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Good Governance

Abstract and Keywords

This article argues that good governance is a concern if a society is in possession of the political, legal, and administrative institutions which make it possible to enact and implement policies that can broadly be understood as public goods. It suggests that, in many cases, good governance does not only refer to certain qualities of government institutions, but also to governments' interaction with the various sections of the private sector, and that it can be produced by the government alone, but that in many cases there is a need for collaboration with business and/or voluntary organizations. The article concludes that good governance is based in a normative theory which gives some orientation for what should be regarded as good.

Keywords: good governance, administrative institutions, public goods, government institutions, voluntary organizations, normative theory

1. Why Good Governance?

Good governance is a relatively new concept that has made a strong impact in some of the highest policy circles since the mid-1990s. The concept has received most attention in circles dealing with developing countries and the so-called transition countries (Smith 2007; Peters, this volume, Chapter 2). It is now used by many national development agencies and international organizations such as the World Bank and the United Nations. An example is the International Monetary Fund, which in 1996 declared that “promoting good governance in all its aspects, including by ensuring the rule of law, improving the efficiency and accountability of the public sector, and tackling corruption, are essential elements of a framework within which economies can prosper” (IMF 2005). However, the recent economic and financial crises have shown that issues about “bad governance” cannot be seen only as a problem for developing and transition countries but also for the highly developed parts of the world (Rothstein 2011).

In this chapter, I will argue that good governance is a concern if a society is in possession of the political, legal, and administrative institutions that make it possible to enact and implement policies that can broadly be understood as “public goods.” Such goods can in practice be many things, from systems for sanitation, pensions and other social insurances, defence, and preservation of scarce natural resources, to the respect for the rule of law and protection of property rights. The well-known problem of public goods is that because of the possibility to “free ride,” they will not be supplied by standard market operations. Instead, some forms of binding and enforceable regulations are needed. This implies that good governance is closely related to concepts like state capacity (Besley and Persson 2011), quality of government (Rothstein 2011), and the possibility of establishing sustainable systems for governing various types of “common-pool resources” (p. 144) (Ostrom 1990). It should also be noted that good governance in many cases does not only refer to certain qualities of government institutions but also to governments’ interaction with the various sections of the private sector. Good governance can be produced by the government alone but in many cases there is a need for collaboration with business and/or voluntary organizations (Pierre and Peters 2005).

The intellectual background: the institutional turn in the social sciences

One of the major sources for the rise of the good governance agenda has been the “institutional turn” in the social sciences. Around 1990, three major works were published that have had a profound impact for the analysis of institutions, namely Douglass C. North's Institutions, Institutional Change and Economic Performance (1990), James B. March and Johan P. Olsen's Rediscovering Institutions, and Elinor Ostrom's Governing the Commons. Although coming from different intellectual traditions, they had one aim in common, namely to challenge the then dominating societal view in studies of social and economic outcomes. Instead of variables like economic power or the structure of class divisions, these scholars argued that political institutions, broadly understood as informal as well as formal rules and regulations, were central in explaining social outcomes. In short, instead of focusing on how economic and sociological variables determined politics, the institutional approach turned the causal logic around by arguing that the character of a society's political institutions to a large extent determined its economic and social development.

In addition to the general analyses of the importance of institutions, the good governance agenda has also been inspired by research on the possibility for governments (and international organizations) to produce and implement “optimal” or “good” regulations for various sectors of the economy (Jordana and Levi-Faur 2004). The challenge here is usually understood as producing regulations that serve “the common good” in spite of the power from various special interest groups that try to bend the rules (Croley 2007).

The policy background: from the Washington Consensus to good governance

In development policy circles, the good governance agenda has to a large extent replaced what was known as the Washington Consensus. This approach stated that economic growth could be created by massive deregulation of markets, tightening of public spending, guarantees for property rights, and large-scale privatizations (Serra and Stiglitz 2008). The reason why this strategy did not work, according to many observers, was that poor countries lacked the necessary type of institutions that were “taken for granted” in (p. 145) neoclassical economics. Among those, Rodrik (2007: 97) lists “a regulatory apparatus curbing the worst forms of fraud, anti-competitive behavior, and moral hazard, a moderately cohesive society exhibiting trust and social cooperation, social and political institutions that mitigate risk and manage social conflicts, the rule of law and clean government.” In former communist countries, so-called shock-therapy capitalism ran into a number of problems, not least because its proponents did not pay adequate attention to the need for institutions that would hinder fraudulent, anti-competitive, and other similar types of destructive behavior (Kornai, Rothstein, and Rose-Ackerman 2004).

