ThePoliticalEconomyofGoodGovernanceMichaelM.Atkinson

MurrayFulton

Johnson-ShoyamaGraduateSchoolofPublicPolicy

UniversityofSaskatchewanCampus

PaperpresentedattheICPP3Conference

Singapore

June28-30,2017

Abstract

Inrecentyearstherehasbeenamarkedincreaseininterestinwhatconstitutes

goodgovernment,goodgovernanceandqualityofgovernment.Inadditiontoa

broadconsensusthatgovernmentisnolongerthekeyplayeringoverningthe

economy,aconcernhasemergedthatpursuingeconomicgrowthalonewillnot

generatethebestoutcomesforsociety.Inthispaperweexaminethesequestions

throughapoliticaleconomymodelofgovernanceinwhichpower,economicpayoffs

andgovernancearrangementsco-develop.Usingthismodelweexplorehow

corruptionandignoranceaffectthetwounderlyingpoliticaleconomyproblemsof

wealthgenerationandwealthdistribution.Weshow,asotherauthorshavedone,

howcorruptiongeneratesoutcomesthatfailtogrowthepie,whileatthesametime

generatingdistributionaloutcomesthatarehighlydisadvantageous.Wethenshow

howignorancecanhaveoneoftwoeffects,dependingonthecontext.Intheone

case,ignorance—throughitsimpactontransactioncosts—canresultinafailureof

thepietogrow,oftenwithdetrimentaldistributionalimpacts.Intheothercase,

ignorancecanleadtoincreasesinthesizeofthepie,albeitatthecostof

redistributingthebenefitsofthisgrowthtoaparticulargrouptosuchanextentthat

politicalinstabilityensues.

ThePoliticalEconomyofGoodGovernanceIntroduction

Thelasttwentyyearshaveseenaburgeoninginterestinwhatconstitutesgood

government,goodgovernanceandqualityofgovernment.Agooddealofthis

enthusiasmfor“governance”isaproductofadiminishedfaithinconstitutionally

mandatedpublicauthorities.Asthe20thcenturydrewtoaclose,theriseofnew

governancerelationshipssuchasNewPublicManagementreflectedabeliefthatthe

state’smonopolyoncoerciondidnottranslatesmoothlyintoamonopolyon

knowledge,expertiseorjudgement.By2000abroadconsensushademergedthat

governmentwasnolongerthe“cockpitfromwhichsocietyisgoverned”(Klijnand

Koppenjan2000,135).

Themakingandimplementingofpolicyisnowsharedamongavarietyofstateand

non-stateactors,andtheconceptofgovernancehasquicklybecomeameansof

capturingshiftsinthelocusofauthoritybetween,forexample,thestateand

markets,politiciansandexperts,bureaucratsandstakeholders(Levi-Faur2012).

Howtosteerandcontrolgovernmentwasnolongertheonlytopicorissuefor

studentsofpublicpolicy.Instead,productiveandefficientexchangeamongoldand

new,sometimeshybridized,entitiesbegantoloomlargeasanobjectofgovernance.

Conceptslike“networkgovernance”wereintroducedtocapturethese

developments,whileconceptslike“globalgovernance”and“multilevelgovernance”

reflectedthegrowingimportanceofregulatoryandfinancialrelationsamong

governments.

Inlinewiththisfocusonrelationshipsandtheorganizationofsystemsina

productivemanner,theconceptofgoodgovernancewasembracedbyinternational

agencies(e.g.,theWorldBank)andtheprivatesectorasasignalofthelikelihoodof

acountry,andparticularlyadevelopingcountry,achievingeconomicgrowthand

societalwell-being.Inthiscase,akeyquestionwaswhetherthosewithpowerand

influenceinthecountrywouldpursuepoliciesthatwouldachievethereobjectives.

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Afloodofmetricshasbeenproposedtoestimatetheextentofgoodgovernancein

differentcountries,withtheallocationofaidbytheinternationaldonorcommunity

andinvestmentbyprivatesectorfirmsfrequentlypremisedontheseindicators.

Morerecentlyanadditionalissuehasemergedinthegovernancediscussion.The

keyquestioninthiscaseislargelyfocusedondevelopedcountriesandisconcerned,

notwithwhethergrowthwilloccur,butwhethergrowthcanbemadeinclusive.As

theOECD(2017,1)comments,“Weareatacriticalcrossroad.Foryears,wecounted

oneconomicgrowthastheonlyengineofprosperity,failingtorealisethatthis

modelwasleavingmanybehind;specificallythebottom40%.Inacontextwhere

globalmarketsandincreasedconnectivityofeconomicstructureswereskewedto

benefitaminorityofpeopleandfirms,disempoweredcitizensandcommunities

calledahalt.”Topursuebothgrowthandinclusiveness,theOECDiscallingfora

“profoundreappraisalofthepolicymakingprocess.”

Theseobservationspromptthequestions:Whatdoesitmeantotalkabout

“governancearrangements?”Whatis“goodgovernance?”Andhowdoesthisrelate

topolicy?Onthefirstpoint,alldefinitionsofgovernancerefer,directlyorindirectly,

torulesthatdeterminetheexerciseofauthorityinthetakingofcollectivedecisions.

Whileamoredetaileddefinitionwillbegivenbelow,fornowitissufficienttonote

thatgovernancearrangementsstipulate,moreorlessprecisely,howvariousvoices

areheard,howdecisionsaremadeandhowaccountsarerendered(Instituteon

Governance2017).Inshort,governancedefineswhohasthepowertodetermine

what.

Fromthiscommondefinitionalbase,studentsofgovernancehaveproceededina

numberofdifferentdirectionsdependingonwhattheybelievetobethemost

pressingproblemsthatgovernancearrangementsareintendedtosolve.Our

positionisthatgovernancehastodealwithtwokeyissuesthathavelongbeenthe

focusofattentioninpoliticaleconomy—incomeandwealthgeneration(howto

enlargethepie),andincomeandwealthdistribution(howtodistributethepie).

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Thesetwoissuescorrespondroughlytothepurposeofeconomics—thecreationof

wealth—andthepurposeofpolitics—theorderlyresolutionofconflict.Ascanbe

seenfromtheOECDquotationabove,areappraisaliscurrentlyunderwayastothe

relativeimportanceofthesetwoissues.

Addressingthesetwoproblemsrequirestheneedtodealwithtwoapparently

chronicconditionsinpublicaffairs:corruptionandignorance.Ofthesetwo,

corruptionhasreceivedthemostattention.Corruption,asdistinctfromnegligence

orincompetence,doesnotsimplyhappen;thereisastrongvolitionalcomponent.

