Governance and Growth

Harvard development economist Dani Rodrik has some interesting things to say about governance and economic development – two topics of great interest to counterinsurgents. From his remarks from an April 15 World Bank panel:

A deep insight that has emerged out of the disappointments of the Washington Consensus is that successful policy reform is at its core governance reform. Reforms in the areas of, say, trade or fiscal policy require much more than just cuts in tariffs and a balancing of the budget. If you want to achieve lasting change and have a real impact on the behavior of those agents that determine the success of reform, you must change the “rules of the game”—the manner in which trade policy is made or fiscal policy is conducted. This insight, assisted and reinforced by the academic literature on institutions and growth, has in turn produced a new development agenda focusing on a broad list of governance reforms.

Dr. Rodrik goes on to distinguish between “politics-as-an-end” and “politics-as-a-means.” The former is “transparency, effectiveness, rule of law, lack of corruption, voice and participation… at their core social, political, and legal arrangements which markets-and economic analysis-typically presuppose… deeply embedded in the history, traditions, and politics of a society.”

The latter is the value that good governance creates by providing “producers and households with greater clarity on the rules of the game and investors with greater assurance that they can appropriate the returns to their efforts.” Good governance may or may not be necessary for growth – growth is achieved by removing the most binding constraints, and in some countries governance is not most binding.

Economists and development professionals (says Dr. Rodrik) can give useful advice on governance-as-a-means but not necessarily governance-as-an-end. What’s more, the path to pursue one might not be congruent with the path to pursue the other – there may be tradeoffs.

For most countries the “good governance” and the “governance for growth” agendas are likely to differ substantially. Economists have precious little to say about how to achieve the first of these, but plenty to contribute to the second. From a growth standpoint, the risk is that the governance agenda takes an independent life of its own, and that it becomes divorced from the particular governance challenges that are most closely linked to stimulating and sustaining economic growth.

In Iraq, of course, the Coalition is pursuing “governance-as-an-end” – democratization. At the same time, economic development is seen as important for the later phases of counterinsurgency. It demonstrates the government’s capabilities, reduces grievances (as Austin Bay would say) and absorbs accelerants (military-aged men). Therefore, our Provincial Reconstruction Teams have both political and economics sections.

Here are the comments from the full panel (pdf) via Tyler Cowen. Includes Daron Acemolgu and Francis Fukuyama, but I haven’t had time to go through them.

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