Empirical research: good governance and human wellbeing

Another reason for the rise of the good governance agenda is that a number of studies have shown it to have a positive impact on a large set of outcomes related to human wellbeing. The background is the development of a number of widely used measures and indexes that can be said to measure various aspects of “good governance,” such as government effectiveness, levels of corruption, and the quality of legal systems. Central in this discussion has been the link between the quality of government institutions that implement policies (control of corruption, the rule of law) and economic growth (Holmberg, Rothstein, and Nasiritousi 2008). There is also some evidence showing that “good governance” leads to lower economic inequality (Chong and Calderon 2000; Chong and Gradstein 2004). In addition, Helliwell and Huang (2008), Frey and Stutzer (2000), Pacek and Radcliff (2008), and Ott (2010) have observed positive links between measures of good governance and subjective wellbeing (a measure of an individual's evaluation of their quality of life in total).

There is also a large body of literature that testifies to the negative consequences of “bad governance,” chiefly in the form of corruption and a lack of property rights, for areas such as population health and people's access to safe water (Sjöstedt 2008; Holmberg and Rothstein 2011; Transparency International 2006; Swaroop and Rajkumar 2002). In addition, Rothstein and Stolle (2008) show that high trust in legal institutions has a positive impact on interpersonal trust. Råby and Teorell (2010) show that measures of good governance are stronger in predicting the absence of violent interstate conflicts than measures for democracy, and Lapuente and Rothstein (2010) make the same argument for civil wars. Maybe most surprising are Gilley's findings about political legitimacy. From a study based on survey data from seventy-two countries he concludes that “general governance (a composite of the rule of law, control of corruption and government effectiveness) has a large, even overarching importance in global citizen evaluations of states.” He further states that these governance variables have a stronger impact on political legitimacy than variables measuring democratic rights and welfare gains (Gilley 2006: 57; cf. Gilley 2009; Levi and Sacks 2009). In sum, while it has been very difficult to find any positive correlations between measures of the degree of democracy and measures of human wellbeing in cross-country studies, the opposite is true for measures (p. 146) of good governance that relate to the output side of the political system (Råby and Teorell 2010). Thus, policy organizations that have put good governance on their agenda are supported by quite a large number of empirical studies.

2. Different conceptions of good governance

As could be expected, an extensive debate exists about how good governance should be defined. Should it be about procedures only (like most definitions of representative democracy) or should it also contain substantial policies? Should the concept be universally applicable all over the globe (like the UN Declaration of Human Rights) or should it be relativized to different cultures? Should the concept be equated with efficiency or should it be understood as something that explains efficiency? Should good governance include how well those who govern represent those who are governed, or should it be about the capacity to steer society? One of the most frequently used definitions of good governance has been launched by the World Bank Research Institute and reads as follows:

The traditions and institutions by which authority in a country is exercised. This includes (1) the process by which governments are selected, monitored and replaced, (2) the capacity of the government to effectively formulate and implement sound policies, and (3) the respect of citizens and the state for the institutions that govern economic and social interactions among them. (Kaufmann, Kraay, and Zoido-Lobatón 1999: 1)