Corruptionoccurswhenpublicofficials—betheyelectedorappointed—setaside

theirformal,office-defined,responsibilitiestopursuesomeformofpersonal

advancementdefinedbroadlyenoughtoincludetheadvancementofone’spolitical

andpersonalinterestsaswellastheinterestsoffriends,relativesandassociates.In

thecaseofgrandcorruption,itistheabuseofpowerbyelitesthatisimportant,as

eliteschangetherulesofthegameinawaythatbenefitsthem(bothfinanciallyand

intermsofobtainingandconsolidatingpower)(Atkinson2011a).Inthecaseof

pettycorruption,itistheabuseofpowerbyofficialsatkeypointsinthe

bureaucracyastheywithholdorprovideservicesthatcreatestheopportunityfor

bribesandpayments(ShleiferandVishny1993).

Ignorancehasanumberofdimensions.Itcanrefertoaninabilitytoacquireand

applyreadilyavailableknowledgetodecisionsituations—inthissenseignorance

canbeequatedwithincompetenceandperhapsevennegligence.Ignorance,

however,canalsobebasedonacalculatedandrationalchoicetodeclinetobe

informed—ifthisignoranceprovidespersonaladvancementthenitsharessome

aspectswithcorruption.

Moreinterestingly,perhaps,ignorancecanalsoarisefromtheabsenceofavailable

informationorknowledge.Understoodthisway,ignoranceisoftenafunctionof

uncertainty,theinabilitytoaccuratelyanticipatetheprobabilitiesofoutcomesgiven

someaction.Ignoranceinthissecondsenseiscompoundedbybiases.Asaresultof

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biases,citizensandleaderslookforevidencethatconfirmspositionstheyalready

hold,placeahighervalueontheircurrentpositionsthanisobjectivelyjustifiable

andoverweighttheevidencemostrecentlyobtained(Kahneman2011,Kahneman

etal.2011).Liketherestofus,policymakerslookforreasonstobelievetheirinitial

hunchesarecorrectandreversepreferencesdependinguponhowoptionsare

presented.Inaddition,wedrawconclusionsbasedonpersonallyevocativebut

statisticallydubiousevidence,sometimesreferredtoas“probabilityneglect”(Brest,

2013:487).

Oneofthemostsignificantproblemstoemergeasaresultofthissecondformof

ignoranceisthepersistentholdthatthestatusquohasonpolicymakers,andindeed

thegeneralpublic.Whetherasaresultofinstitutionalnormsthatstraightjacket

people’sthinkingorcognitivelossaversion,thereisaplethoraofwaysinwhichfull

andcompleteknowledgeofthesituationisnotbroughttobearonaproblem.The

resultsarelostopportunitiesand/orinappropriateresponsestotheproblemsat

hand(Atkinson2011b).

Theworkinghypothesisofgovernanceresearchisthatsomegovernance

arrangementsarebetterthanothersatdealingwithcorruptionandignorance.More

specifically,theproblemwithcorruptionandignoranceisthattheyproducebad

policies–i.e.,policiesthatfailtoimprovethelivesofthepeopleinacountry.Indeed,

ourviewisthatgovernanceisapopularconcept(andlikelytoremainso)inpart

becauseofitsnormativeorientation.Itisnotnecessarytoaddtheword“good”to

governancetoappreciatethatitsstudentsandpractitionersareinterestedinboth

assessingandreformingcurrentgovernancearrangements.Inshort,governanceis

aconceptpregnantwithideasforreform;theterm“goodgovernance”makesthese

implicitnormativecommitmentsexplicit.

Thisnormativedimensionshowsupinawidevarietyofsituations.Pluralists,for

example,havelongarguedthatgoverningisacomplextaskthatinevitablyinvolves

groupsandorganizationsembeddedinsociety(Bevir2010).Aclearpreferencefora

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dispersalofauthorityoftenaccompaniestheseassessments(Montpetit2016).Early

studentsofcorporategovernanceweremotivatednotjusttodescribeauthority

relations,butalsotosuggestwaysofensuringthatpredatorymanagersdidnot

exploitshareholdersandstakeholders(SchleiferandVishny1997).For

internationaldevelopmentagencies,governanceisnotsimplyamatterofevaluating

capacity;itsuggestsasetofcriteriatobeemployedindeterminingwhodoesand

doesnotreceiveassistanceandunderwhatconditions.

Goodgovernanceimpliesconsciousalterationsinauthorityrelationstoachieve

desiredoutcomes.Makingthesealterationsandadjustments,however,requires

actiononthepartofthosewhoarecurrentlypartofthegovernanceregime,either

astheholdersorthesubjectsofauthority.Admonitionsregardinggoodgovernance

issuefromconsultants,internationalorganizations,andacademics,butchangesin

governancearrangementsmustcomefromthosewhoaresubjecttothem.In

conceptualterms,governancearrangementsareendogenouslydeterminedalong

withthepowerandauthorityrelationshipsinsideasystem.

Itistrue,ofcourse,thattheerainwhichgovernancearrangementscouldbe

imposedfromwithoutisnotcompletelyover.Inthemid-2000stheWorldBankand

severaldonorcountriesshiftedtheirdevelopmentstrategyfromtheinducementof

goodgovernanceviafinancialaidtotherequirementofgoodgovernanceasa

preconditionofaid(Nanda2006).Butwhereimperialorcolonialgovernments

couldatonetimeinsistonwhowouldhaveauthorityandhowitwouldbe

exercised,thisstrategyisnowunsustainable,inpartbecausetheproductsof

impositionhavebeendeeplydisappointingandinsomecasesdisastrous(Scott

1998).Todaytheadoptionofgovernancearrangements,andsubsequentchangesto

them,aretypicallynegotiated,albeitbythosewhohaveverydifferentpower

resources(Moe2015).Powerisalwaysavariable,sowhileitisquitecommonfor

governanceandadministrationadvocatestospeakof“bestpractices,”whatis

“good”ingoodgovernanceisamatterofinterpretationbythosewhoareembedded

inthesystem.

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Thisrealistperspective,whichpermeatesourentirediscussionofgovernance,does

notmeanthatgoodgovernanceissimplyamatterofwhatisgoodforme.Ideas

abouthowtheworldworksandhowitshouldworkcannotbecategorically

dismissedsimplybecausetheydonotaccordwiththeshort-terminterestsofthose

inpower.Thosewhoarenotinpowerarelistening,observingandexperiencingthe

resultsofthecurrentdistributionofauthority.Soargumentsforgoodgovernance

practicesmustresonatewithavarietyofaudiences,allofwhomwanttobe

persuadedthattheirpayoffisjust,reasonableoratleasttolerable.

Torecap,governancearrangements,alongwithpowerandauthority,are

determinedendogenouslyinasystem.Thesegovernancearrangementsmustdeal

withissuesofcorruptionandignoranceinamannerthatbothallowsthepieto

grow(theeconomicsproblem)andallowsforthepietobedistributedinamanner

thatisacceptabletoparticipants(thepoliticsproblem).Thepurposeofthenexttwo

sectionsofthepaperistodeveloptheseideasmorefully.

