The Hindu Business Line : Governance is key to growth and social justice

In a market-driven economy with competing players and minimal state intervention, why should governance be the key to growth and social justice? This is because standing between outlays and outcomes “is an administrative machine corroded by apathy and corruption”, says BHANOJI RAO.

On April 23, Prof K. C. Reddy, Chair of the Andhra Pradesh State Council of Higher Education, delivered an endowment lecture at Acharya Nagarujuna University, Guntur. His lecture was about ‘Governance for Inclusive Growth’. This article, inspired by his lecture, also draws material from the same.

Why is governance so important? In a market-driven economy with competing players and minimal state intervention, why should one be discussing governance as the key for growth and social justice?

The answer, to some extent, is suggested by the following statement in the leader article on India in the March 8 issue of The Economist. “…outlays and outcomes are not the same thing. Standing between the two is an administrative machine corroded by apathy and corruption. The government’s subsidies fail to reach the poor, its schools fail to teach them and its rural clinics fail to treat them.”

Defining Governance

In a recent publication entitled Governance Indicators: A User’s Guide, the United Nations Development Programme (UNDP) provided three alternative definitions of governance, one given by itself (UNDP), the second by the European Commission and the last from the World Bank.

The following describes the main ideas in the definition given by UNDP. “Governance is the system of values, policies and institutions by which a society manages its economic, political and social affairs through interactions within and among the state, civil society and private sector… It is the rules, institutions and practices that set limits and provide incentives for individuals, organisations and firms…” (From the UNDP Strategy Note on Governance for Human Development, 2004.)

The following is extracted from the explanation of governance given by the European Commission (EC): “Governance concerns the state’s ability to serve the citizens. It refers to the rules, processes, and behaviours by which interests are articulated, resources are managed, and power is exercised in society. The way public functions are carried out, public resources are managed and public regulatory powers are exercised is the major issue to be addressed in this context.”

In a similar fashion, the World Bank defines governance “as the traditions and institutions by which authority in a country is exercised for the common good.

This includes (i) the process by which those in authority are selected, monitored and replaced, (ii) the capacity of the government to effectively manage its resources and implement sound policies, and (iii) the respect of citizens and the state for the institutions that govern economic and social interactions among them.”

Governance Indicators

In a World Bank Policy Research Paper (Governance Matters VI: Aggregate and Individual Governance Indicators 1996–2006, by Daniel Kaufmann, Aart Kraay and Massimo Mastruzzi, July 2007), six components of governance are identified to facilitate measurement.

They are voice and accountability; political stability and absence of violence; government effectiveness; regulatory quality; rule of law; and control of corruption. The way they measure governance is indicated by the following statements.

Voice and accountability measures the extent to which a country’s citizens are able to participate in selecting their government, as well as freedom of expression, freedom of association, and a free media.

Political stability and absence of violence measures perceptions of the likelihood that the government will be destabilised or overthrown by unconstitutional or violent means, including domestic violence and terrorism.

Government effectiveness measures the quality of public services, the quality of the civil service and the degree of its independence from political pressures, the quality of policy formulation and implementation, and the credibility of the government’s commitment to such policies.

Regulatory quality measures the ability of the government to formulate and implement sound policies and regulations that permit and promote private sector development.

Rule of law measures the extent to which agents have confidence in and abide by the rules of society and, in particular, the quality of contract enforcement, the police and the courts, as well as the likelihood of crime and violence.

Control of corruption measures the extent to which public power is exercised for private gain, including both petty and grand forms of corruption, as well as “capture” of the state by the elite and private interests.

The aforementioned six components are measured based on country-wide investigations and the six indicators are based on appropriately aggregated sub-indices.

India in Comparison

The six indicators of governance for 2006 for 18 selected countries, including India, are shown in the Table. The estimated value for each indicator ranges from -2.5 (worst score) to +2.5 (best).

This writer has taken the liberty of averaging the six indicators and arranging the countries in order of the average. India has a negative average value, though, happily for the country, its rank of eight among the 18 speaks well of the considerable mileage it derives from the free and democratic institutional setting, unlike China, for instance, which occupies the 13th position.

India has a relatively good score (0.35) on voice and accountability, though it is far from the best. We argue and protest, no doubt, but perhaps all that has not delivered us good governance.

In fact, despite the public voice, those responsible for governance seem to be able to get away with a poor showing on indicators such as political stability and regulatory quality.

(For information on the author, please visit www.bhanoji.com. E-mail: bhanoji@gmail.com)

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