This definition forms the basis of the World Bank's widely used Worldwide Governance Indicators that has measures for “voice and accountability,” “political instability and violence,” “government effectiveness,” “regulatory quality,” “rule of law,” and “control of corruption.” This is a very broad definition and it has been criticized for including both policy content (“sound policies”) and procedures (“rule of law”). It has also been criticized for containing both the institutions for access to political power as well as those that exercise and implement laws and policies. The “sound policies” problem raises the question whether international (mostly economic) experts can be expected to be in possession of reliable answers to the question of what are “sound policies” (Rothstein and Teorell 2008). For example, should pensions or health care or education be privately or publicly funded (or a mix of these)? To what extent and how should financial institutions be regulated? Second, such a definition of good governance that is not restricted to procedures but includes the substance of policies raises what is known as the “Platonian-Leninist” problem. If those with superior knowledge decide policies, the democratic process will be emptied of most substantial issues. The argument against the “Platonian-Leninist” alternative to democracy has been put forward by one of the leading democratic theo (p. 147) rists, Robert Dahl, in the following way: “its extraordinary demands on the knowledge and virtue of the guardians are all but impossible to satisfy in practice” (Dahl 1989: 65).

Is small also good?

Another idea that has been put forward is that good governance equals small government. A case in point is Alesina and Angeletos who conclude that “a large government increases corruption and rent-seeking” (2005: 1241). Similarly, Nobel laureate Gary Becker has argued that “to root out corruption, boot out big government” (1998: 210). For Becker, as well as for many other economists, “the source of corruption is the same everywhere; large governments with the power to dispense many goodies to different groups” (ibid.: 203). Therefore, smaller government is “the only surefire way to reduce corruption” (ibid.: 203). However, if we take a look into the empirics, the relationship between government size and corruption runs in the opposite direction. Thus, the comparatively least corrupt countries—to a significant extent situated in the northern parts of Europe—have generally much larger governments than the most corrupt ones. If we take all countries for which data is available, the correlation between total tax revenues as a share of GDP and institutional quality is 0.34. As North, Wallis, and Weingast (2009) show, rich countries have much larger governments than poor countries. They explain this by arguing that not only are infrastructure and the rule of law to be understood as public goods and thus to be financed by the state, but to a large extent education, research, and social insurance programs that mitigate risks are also to be considered thus. This is not an argument for saying that high public expenditure reduces corruption and is a causal factor behind good governance, but, as stated by La Porta and colleagues (1999: 42), the data shows that “identifying big government with bad government can be highly misleading.”

Good governance as absence of corruption

One way out of the definitional problem would be to simply define good governance as the absence of corruption. This turns out to be problematic for several reasons. First, corruption is in itself difficult to define. The standard definition is that corruption is “the abuse of public power for private gain.” The problem with this definition is that it is relativistic since what counts as “abuse” (or “misuse”) would vary in different parts of the world (Kurer 2005: 229). Needless to say, this would dramatically increase problems of operationalization and measurement but it would also carry all the difficulties connected to relativistic definitions that we know from discussions about human rights and democracy. Without a universally accepted normative standard about what forms of behavior are acceptable and appropriate, there is no way to know (and measure) what should count as “abuse” when we compare various systems of governance in order to see if they would qualify for the epithet “good” or not.

(p. 148) The second reason why good governance cannot be equated with the absence of corruption is that there may exist many problems within governing societies that are not confined to what is usually understood as corruption. A high degree of corruption is certainly an antithesis to good governance, but so are many other practices that are usually not seen as corruption, such as clientelism, lack of respect for the rule of law and property rights, nepotism, cronyism, patronage, systemic discrimination, and cases where administrative agencies are “captured” by the interest groups that they set out to regulate and control (Rothstein and Teorell 2008).

Good governance as the rule of law

Perhaps as central as corruption, establishing the rule of law is usually key in any discussion on good governance and is placed high on the agenda for reforming developing and transitional countries (Carothers 1998). Still, although unequivocally embraced as a virtue of any system of good governance, the concept is rarely defined. One reason for this may of course be that the concept is inherently ambiguous and legal scholars argue over its exact meaning (Rose 2004). To begin with, they dispute whether or not the rule of law should be given a purely procedural interpretation bearing no implications for the actual substance of promulgated laws. Those that defend a procedural notion claim that the rule of law must be distinguished from the rule of “good” law. Critics argue that this would allow morally detested regimes, such as Nazi Germany, to be classified as abiding by the rule of law. Against the procedural view, these critics seek to inscribe into the rule of law various substantive moral values of liberal democracy (cf. Bratton and Chang 2006: 1077–1078). Yet, even among proceduralists, who adhere to a narrower conception, ambiguities remain. Usually more attention is paid to the internal qualities of the laws themselves—such as the need for the law to be clear, understandable, general, internally consistent, prospective, stable, and so on—rather than to define the core principles that a political system must abide by in order to be in accordance with the rule of law.