Inthenextsectionweprovideadefinitionofgovernancethatmakesgood

governanceanempiricalratherthandefinitionalmatter.Armedwiththisdefinition,

weexaminehowpowerandgovernancearrangementsco-develop.Inthe

subsequentsectionweexplorehowcorruptionandignoranceaffectthetwo

underlyingpoliticaleconomyproblemsofwealthgenerationandwealth

distribution.Weshow,asotherauthorshavedone,howcorruptiongenerates

outcomesthatfailtogrowthepie,whileatthesametimegeneratingdistributional

outcomesthatarehighlydisadvantageous.Wethenshowhowignorancecanhave

oneoftwoeffects,dependingonthecontext.Intheonecase,ignorance—throughits

impactontransactioncosts—canresultinafailureofthepietogrow,oftenwith

detrimentaldistributionalimpacts.Intheothercase,ignorancecanleadtoincreases

inthesizeofthepie,albeitatthecostofredistributingthebenefitsofthisgrowthto

aparticulargrouptosuchanextentthatpoliticalinstabilityensues.

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APoliticalEconomyModelofGoodGovernance

Thestartingpointforapoliticaleconomyofgoodgovernanceisthatgovernance—

thedistributionofauthorityinsocietiesandorganizations—canonlybeunderstood

astheproductofbothpoliticalandeconomicvariables.Debatesaboutwhat

constitutesandcreatesgoodgovernanceareratheremptywithoutsomeindication

ofwhatgovernanceisseekingtoachieve.Fromapoliticaleconomicpointofview

whatweseektoachievearegovernancearrangementsthatmeetbasicneedsor,as

BrianBarry(2005)putsit,“vitalinterests.”Therearemanyinterpretationsofwhat

vitalinterestsneedtobemetandthelistcangrowquitelong.Toshortenit,

consideragainthepurposeofeconomics—thecreationanddistributionofwealth—

andthepurposeofpolitics—theorderlyresolutionofconflict.Thesearethecore

criteriathatsetthetermsofdebateforapoliticaleconomyapproachtogood

governance.Manypositivevaluesandnormsarecorollaries,including

accountability,efficiency,andimpartiality.

Thereisadangerinconceptualizinggoodgovernanceaswhateverproduces,for

example,economicgrowthoraparticulardistributionofwealth.AsRothstein

(2011,2013)pointsout,thiskindoffunctionalistdefinitioncreatesatautology.One

wayofavoidingthistautologyistodefinewhatis“good”aboutgoodgovernancein

termsofjustice,equityorsomeothertranscendentvalue.InRothstein’scase,good

governancearrangementsarethosethatadheretothenormofimpartiality;others

arguefor“universality”orsimilarcriteria.Thisisanunobjectionableapproachto

definitionalmatters,butitbearsemphasizingthatgovernmentarrangementsthat

meetcriteriaofproceduraljusticebutfailtodeliverthepolitical-economic

outcomesdiscussedaboveareunlikelytosurvive.GrahamWilson(2008)putsthe

argumentthisway:“Intherealworld…theapparentlyplausiblegoalofmaking

policyonlyaccordingtopre-specifiedcriteriaandrulesisnotonlyimpossiblebut

likelytoresultinpoorgovernance.”Proceduresareimportant,butsoareresults.

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Ourapproachistodefinegovernanceintermsofarrangementsandprocedures—

institutions,norms,rulesandroles—andmakegoodgovernanceanempiricalrather

thanadefinitionalmatter.Thuswedefinegovernanceasthesetofformaland

informalarrangementsbywhichpowerisallocatedandexercisedinanysystemwith

interdependentactors(e.g.,anationstate,network,ororganization).Ifthese

arrangementsaregood,theyareabletocreatewealthandensureitisdistributedin

anamountandamanneracceptabletosociety.

Inourframework,weadoptNorth’sview(1991,1993)thatinstitutionsconstitute

therulesofthegameofthepoliticalandeconomicsystem,whileorganizations—be

theypublic,private,co-operative,non-profit—aretheprincipalplayersinthegame.

Institutions—therulesofthegame—determinehowpowerandauthorityare

distributedandthemannerinwhichinformationisgathered,interpretedandused

indecision-making.Governanceistheexpressionofthispowerandauthority.

Governanceaffectsthecreationanddistributionofwealththroughpolicy.Policyis

thesubstantiveexpressionofdecisionstakenbygovernment—e.g.,thetaxesthat

areimposed,theprogramsthatarelaunched,andtheregulationsthatareset.Policy

dealsdirectlywiththeactivitiesundertakenbythestate(e.g.,theprovisionofpublic

services),oritcanseektoaffectthemannerinwhichorganizations(e.g.,for-profits,

non-profits,NGOs,co-operatives)orindividualsbehave.Regardlessofthepath,

policychoicesaffecteconomicperformanceandthemannerinwhicheconomic

benefitsaredistributedamongthevariouseconomicactors.

Policycanbeexpectedtovaryconsiderablyacrossdifferentgovernancestructures,

aswellaswithinsimilargovernancestructuresatdifferentpointsintime.Policy

differencesoccurbecausedifferentinstitutionsaffectthenatureofthegovernance

systemsinplace,andhencethewaythatpowerisallocatedandexercised.This

allocationandexerciseofpoweraffectsdecision-makingthroughoutthepolicy

cycle—i.e.,attheagendasettingstage,atthepolicyselectionstage,andatthepolicy

implementationstage.

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Figure1,whichisadaptedfromAcemogluandRobinson(2006),outlinesthe

endogeneityofgovernancestructuresandpoliticalandeconomicpower,aswellas

themannerinwhichgovernanceaffectseconomicperformanceandthedistribution

ofresourcesthroughpolicy.Governancearrangementsinperiodt,alongwiththe

politicalinstitutionsandtheresourcedistributioninperiodt,determinethe

distributionofpoliticalandeconomicpowerinthatperiod.Thedistributionof

power,inturn,establishestheeconomicinstitutionsinperiodt,aswellasthe

politicalinstitutionsandgovernancearrangementsinperiodt+1.Throughpolicy

choices,theeconomicinstitutionsinperiodtdefinetheeconomicperformancein

periodtandthedistributionofresourcesinperiodt+1.Withthepolitical

institutions,thedistributionofresourcesandthegovernancearrangementsin

periodt+1determined,theprocessbeginsagain.

