributionofpowerandpayoffs,abetterunderstandingof
theeffectsofanunequaldistribution,andcomparisonsfromothercountrieswould
allaidinbeingabletoidentifytheproblemsthatcanarisefromunequal
distribution.
25
Interestingly,ifthisincreasedepistemiccapacityfiltersovertothemembersofY,
theresultmaybeamovementinwardsoftherebellionline,makingitmorelikely
thatpoliticalinstabilityoccursaspowerandpayoffsareconcentratedinthehands
ofaparticulargroup.IfthemembersofXhaveanintuitiveunderstandingofthis
dynamic,theymayunderinvestinepistemiccapacity.
Aswasarguedearlier,thedevelopmentofwidespreadepistemiccapacitymaybe
oneofthehallmarksofdemocraticsystems.Thus,themoredemocraticisasystem,
themoreitcanbeexpectedthatwidevariationsinpowerandpayoffswillbe
unacceptable.However,itdoesnotthenfollowthatdemocraticsystemsshouldbe
lesspoliticallystable.Thereasonisfoundintheanalysisoftheprevioussection,
whereitwasarguedthatmoredemocraticsystemscanbeexpectedtohavelarger
areas—largerlenses—inwhichtechnologiescanbeintroducedwithout
fundamentallychangingtheunderlyingpowerstructure.Inotherwords,themore
democraticisasystem,thelesslikelyitisthatitwillveeroffintotheunstable
territory(seePrzeworskietal.(1996)forsupportonthispoint).
Torecap,whilethepresenceofagovernancestructurethatallocatessignificant
powertoonegroupdoesnotprecludeeconomicgrowthandanenlargementofthe
sizeofthepie,thegrowththatdoesoccurcanbeexpectedtomaintainorenhance
thepowerimbalance.Oneoftheconcernstoemergefromacontinuedpowerand
payoffimbalanceispoliticalinstability.Thus,asintheothercasesthatwere
examined,governancestructures,powerrelationships,andeconomicandpolitical
outcomesarejointlydetermined.
Conclusion
Inrecentyearstherehasbeenamarkedincreaseininterestinwhatconstitutes
goodgovernment,goodgovernanceandqualityofgovernment.Inadditiontoa
broadconsensusthatgovernmentisnolongerthekeyplayeringoverningthe
26
economy,aconcernhasemergedthatpursuingeconomicgrowthalonewillnot
generatethebestoutcomesforsociety.
Theseideasarelinked.Theinitialresponsetotherecognitionthatgovernment
couldnotunilaterallydirecttheeconomywastoincludeahostofotherplayers,
includingtheprivatesectorandNGOs,ingovernance.Inthecaseofdeveloping
countries,oneoftheconcernsofthisapproachwasreadilyunderstood—would
theseplayershavetheincentivetoencouragegovernmenttointroducepoliciesthat
wouldpromotegrowth?TheeffortsoftheWorldBanktoencouragespecificforms
ofgovernancewereanattempttoaddressthisproblem.Whiletheinitialemphasis
wasonspecificfiscalandmonetarypolicyinthecontextofstructuraladjustment
policies,attentionhasnowshiftedtoanemphasisoncreatingthecapacityforgood
decision-making(e.g.,reductionsincorruption).Inbothcases,theoverarching
concernwaswhetherthosewithpowerandauthoritywouldintroducepolicies
beneficialtothelargersociety.
Whatwasmuchlessunderstoodinitiallywasaseparateproblem—wouldthose
withpowerandinfluenceintroducepoliciesthatencouragegrowth,albeitatthe
expenseofsocialinclusion?AstheOECDnowrecognizes,thisproblemisofreal
concern.Thisisparticularlythecasefordevelopedcountrieswhererising
inequalityandlackofinclusivenessthreatenspoliticalstabilityandeconomic
activity,althoughdevelopingcountriessuchasChinahavenotbeenimmunetothe
problem.
Theanalysisinthispapershowsthatbothoftheseproblemsemergefromthe
natureofgovernance,andareexacerbatedbytwochronicconditionsassociated
withgovernance,namelycorruptionandignorance.Morespecifically,thepaper
arguesthatgovernancearrangementsreflectbotheconomicandpoliticalforces,
andarejointlydeterminedalongwiththedistributionofpowerandthecreation
anddistributionofeconomicpayoffs.Asaresultofthisjointdetermination,
27
governancecannotbeimposedonsystems;norshoulditbeassumedthateconomic
andpoliticalsystemsleftontheirownwillevolveinwaysdesirableforeveryone.
Asaconsequence,weshouldbewaryofattemptstointroducebestpractices;unless
thesepracticeshappentofitwiththeprevailingpoliticaleconomy,theyareunlikely
tobesuccessful.Atthesametimeweshouldbewaryofsimplyleavinggovernance
systemstoevolveontheirown,sincethereisconsiderablereasontobelievethat
theymaynotdevelopinwaysthataredeemedtobegood.
Giventheseobservations,isthereanythingthatcanbedonetomovesystemsin
waysthataredesirable.Theoneconclusionthatcanbetentativelydrawnisthat
democraticsystemsmaybebetteratgeneratinginclusivegrowth(tousetheOECD’s
language)thannon-democraticsystems.Aswehaveseen,itisextremelydifficult,if
notimpossible,toimposedemocracyoninherentlynon-democraticsystems;the
resultisthattheproblemsfacingmostdevelopingcountriesareverychallengingto
addressandhavetobeapproachedwithgreatcare.
Whataboutindemocraticsocieties?Hereitmaybepossibletotakestepstoensure
thatdemocraticsocietiesremaindemocratic.Ofkeyimportanceisepistemic
capacity,sinceitsmaintenanceandimprovementappeartobeconnectedwiththe
abilityforasocietytochoosetechnologiesthatenlargethesizeofthepiewhile
ensuringarelativelyconstantlevelofpowerandpayoffinequality.
Onthisissue,oneofthekeyproblemsfacingademocraticsocietyisacollective
actionproblem.Sinceepistemiccapacityiscreatedandmaintainedthroughthe
actionsofeveryone—theeducationpeoplereceive,thedegreetowhichpeoplerely
onevidence,theabilityofpeopletoexperiment—andsincetheseactionsareoften
personallycostly,thetendencyisforthepeopletounderinvestinsuchactivities.
Tacklingthistendencyrequireslarge-scaleco-operation,co-operationthatcan
likelyonlybesustainedthroughthedevelopmentofwidelyacceptednormssuchas
universalism(Mungiu-Pippidi2006,2015),andexperimentationand
28
consequentialism(KnightandJohnson2007,2011).Justasnormsaretheculprit
behindcorruptionandtheacceptanceofwidespreaddisparitiesinpowerand
payoffs,sotooarenormsthemeansofovercomingtheseproblems.Aswehaveseen
inthispaper,normsplayakeyroleintheco-determinationofgovernancesystems,
thedistributionofpower,andthegrowthandallocationoftheeconomicpie.Asa
resultitisnotsurprisingthattheyshouldbekeyfactorsinthedevelopmentand
maintenanceofgoodgovernance.
29
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