Searching for these core principles, one may instead turn to conceptions developed within political science. Weingast (1997: 245) defines the rule of law as “a set of stable political rules and rights applied impartially to all citizens.” Similarly, O’Donnell (2004: 33) states a minimal definition of the rule of law as “that whatever law exists is written down and publicly promulgated by an appropriate authority before the events meant to be regulated by it, and is fairly applied by relevant state institutions including the judiciary.” He then specifies his normative term:

By “fairly applied” I mean that the administrative application or judicial adjudication of legal rules is consistent across equivalent cases; is made without taking into consideration the class, status, or relative amounts of power held by the parties in such cases; and applies procedures that are preestablished, knowable, and allow a fair chance for the views and interests at stake in each case to be properly voiced.

(p. 149) The rule of law thus embodies the principle “equality before the law.” It entails “a crucial principle of fairness—that like cases be treated alike” (ibid.: 33–34). However, one problem is that good governance also applies to spheres of state action other than those directly governed by law. When public policy is to be enacted in so-called “human processing” areas, such as, for example, education, health care, welfare benefits, and active labor-market programs, widely discretionary powers usually need to be transferred to lower-level government officials and professional corps responsible for implementing policy. The reason is that they have to adapt actions to the specific circumstances in each case and it has turned out to be administratively impossible to enact precise “rule of law type” laws and regulations that can guide this. In many areas, governance is carried out by professional corps that are for the most part guided by professional standards issued by their organizations, which are not connected to “rule of law” principles. For example, nurses in elderly care homes would probably not think of what they are doing as guided by “the rule of law.” This is not a novel insight: Aristotle himself observed that written laws cannot be applied precisely in every situation, since the legislators, “being unable to define for all cases … are obliged to make universal statements, which are not applicable to all but only to most cases” (quoted in Brand 1988: 46). The conclusion is that while the “rule of law” principles in most approaches serve as a central ingredient in good governance, they do not cover the full spectrum of the concept.

Good governance and democracy

Establishing representative democracy has often been championed as an effective antidote to everything from corruption to poverty. This because of its link to accountability, which helps to reduce the discretionary powers of public officials (Deininger and Mpuga 2005: 171). This would indicate that democracy and good governance could possibly conceptually overlap, thus raising the question of why we need a concept like good governance since we could just talk about “good democracy.” The problem is that, empirically, there is no straightforward relationship between establishing electoral representative democracy and many features of good governance. On the contrary, democracy seems to be curvilinearly related to the level of corruption (Montinola and Jackman 2002; Sung 2004). Empirical research indicates that corruption is worst in countries that have newly democratized, for example, in Peru under its former president, Fujimori (McMillan and Zoido 2004), and in Jamaica since the mid-1970s (Collier 2006).

This issue—that the introduction of representative electoral democracy does not necessarily lead to good governance or increases in the quality of government institutions responsible for implementing laws and policies—has been raised by Larry Diamond. He argues that although there is reason to celebrate the fact that more countries than ever before are democratic, he warns that in many countries, democracy is “haunted by the specter of bad governance,” which he defines as “governance (p. 150) that is drenched in corruption, patronage, favoritism, and abuse of power” (Diamond 2007: 119). He also argues that the idea that the pathologies of “bad governance” can be cured with more “democracy assistance” is not convincing because such assistance does not reach the deeper levels of the political culture in societies that are dominated by clientelism or endemic corruption. When, as is often the case, corrupt practices are “deeply embedded in the norms and expectations” of how political and economic exchanges are perceived, improvement will require nothing less than a “revolutionary change in institutions” (Diamond 2007: 120). It is noteworthy that Diamond, one of the most prominent scholars in democratization research and democracy promotion, makes a clear distinction between democracy and good governance and points out that only introducing the former while neglecting the latter will not result in increased human wellbeing. One should also keep in mind that the two states that have made the greatest progress in curbing corruption over the last few decades—Singapore and Hong Kong—have not been and are still not democracies (Uslaner 2008). From this, and from the empirical research (referred to above) showing that measures of good governance have much a greater impact on human wellbeing (and perceptions of political legitimacy) than measures of democracy, we may conclude that good governance is different from, and should not conceptually be equated with, democracy.