Whiletheobjectiveofgoodgovernanceistogenerateeconomicperformanceand

resourcedistributionoutcomesthatareacceptabletosociety,thereisnoguarantee

thatthegovernancearrangementsgeneratedbythefeedbackloopsoutlinedin

Figure1willproducetheseresults.Akeyreasonispower.Ifthe“good”outcomes

aredetrimentaltopeoplewithpower,thenthesepeoplewillnotchoosegovernance

Source:AcemogluandRobinson(2006)Figure1ThePoliticalEconomyofGovernanceArrangements

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structuresthatgeneratetheseoutcomes.Mungiu-Pippidi(2015,11)makesthis

argumentusingthemetaphorthat“goodgovernanceislikebuildingabarn:itjust

needsaplanandsomebuilders.Theconceptthatsomepeoplewithconsiderable

powermayopposetheconstructionofthebarnastheybenefitfromitsabsenceis

seldomdiscussed.”

Thepowerofinfluentialgroupstoblockprojectsthatarebeneficialtoothersbut

notthemselves,whetheritisinvestmentsortheintroductionofdifferent

governanceregimes,haslongbeenanissueofdiscussioninthepoliticaleconomy

andpolicyliterature(Robinson1998;Acemoglu2003).Aswewillseeinthenext

section,thisproblemalsoneedstobeconsideredalongsideadifferent,albeit

related,issue,namelyhowisitpossibleforthosewithpoweringovernance

arrangementstoselectoutcomesthat,whilebeneficialtothem,aredetrimentalto

othergroupsinsociety.

TheEconomicsandPoliticsofGovernance

Toexaminethetwoquestionsposedabove,wedevelopatheoreticalframework

thatmodelsthewayinwhichgovernancestructuresaffectthepoliciesthatare

chosenandtheresultingdistributionofpowerandpayoffs.Tocapturethese

features,anumberofassumptionsandsimplificationsarerequired.Westartwith

outliningtheseelements.

Consideracountrywithtwogroups,XandY.Thiscountryhasavailabletoit,

atleastinprinciple,avarietyof“technologies”thatcanbeimplemented—these

technologiescouldbephysicalinfrastructuresuchasrailroads,ortheycould

representwaysofdoingthings,suchastheimplementationofparticularpoliciesor

themannerinwhichactivitiesareorganized.Eachofthetechnologiesresultsinthe

creationofacertainlevelofwealthandthedistributionofthiswealthbetweenthe

twogroups.

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Foreachtechnology,thedistributionofthegeneratedwealthbetweenXandYcan

beillustratedasapointinFigure2.Suppose,forinstance,thatthepayoffstoXandY

forthecurrenttechnologyaregivenbypoint“a.”Pointslocatedaboveandtothe

rightofthe45°linepassingthrough“a”representpayoffsfromtechnologiesthat

wouldenlargethepie;pointsbelowandtotheleftofthe45°linerepresentpayoffs

fromtechnologiesthatshrinkthepie.

Governancearrangementsreflecttheallocationofpowerandauthorityheldby

differentgroups.Thisallocationisdeterminedinpartbythelargerinstitutional

environmentinwhichthegroupsoperate(e.g.,well-definedpropertyrights;

democraticinstitutions),sincethisenvironmentdeterminesdejurepower.The

relativeresourcesavailabletogroupsalsodeterminepowerandauthority;afailure

tomaintaintheseresourcesmeansalossofpower.

Therelativeresourcesavailabletogroupsaredeterminedbytherelativepayoffs

thataregeneratedfromthedecisionsthataremade.AcemogluandRobinson

(2013)arguethatthecreationofrentsprovidestheincentivetocreate

organizationstocapturetheserents(forasimilarpoint,seeRobinson1998).Thus,

thegreateraretherentsthatarecreatedforonegrouprelativetoanother,the

greateristheincentiveforthisgrouptoorganizeandthegreaterpoweritcanthen

beexpectedtoobtain.Theseobservationssuggestthatthedistributionofthe

benefitsfromnewtechnologiesmatterstothegroups,notjustbecauseofthe

returnspersethataregenerated,butalsobecauseofthepowerthattheserentswill

generateinthefuture.

Alsoimportantinthepoliticaleconomyofthesocietyistheextenttowhichagroup

canbedeprivedofeconomicbenefitsbeforetheyrebelinapoliticallydestabilizing

manner.Dependingonthecountryandthecontext,thisrebellionmighttakethe

formofactiverevolt(suchaswasthecasewiththeArabSpring),ofseekingpolitical

separation(suchaswasthecaseintheU.S.CivilWar),orofelectingnon-

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mainstreampoliticians(ashasbeenthecaseintheUnitedStatesandanumberof

Europeancountries).

TheseideasarecapturedinFigure2.Let’sexaminefirstthepossibilityofrebellion.

Theline0dshowsthevariouscombinationsofpayoffstoXandYthatwouldmakeX

indifferentbetweenrebellingandnotrebelling,whiletheline0eshowsthevarious

combinationsofpayoffstoXandYthatwouldmakeYindifferentbetweenrebelling

andnotrebelling.Theareabetweenthesetwolinesthusrepresentsthesetof

payoffsforwhichthepoliticalstructureisstable.

Nowconsiderthequestionofmaintainingpower.Theareabetweenlinesabandac

representsthepayoffcombinationsthat,ifchosen,wouldresultinnochangeinthe

powerheldbythetwogroups.Pointsabovethelineabwouldleadtoanincreasein

powerforY(andhencealossofpowerforX),whilepointsbelowacwouldleadto

anincreaseinpowerforX(andalossofpowerforY).

ThepositionandshapeofthelinesabandacinFigure2dependonthepowerthe

twogroupspossessat“a,”aswellasgeneralfeaturesoftheeconomicandpolitical

environmentinthecountryunderconsideration.Panel(i)showsasituationwhere,

Figure2PayoffsandPower

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at“a,”XhasrelativelymorepowerthandoesY;thiscasealsoassumesthatthe

relativepowerofXandYislargelydeterminedbytheresources/payoffstowhich

theyhaveaccess;dejuresourcesofpowerarerelativelysmall.

Incontrast,panel(ii)showsasituationwherethepowerheldbyXandYat“a”is

muchmoreequal.Inaddition,agooddealofthepowereachgrouppossessesisde

jureinnatureandisnotasheavilydeterminedbyresources.Forinstance,panel(ii)

mightreflectacountrywithstrongdemocraticinstitutions,oneinwhichaccessto

economicresourceshasonlyasmalleffectonthelikelihoodofelectoralsuccessfor

eitherXorY.Insuchaworld,eitherXandYcould,fromtimetotime,introduce

technologiesthatwouldresultinlossestotheothergroupandyetnotalterrelative

power.Suchmovesarepossibleaslongasthereisanexpectationthatatsomepoint

inthefuturethegroupthatpreviouslysufferedalosswouldbeabletointroducea

technologythatwouldbenefititwhileimposingalossonthefirstgroup.

