Markets and Good Government

by Robert Archer

Table of Content

• PREFACE
  • The Way Forward for Economic and Social Development?
  • Some Definitions
• OVERVIEW
• COMMENTARY
  • MARKETS
  • GOVERNMENT
  • CIVIL SOCIETY
• CRITIQUE
• INTERNATIONAL GOVERNANCE AND AID CONDITIONALITY
• CONCLUSION

PREFACE

This paper was originally written for the staff of Christian Aid, the British development agency for which I work. Its objective was to set out the official theory of good government, with particular reference to the British government's policy, and assess its implications for our work with Southern NGOs in some of the world's poorest countries. The paper was subsequently used as a background text for discussion of good government, conditionality and human rights by British human rights and development NGOs, at an international NGO Conference on conditionality and good government organized by INTRAC, and by members of the International NGO Forum on Indonesian Development (INFID). The section on conditionality was added specifically when preparing the paper for NGLS.

The papers's first audience was British, and its argument reflects the emphasis that the British Government has chosen to give good government in its own policies. Over time it has been amended in various ways to take account of the needs of different audiences, but her original framework is nevertheless largely intact. As a result it reads like a northern (especially European) critique of a northern theory--and, since the theory makes some claim to universality, so does the critique!

To clarify the framework, the first section (titled Overview) summaries the features (and weaknesses) of the theory of good government that has been advanced in broadly similar terms by a range of northern governments and international financial institutions. The second section (titled Commentary) describes in more detail the assumptions and logic of the official policies--in relation to the rather different assumptions of NGOs. The third section (titled Critique) challenges the assumption that market-led growth will generate conditions in the poorest countries that are easily compatible with achieving the other core values of the good government approach--democracy, respect for human rights, and high standards of administration in government and the law.

Though Good Government and Markets was originally prepared for a Northern audience, I hope readers of NGLS Occasional Papers will find its argument has some relevance to their experience. If it succeeds in setting out and challenging some of the official policy ideas on Northern governments in a stimulating, reasonably truthful wy, it will have served its purpose.

The Way Forward for Economic and Social Development?

Introduction

Stimulated by the World Bank's report on poverty in 1990 and the fall during 1989-90 of the Berlin Wall and all European states east, after 1989 western industrialised governments identified a cluster of policy ideas which they claim constitutes a model for good economic and political management. By economists, these ideas are often called the "Washington consensus". Approached from politics they are usually referred as "good governance" (good government). The model emphasises three axes: the role of competitive markets (the economy), government responsibility to manage (the state), and the importance of private rights and individual initiative (civil society).

So widely have these ideas been taken up that they now have the status of an international orthodoxy. They are reflected in the domestic policies of the industrialised states which, as funders of international development and relief programmes, also consider they offer appropriate guidelines for developing countries and the countries of eastern Europe that are changing from a state managed (communist) economic system to a market-based (capitalist) system. They set the parameters for development funding of the World Bank and International Monetary Fund (IMF), the European Union and Japan.

This paper argues that the "good government" approach does indeed mark an important break with neo-liberalism, from which it should be distinguished. It recognises that markets are not the whole answer. It re-habilitates the state, which is given central social and economic responsibilities. And it promotes human rights, democracy and the rule of law because these are seen to be requirements of a modern market economy and a well-managed State. Where neo-liberalism exploded the relationships between government, the economy and "society", the good government approach re-unites society's political, economic and social dimensions. It is inherently more tolerant, more humane and more sophisticated than its predecessor.

Nevertheless, it remains a market-driven, competitive model which favours the strong in every area - technical, educational, cultural, political, economic, financial. This is true whether its ideas are applied locally or at national or international level. It draws upon the success of the powerful and offers little help and much discouragement to the poor or powerless. As such, it is not a development model.

Furthermore, the new orthodoxy is fatally inconsistent in claiming that open and competitive markets will bring prosperity to the poorest countries (or to poor people living in industrial societies) when its own analysis as well as experience suggest that such development cannot be achieved within politically (or environmentally) acceptable time-frames. Merely continuing to increase market efficiencies may actually worsen the condition of the poor. Policies to improve education and health, protect political rights and raise the quality of government will fail wherever economies are unable to sustain their cost. In the 1990s, few governments in North or South are likely to escape this predicament. Pursued by shortage of resources, they will be forced towards a choice which the good government recipe appears to evade, between maximising market efficiency (high growth) or steadily investing in people and infrastructure--a strategy of lower returns that probably holds the keys to long-term sustainable progress.

Some Definitions

The European Community

"The Council stresses the importance of good governance. While sovereign states have the right to institute their own administrative structures and establish their own constitutional arrangements, equitable development can only effectively and sustainably be achieved if a number of general principles of government are adhered to: sensible economic and social policies, democratic decision making, adequate governmental transparency and financial accountability, creation of a market-friendly environment for development, measures to combat corruption, as well as respect for the rule of law, human rights and freedom of the press and expression... These principles will be central to their existing or new development co-operation relationships."

Resolution on human rights, democracy and development, 28 November 1991

The World Bank

Good government is "A public service that is efficient, a judicial system that is reliable, and an administration that is accountable to its public."

"Good governance, for the World Bank, is synonymous with sound development management... [It] is central to creating and sustaining an environment which fosters strong and equitable development, and it is an essential complement to sound economic policies. Governments play a key role in the provision of public goods. They establish the rules that make markets work efficiently and, more problematically, they correct for market failure. in order to play this role, they need revenues, and agents to collect revenues and produce the public goods. This in turn requires systems of accountability, adequate and reliable information, and efficiency in resource management and the delivery of public services."

Governance and Development, World Bank, 1992, p.1

The European Bank for Reconstruction and Development

The EBRD requires borrowers to "be committed to and applying the principles of multi-party democracy, pluralism and market economics."

Constitution