Institutions, yes, but which ones?

16 November 2012
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What does it take to combat global poverty? UK Prime Minister David Cameron has a vision, which he laid out most recently in an editorial in The Wall Street Journal but has been talking about for a while, from Al Azhar University in Indonesia to New York University in the United States. The secret to development success is not only resources (essential as they are), but institutions and the ‘golden thread’ that weaves through them. Cameron’s focus on institutions is highly significant in his role as co-chair of the UN High Level Panel on the post-2015 development agenda, given that the Millennium Development Goals are almost completely silent on governance issues. This is language that he hopes to integrate into a future global consensus.

But is the golden thread the radical new approach to development that the Prime Minister claims?

Certainly, Cameron provides a vision of what is needed for development that is comprehensive and multidimensional. His golden thread idea emphasises the importance of factors including stable government, free markets, lack of corruption, human rights, the rule of law, transparent information, strong political parties, a vibrant private sector, and an active civil society as essential building blocks. This focus on domestic institutions also highlights that change processes must be driven from within and that aid alone is not sufficient.

And yet, there is a distinct feeling that we have been here before. This narrative echoes much of the ‘good governance’ agenda that has come to define development thinking and practice since the 1990s – which, as we know, has yielded disappointing results, despite considerable investment from the international assistance community. A big part of the problem has been that the standard package of institutional reforms (from institutions that set the rules of the game for economic and political interaction, to commissions intended to root out corruption, to organisations that manage administrative systems and deliver goods and services to citizens, to human resources that staff government bureaucracies, to the interface of officials and citizens in the political and bureaucratic arenas) is excessively normative and demanding, as well as strangely ahistorical. The long list of requirements may be far beyond what is needed (or even possible) at low levels of development, and it does not reflect the historical experiences of countries that can now be considered developed (e.g. in Western Europe, but also in parts of Asia and Latin America).

Thus, while Cameron’s metaphor may have more glitter, it may not constitute a break from orthodox development practice based on the assumption that ‘the West knows best’. Few would quibble with the Prime Minister’s assertion that a golden thread of effective institutions ‘can be found woven through successful countries and sustainable economies all over the world’. What is a lot less clear is how they got there.

If there is a hard lesson we have learned from 20 years of experimentation with these kinds of reforms, it is that: while institutions matter for development, we know a lot less about which institutions matter most, when and why. While open states, societies, and economies are surely the right ambition, the golden thread does not help us understand how the different institutional transformations that are needed can be achieved, and whether they are essential (pre-)conditions or, rather, outcomes of change. This remains the fundamental challenge of contemporary development.

Cameron is right that a radical new approach to development is needed. But combatting the roots of poverty is not simply about providing needed resources and strengthening virtuous institutions based on ideal models of governance. Look for example at China, which has made quantum leaps in promoting economic growth, but has done so also in an environment where corruption has thrived, individual rights and freedoms have been curtailed, and formal property rights have not been in place. Brazil offers a counter-example, where political and economic transformations have been more mutually reinforcing – but here too corruption has been rife.

What is needed is a more strategic and pragmatic perspective to institutional reform that can help identify and prioritise which governance improvements are most crucial at different stages to enable development. Among other things, this calls for:

Above all, development assistance needs to be bolder and smarter – less normative and risk-averse, and more politically aware, pragmatic and flexible. This is critical to give substance to the golden thread, especially if aid is to support political reform and more effective governance in a manner that is feasible and grounded in contextual realities.