TheframeworkpresentedinFigure2canbeusedtoshowhowgovernance

arrangements,thedistributionofpower,andeconomicbenefitsarejointly

determinedandevolveovertime.Twocaseswillbeconsidered—corruptionand

ignorance—eachcorrespondingtooneofthetwochronicconditionsoutlined

earlierinthepaper.

Corruption

Inourexaminationofcorruptionweconsidertwodifferentinformalarrangements

fortheexerciseofpower.Inthefirstarrangement,peoplefollowformalrulesthat

aredefinedbytheofficetheyoccupy;monitoringmechanismsandpenaltiesprovide

supportfortheserules.Inthesecondarrangement,peoplemakedecisionsbasedon

personaladvancement.

Point“a”inFigure3capturesthedistributionofbenefitsthatemergefromthe

secondofthesegovernancearrangements;itcanbecharacterizedasahigh

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corruptionoutcome.Point“b”capturesthedistributionofbenefitsthatemergefrom

thefirstgovernancearrangement;itcanbeviewedasalowcorruptionstate.The

lowcorruptionstatecreatesmorewealth(asMauro(1995)shows,corruptionis

associatedwithlowereconomicgrowthrates),withasomewhatmoreeven

distributionofthebenefitsbetweenXandY.

Binmore(2003)arguesthateitheroutcome“a”or“b”couldemergeasan

equilibriumdependingonthesetofexpectationsthatareinplace.Following-

Pippidi(2006)andPerssonetal.(2012),corruptbehaviorcanbeunderstoodas

beingtheappropriatestrategyforindividualsincountrieswheretheexpectationis

thatcorruptionisrife.AsPerssonetal.(2012,450)indicate,“insofarascorruption

istheexpectedbehaviorinaparticularsociety,weshouldexpectthekey

instrumentstocurbcorruptioninlinewiththeprincipal-agentanticorruption

framework—thatis,monitoringdevicesandpunishmentregimes—tobelargely

ineffectivesincetherewillsimplybenoactorsthathaveanincentivetoenforce

them.”Thus,althoughothergovernancemechanisms,suchasoffice-definedrules,

couldsupportlowerlevelsofcorruption,thereisnoincentiveforplayers

Figure3CorruptionandGovernance

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individuallytochangetheirbehaviour.Instead,whatisneededtomovefrom“a”to

“b”isanewsetofexpectationsthateveryoneadopts.

Inadditionto“a”beinganequilibriumfromwhichescapeisonlypossibleifall

partiesadoptanewsetofcommonexpectations,“a”hasthepropertythatit

providesgreaterbenefitsandmorepowertoXthandoes“b.”AsillustratedinFigure

3,amovefrom“a”to“b”wouldinvolvemovingoutsidethelensinwhichpolitical

powerisheldconstantandmovingtoapointwherethepowerofXwoulddecrease.

SincesuchamovemakesXworseoffintermsofbothpayoffsandpower,Xwould

notbeexpectedtosupportthedevelopmentofgovernancestructuresassociated

with“b.”

Itcanalsobenotedthatif“a”ispushedtoofardownandtotheleft,itmaylieunder

thelinewhererebelliononthepartofYbecomesapossibility.Inthiscase,

corruptionisnotastableoutcome.Furtherdiscussionofnon-stablecasesis

providedinalatersection.

Takentogether,theunwillingnessofadominantgrouptochangetherulesandthe

difficultyofgettinganewsetofexpectationsadoptedbyeveryonemakeescape

frompositionslike“b”verydifficult(althoughnotimpossible,asManion2003

shows).Ashasbeenstressed,position“a”embodiesacombinationofaparticular

governancestructure,aparticularpowerarrangement,aparticularlevelofwealth

andaparticulardistributionofthiswealth.Effortstochangeoneortwoofthese

features,withoutaddressingallthefeatures,isalmostcertaintobeunsuccessful.

Ignorance

Inadditiontocorruption,theotherchronicconditionthatleadstopooroutcomesis

ignorance.Inthissectionweconsiderignorancefromtwodifferentperspectives:

onewherethecombinationofignoranceandconcernsaboutpowerresultingood

technologies(i.e.,onesthatwouldleadtobetteroutcomesforbothgroups)not

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beingadoptedandonewherethecombinationofignoranceandpowerresultsin

outcomesthatcanthreatenpoliticalstability.Thefirstperspectivewillbeexamined

undertheheadingoftransactioncosts,whilethesecondperspectivewillbe

examinedundertheheadingoffailuretoforeseeconflict.

TransactionCosts

Figure4illustratesthecasewherethecombinationofignoranceandconcernsabout

powerresultingoodtechnologiesnotbeingadopted.Supposeacountryiscurrently

locatedatpoint“a”andthatanewtechnologycouldbeintroducedthatwouldmove

theeconomyto“b.”Supposealsothatthegovernancestructureinplacereflectsthe

factthatXhasmorepowerthanY.AscanbeseenfromFigure4,thetechnologythat

generatespoint“b”isnotlikelytobeacceptabletoX.Thereasonisthatpoint“b”

liesabovethelensinwhichrelativepowerremainsconstant;thus,if“b”weretobe

chosen,Xcanbeexpectedtolosepowerandwithittheabilitytogeneratebenefits

inthefuture.Thus,totheextentthatXhastheabilitytoblocktheintroductionof

thenewtechnology,itwoulddoso.Note,however,thatblockingthistechnology

Figure4Power,GovernanceandTransactionCosts

17

meansthatthecountryfailstoexpanditseconomy—ineconomicterms,thesizeof

thepieisnotincreased.

Inthestricteconomicsphere,theCoasetheoremprovidesasolutiontosuch

problems(Coase1960).ThissolutionrequiresYtocompensateXsothatXbenefits

sufficientlytoagreetotheintroductionofthetechnology.Forinstance,adealthat

movesthetwogroupstopoint“c”wouldallowbothXandYtobenefit.TheCoase

outcome,however,canfallapartduetotransactioncosts.Transactioncostsarethe

costsofspecifying,monitoring,carryingout,andenforcingatransaction(seeDixit

1996)foranexcellentdiscussion).AsCoase(1960)argues,ifthesecostsare

sufficientlyhigh,theycanexhaustthebenefitsobtainedfromthenewtechnology

anditwillnotbechosen.ThisoutcomecanbeillustratedinFigure4bynotingthatif

transactioncostsarepresent,point“c”doesnotlieonthe45°linerunningthrough

“b,”butinsteadliesbelowthisline.Ifthetransactioncostsarehighenough,“c”

wouldbelocatedbelowthe45°linerunningthrough“a,”andbothXandYwould

prefertheoriginaltechnology.