Good governance as government efficiency

It would certainly be strange to argue that a government that is very inefficient or ineffective could produce good governance. Would it then be possible to define good governance in terms of government efficiency or effectiveness? There are two reasons why this is problematic. First, the notion of “good” usually implies other things than just economic efficiency. It is easy to think of things that a government can carry out in an efficient way that normatively would be just the opposite of “good.” Second, defining good governance in terms of administrative and regulative efficiency would border on establishing a tautology. One should bear in mind that the good governance agenda largely came about in studies trying to understand why many developing countries were unable to increase growth. Defining good governance in terms of efficiency would be to say that efficiency causes efficiency. Not much would be gained by saying that societies with efficient governance systems produce efficiency. If not a tautology, one could say that such a definition would make the distance between independent and dependent variables minimal. Instead, what we need to know is if societies that are socially and economically efficient, that is, are able to solve the problem of producing the amount and type of public goods they need, have institutions that are qualitatively different in their operative principles than the opposite type of societies.

(p. 151) 3. Conclusion: toward a definition of good governance

As seen above, neither the absence of corruption, nor representative democracy, nor the size of government, nor the rule of law, nor administrative effectiveness captures what should be counted as good governance. Searching for a definition, it is notable that the conceptual discussion has largely been detached from normative political theories about social justice and the state. It should be obvious that when terms like “good” are placed in political concepts, it is impossible to refrain from entering the normative issues that are raised in political philosophy. One can say that modern political philosophy has been engaged with the issue of “what the state ought to do” but refrained from taking an interest in what the state “can do.” There are good reasons for why it is meaningless (or dangerous) to discuss the one without the other (Rothstein 1998). The good governance agenda is a clear case where normative/philosophical theory and positive/empirical approaches should merge. This issue is certainly not confined to internal academic civilities. Without a foundation for ethical standards, the risk is that when approaches like the good governance agenda translates into policies, it may end up in mindless utilitarianism where basic human rights of (often poor) people are sacrificed in the name of some overall utility (Talbott 2005). The first requirement for a definition of good governance is thus that it is based in a normative theory that gives some orientation for what should be regarded as “good” in this context. Second, any definition of good governance must take into account that this approach has clearly shifted the interest away from the “input” side of the political system to the “output” side of the political system.

A third requirement would be universalism, since the good governance approach is de facto applied on a global scale. This demand raises the issue of how to deal with the huge variation in institutional configurations that exists between countries which, in most evaluations of good governance, are ranked at the top. As with their institutions for representative democracy, the Swiss, Finnish, British, and German systems of governance are very different in their specific institutional configurations but these countries are all still counted as having “good governance.” Obviously, a definition of good governance (or representative democracy) cannot relate to a specific set of institutional arrangements. Instead, we have to look for some basic norm that characterizes the system as whole. For representative democracy, that is, the access to power, Robert Dahl has suggested such a norm, namely “political equality.” The issue is what could be the equivalent for good governance given that issues are more related to the implementation side of the political system. Based on the type of rights-based liberal political theory launched by philosophers such as Brian Barry and John Rawls, a suggestion for such a “basic norm” has been put forward by Rothstein and Teorell, namely impartiality in the exercise of public power, which they define in the following way: “When implementing laws and (p. 152) policies, government officials shall not take anything about the citizen or case into consideration that is not beforehand stipulated in the policy or the law” (Rothstein and Teorell 2008: 170; Rothstein 2011). Such a definition of good governance would make it clear what the norm is—that is, what is being “abused” when corruption, clientelism, favoritism, patronage, nepotism, or undue support to special interest groups occurs when a society is governed in a manner that should be considered as “good.” Establishing institutions that are governed by impartiality would then in itself be understood as a “public goods problem,” which also seems to be the case given the number of people in the world that have to endure the opposite type of systems of governance.

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