AnotherreasonforthefailureoftheCoaseoutcomeisthatthebargainthatmoves

theoutcomefrom“b”to“c”wouldhavetoinvolveashiftinpoweraswellaspayoffs

inorderforittobeacceptabletoX.Asoutlinedabove,point“b”isassociatedwith

greaterpowerforY—indeed,itisthisgreaterpowerforYthatcausesXtorejectthe

technology.IfthebargainbetweenXandYonlyinvolvesatransferofpayoffs,thenit

maynotaddressthekeyissuethatcausedXtorejectthetechnologyinthefirst

place.Instead,whatwouldberequiredisatransferofpayoffsinawaythatalso

involvesatransferofpowersothatXisnotdisadvantagedinthatregard.As

Acemoglu(2003)andAcemogluandRobinson(2001,2013)discuss,suchtransfers

typicallyinvolvetheintroductionofadditionalcostssothat“c”liesbelowthe45°

linerunningthrough“b,”evenintheabsenceofthetransactioncostsdiscussed

above.Fromaneconomicperspective,theneedtoprovidecompensationintermsof

poweris,ineffect,atransactioncost.Noticethatattemptstoremovethepolitical

elementfromthebargainbetweenXandYarelikelytoresultinoverallpoorer

18

performancefortheeconomy,sincedoingsowouldresultintheeconomy

remainingat“a”insteadofmovingto“c.”

Ignoranceplaysakeyroleindeterminingthetransactioncostsdiscussedabove.

Transactioncostscantakemanyforms,includingproblemsindistributingthe

benefitsefficiently,challengesinseeingandorganizingthearrangementsneededto

allowabargaintobereached,andasoutlinedabove,difficultiesinmakingcredible

commitments(i.e.,ensuringthatX’spowerispreserved).Withoutactivesolutions

totheseproblems—i.e.,withoutgoodpolicies—agreementsaredifficulttoreach

andthestatusquoremainsentrenched.

Consider,forinstance,thedifficultiesthatexistinidentifyingtheopportunitiesfor

mutualgain,inprovidingassuranceofbenefits,andinfindingnovelwaystomake

thetransfersthatarenecessarytoachieveagreement.Thosewhostandtolosefrom

apolicychangearelikelytoresistitunlessthereissubstantialcompensation(this

problemisexacerbatedbecauseoflossaversion(Flyvberg2009).Atthesametime,

thosewhostandtogainwillbereluctanttopaythecostsofcompensation

themselvessincegainsareoftenuncertain(Trebilcock2014).Themorethese

difficultiescanbereduced,thegreateristhelikelihoodthat“c”wouldbeselected.In

addition,itisnecessarytofindwaystoaddressthepoliticalproblemofprovidingX

withtheassurancethatitspowerwillnotbediminished.Dealingwiththeseissues

meansdealingwiththeignoranceproblem,sinceitisonlybytrulyunderstanding

thenatureoftheproblemandfindingcreativewaystoaddressitthatasolutioncan

befound.

Thepresenceoftransactioncostsmeansthat,aswasthecaseforcorruption,

governancearrangements,powerstructuresandeconomicoutcomesarejointly

determined.Thechoiceoftechnology,whichisdeterminedbythegovernance

structure,affectsthebenefitsthatareavailableaswellasthepowerthatgroups

possess.Or,asCoase(1960)argued,whentransactioncostarepresent,decisions

aboutthesizeofthepiecannotbeseparatedfromdecisionsaboutthedistribution

19

ofthepie.Theconclusionfromtheaboveanalysisisthatpoliticalconsiderations

meanthattransactioncostswillalmostalwaysexist,whichmeansthatthe

separationofthepurelyeconomicquestion(thesizeofthepie)fromthepolitical

question(conflictoveritsdistribution)cannotoccur.Ignorancebecomesakey

factorwhenthislinkageisnotrecognizedand/orwhenattemptstoaddressthis

linkagearenotgivensufficientemphasis.

Anumberofauthorshavearguedthatdemocraticregimesproducebetteroutcomes

becauseamorecognitivelydiversesetofdecisionmakerstypicallyprovidesgreater

epistemiccapacitythanabetterqualifiedbutsmaller,lessdiverseelite.Adiversity

ofexperience,identityandmodesofreasoningallcontributetobettercollective

outcomes(Page2007;HongandPage2012),butwhatisreallyimportantis

cognitivediversity,thedifferentmodelsthatpeopleemployininterpretinghowthe

worldworksorshouldbeunderstood(Landemore2013,160).

Whiletheepistemiccapacityofdemocraciesisadvantageousintermsoflowering

transactioncosts,democraciesofferanotheradvantage—theyenlargethesetof

outcomesthatareacceptabletobothXandY,makingiteasierforbothgroupsto

supportnewtechnologiesthathavedifferentialbenefits.Thenotionthatwell-

functioningdemocraciescanenlargethesetofacceptableoutcomesisseenby

comparingpanel(i)and(ii)inFigure3.Theenlargementoftheacceptableoutcome

spaceoccursbecausemoreofthepoliticalwork(i.e.,dealingwithconflict)canbe

doneoutsideoftheeconomicsphere,therebyopeninggreateropportunitiesto

enlargethepie.

Takentogether,thesetwoadvantagessignificantlyincreasethelikelihoodthat

democraticregimescanoperateinamannerthatbothenlargesthepieandallows

foritsdistributioninamannerthatislessfraughtwithconflict.Aswewillseeinthe

nextsection,regimesthatarelessthatfullydemocraticmayalsobesuccessfulat

enlargingthepie;however,todosomaycomeatthecostofcreatingmoreconflict.

Itistothisquestionthatwenowturn.

20

FailuretoForeseeConflict

Figure5illustratesthecasewhere,contrarytothesituationmodeledinFigure4,

thepowerbalanceinacountrydoesnotpreventtheadoptionofanewtechnology

thatwouldenlargethepie.Asinthepreviouscase,thecountrystartswiththe

payoffsgivenbypoint“a.”Theintroductionofthenewtechnologywouldresultin

payoffsgivenby“b.”IfXhasthepowertoapprovetheintroductionofthe

technology,thenitwouldbeexpectedthatitwoulddoso—point“b”provides

higherpayoffsandmorepowerthandoes“a.”

This“solution”tomaximizingthesizeofthepie—namelyprovidingpowerand

authoritytothosewhobenefitfromthetechnology—wasnotedbybothCoase

(1960)andRobinson(1998).Whiletheproblemofmaximizingthesizeofthepieis

addressed,itispossiblethatdoingsocouldresultinsignificantconflict.Indeed,the

conflictcouldbesuchthatitwouldleadtorebellionbyY.

Figure5Power,GovernanceandtheFailuretoForeseeConflict

21

Amoveto“b”increasesboththepowerandthepayoffsforX,anddecreasesthe

powerandpayoffsforY.AlthoughYisworseoff,itwouldneverthelessacceptthe

movefrom“a”to“b,”since“b”islocatedwithintheregionthatdenotespolitical

stability.ItusefulatthispointtoexaminewhyYwouldacceptamovethatmakesit

worseoff.

Oneoftheanswerstothisquestionwasexaminedearlierinourdiscussionof

corruption.Sincegovernancearrangementscanbethoughtofasequilibria,thenit

followsthatallthepartiessubjecttothisarrangementwillhaveanincentiveto

complywiththearrangementandthedecisionsthatarisefromit.Notethatthis

incentivetocomplyexistsattheindividuallevel.Whileitmightbepossibleforthe

individualsinYtoactcollectivelyinadifferentwayandachieveadifferentoutcome,

individuallyeachmemberofYisbestoffabidingbythegovernancearrangementin

place.

Anotherreasonrebellionisnotchosenisthatitiscostly(AcemogluandRobinson

2006).EvenifthefreeriderproblemscouldbesolvedandthemembersofYcould

actcollectively,rebellionisonlychoseniftheexpectedbenefitsofrebellion(which

aredeterminedbytheprobabilityofsuccessoftherebellionandthegainsthatcan

beexpectedifsuccessful)aregreaterthanthecosts.Sincethecostsareoften

significant,rebellionisoftennotapreferredoption.

Afurtherreasonforcomplianceisthenatureofgovernancearrangements.Recall

ourgovernancedefinition—governanceisthesetofformalandinformal

arrangementsbywhichpowerisallocatedandexercisedinanysystemwith

interdependentactors.Culturally,formalandinformalarrangementsaremorethan

justthespecificationofhowthingsareorganized.Instead,formalandinformal

arrangementstypicallytakeonavalueintheirownright.

Thesourceofthisvalueisanormpsychology(Henrich2015).Thispsychology,

whichistheoutcomeofevolutionovermillionsofyears,meansthatpeople

22

intuitivelyassumethesocialworldisrulegoverned,eveniftherulesarenotknown,

andthatviolationoftheserulesislikelytohavenegativeconsequences.Asaresult

oftheirbeliefintheexistenceofrules,peopleinferthatthebehaviorofothersis

affectedbytheserules.Aspeoplelearnthesenormsandrules,thesenormsand

rulesareatleastpartiallyinternalizedsothattheybecomegoalstobeachieved.

Thispsychologicalbehaviormeansthatonceagovernancearrangementis

established,abidingbyitbecomesanobjectiveinitself.Asaresult,governance

arrangementscanbesustainedforlongperiodsoftime,evenwhentheyroutinely

generateoutcomesthataredetrimentaltoparticularindividualsandgroups.In

short,thevalueofmaintainingtheruleoffsetsthecostassociatedwithdoingso.

Henrich(2015)pointsoutthatthepeoplemosteffectiveatestablishingnormsand

rulesthatotherswillfollowarethosethatpossesseitherdominanceorprestige.

Dominancetypicallyreliesonthreatsandcoercionforinfluenceandismarkedby

aggressiveandegocentricbehavior.Prestige,incontrast,typicallyinvolves

persuasionanddeferentialagreement,andismarkedbygenerousandcooperative

behavior.Whatisinterestingaboutprestigeisitemergesfromwhatisdeemedtobe

importantandvaluableinaspecificdomain—thus,hockeystars,rockmusiciansand

greatthinkerscanallenjoyprestige.AsHenrich(2015,139)notes,“Whilenot

infinitelymalleable,whatconstitutesavalueddomainisamazinglyflexible.The

differentialsuccessofsocietiesandinstitutionswillhinge,inpart,onwhatdomains

arevalued.”

IfweapplyHenrich’sobservationtogovernance,wewouldconcludethatdifferent

governancearrangementscouldemergesimplyasaresultofwhoenjoyedprestige

ordominanceinaparticularsituation.Theseprestigiousordominantindividuals

wouldestablishnormsandrulesthatotherswouldnotjustmimic,butwould

ultimatelyadoptasgoalstobeachieved.Thus,differentsocietiescanbeexpectedto

developnotjustdifferentnorms,buttodevelopnormsthatemphasizeandreward

differentthings.Theconsequenceisthatdifferentsocietiescanbeexpectedto

23

followdifferentpaths;someofthesepathswillinvolvesignificantdisparitiesin

payoffsandpower.

Thepresenceofagovernanceequilibrium,theproblemsofcollectiveaction,the

costsofrebellionandthepsychologicalvalueattachedtonormsallprovidereasons

whythedistributionofpowerandauthoritycanbequiteskewedinX’sfavorand

yetnotresultinrebellionbyY.Atsomepoint,however,itisexpectedthatthepayoff

andpowerdistributionwillbesoskewedthatrebellionbecomesapossibility.The

lines0dand0einFigure2showthelocusofpayoffsatwhichrebellionoccurs.

Thepossibilityofrebellionbecomesimportantwhenthesituationportrayedin

Figure5isexamineddynamically.Asnotedabove,themovefrom“a”to“b”results

inmorepowerandgreaterpayoffsforX.Italsocreatesanewstatusquoat“b.”

Point“b,”ofcourse,hasassociatedwithitanarea—alens—inwhichthepowerofX

andYdonotchange.Theshiftofthislensdownandtotherightmeansthatit

becomesunlikelythattechnologiesthatgenerateoutcomeslike“c”wouldnowbe

acceptabletoX,eventhoughtheywouldhavebeenacceptablewhenthestarting

pointwas“a.”Instead,thetechnologiesthatareacceptabletoXareonesthat

generateoutcomeslike“d.”

Payoffslike“d,”ofcourse,resultinafurtherskewingofpowerandpayoffsinfavor

ofX.InFigure5,“d”islocatedbelowthepoliticalstabilityline,indicatingYisnow

sufficientlydisadvantagedthatrebellionbecomesanoption.Thepotentialfora

majordisruptionofthepoliticalequilibriumnowexists,evenastheeconomyis

growing.

ThisoutcomerequiresthatXdoesnotanticipatethepoliticalupheavalthatwould

resultfrommovingto“d.”Isthisreasonable?WouldXnotrationallyunderstandthe

problemsthatwouldoccurbycrossingthepoliticalstabilitylineandrefuseto

acceptatechnologythatproducestheseresults?

24

ThereareanumberofreasonstoexpectXwouldnotberationalinthissense.One

reasonisthatXmayhavearelativelyshorttimehorizonandthusbeimpatientto

obtainthepayoffsandpowerassociatedwith“d.”Ifthisimpatienceislargeenough,

thepossibilityofrebellioncouldbediscountedsufficientlytoallow“d”tobechosen.

Asecondreasonisacollectiveactionproblem.AlthoughthemembersofXmayhold

considerablepowerthroughthegovernancestructuresthatareinplace,no

individualmemberofXseesallthesituationswheremovesarebeingmadeto

pointslike“d.”Asaresult,eachindividualfailstoseethefullextentoftheproblem

untilitoccurs.

AthirdreasonisthatsituationsliketheonedescribedinFigure5typicallydonot

occurveryoften.Indeed,giventhepoliticalstabilitythathasbeenassumedpriorto

thepointintimewhenthecrossoveroccurs,therewouldhavebeennoexperience

withrebellionandonlyavaguesenseofwheretheboundarylinelies.Theproblem

herecanbecharacterizedasoneofuncertainty—thereissimplynosolidbasison

whichtomakeinferencesaboutwillhappeninthefuture.

Afourthreasonisalsolinkedtoignorance.Evenifthesignalsarepresentthata

societyisgettingclosetothepoliticalinstabilityline,theymaybeincorrectly

interpretedbecauseofcognitivebiases—examplesincludetheavailabilitybias,the

representativebias,theconfirmationbiasandtheself-interestbias.

Oneobvioussolutiontoallfourproblems,andparticularlythelasttwo,isgreater

epistemiccapacityforthemembersofX.Thecollectionandanalysisofdataonthe

extentoftheunequaldistributionofpowerandpayoffs,abetterunderstandingof

theeffectsofanunequaldistribution,andcomparisonsfromothercountrieswould

allaidinbeingabletoidentifytheproblemsthatcanarisefromunequal

distribution.

25

Interestingly,ifthisincreasedepistemiccapacityfiltersovertothemembersofY,

theresultmaybeamovementinwardsoftherebellionline,makingitmorelikely

thatpoliticalinstabilityoccursaspowerandpayoffsareconcentratedinthehands

ofaparticulargroup.IfthemembersofXhaveanintuitiveunderstandingofthis

dynamic,theymayunderinvestinepistemiccapacity.

Aswasarguedearlier,thedevelopmentofwidespreadepistemiccapacitymaybe

oneofthehallmarksofdemocraticsystems.Thus,themoredemocraticisasystem,

themoreitcanbeexpectedthatwidevariationsinpowerandpayoffswillbe

unacceptable.However,itdoesnotthenfollowthatdemocraticsystemsshouldbe

lesspoliticallystable.Thereasonisfoundintheanalysisoftheprevioussection,

whereitwasarguedthatmoredemocraticsystemscanbeexpectedtohavelarger

areas—largerlenses—inwhichtechnologiescanbeintroducedwithout

fundamentallychangingtheunderlyingpowerstructure.Inotherwords,themore

democraticisasystem,thelesslikelyitisthatitwillveeroffintotheunstable

territory(seePrzeworskietal.(1996)forsupportonthispoint).

Torecap,whilethepresenceofagovernancestructurethatallocatessignificant

powertoonegroupdoesnotprecludeeconomicgrowthandanenlargementofthe

sizeofthepie,thegrowththatdoesoccurcanbeexpectedtomaintainorenhance

thepowerimbalance.Oneoftheconcernstoemergefromacontinuedpowerand

payoffimbalanceispoliticalinstability.Thus,asintheothercasesthatwere

examined,governancestructures,powerrelationships,andeconomicandpolitical

outcomesarejointlydetermined.

Conclusion

Inrecentyearstherehasbeenamarkedincreaseininterestinwhatconstitutes

goodgovernment,goodgovernanceandqualityofgovernment.Inadditiontoa

broadconsensusthatgovernmentisnolongerthekeyplayeringoverningthe

26

economy,aconcernhasemergedthatpursuingeconomicgrowthalonewillnot

generatethebestoutcomesforsociety.

Theseideasarelinked.Theinitialresponsetotherecognitionthatgovernment

couldnotunilaterallydirecttheeconomywastoincludeahostofotherplayers,

includingtheprivatesectorandNGOs,ingovernance.Inthecaseofdeveloping

countries,oneoftheconcernsofthisapproachwasreadilyunderstood—would

theseplayershavetheincentivetoencouragegovernmenttointroducepoliciesthat

wouldpromotegrowth?TheeffortsoftheWorldBanktoencouragespecificforms

ofgovernancewereanattempttoaddressthisproblem.Whiletheinitialemphasis

wasonspecificfiscalandmonetarypolicyinthecontextofstructuraladjustment

policies,attentionhasnowshiftedtoanemphasisoncreatingthecapacityforgood

decision-making(e.g.,reductionsincorruption).Inbothcases,theoverarching

concernwaswhetherthosewithpowerandauthoritywouldintroducepolicies

beneficialtothelargersociety.

Whatwasmuchlessunderstoodinitiallywasaseparateproblem—wouldthose

withpowerandinfluenceintroducepoliciesthatencouragegrowth,albeitatthe

expenseofsocialinclusion?AstheOECDnowrecognizes,thisproblemisofreal

concern.Thisisparticularlythecasefordevelopedcountrieswhererising

inequalityandlackofinclusivenessthreatenspoliticalstabilityandeconomic

activity,althoughdevelopingcountriessuchasChinahavenotbeenimmunetothe

problem.

Theanalysisinthispapershowsthatbothoftheseproblemsemergefromthe

natureofgovernance,andareexacerbatedbytwochronicconditionsassociated

withgovernance,namelycorruptionandignorance.Morespecifically,thepaper

arguesthatgovernancearrangementsreflectbotheconomicandpoliticalforces,

andarejointlydeterminedalongwiththedistributionofpowerandthecreation

anddistributionofeconomicpayoffs.Asaresultofthisjointdetermination,

27

governancecannotbeimposedonsystems;norshoulditbeassumedthateconomic

andpoliticalsystemsleftontheirownwillevolveinwaysdesirableforeveryone.

Asaconsequence,weshouldbewaryofattemptstointroducebestpractices;unless

thesepracticeshappentofitwiththeprevailingpoliticaleconomy,theyareunlikely

tobesuccessful.Atthesametimeweshouldbewaryofsimplyleavinggovernance

systemstoevolveontheirown,sincethereisconsiderablereasontobelievethat

theymaynotdevelopinwaysthataredeemedtobegood.

Giventheseobservations,isthereanythingthatcanbedonetomovesystemsin

waysthataredesirable.Theoneconclusionthatcanbetentativelydrawnisthat

democraticsystemsmaybebetteratgeneratinginclusivegrowth(tousetheOECD’s

language)thannon-democraticsystems.Aswehaveseen,itisextremelydifficult,if

notimpossible,toimposedemocracyoninherentlynon-democraticsystems;the

resultisthattheproblemsfacingmostdevelopingcountriesareverychallengingto

addressandhavetobeapproachedwithgreatcare.

Whataboutindemocraticsocieties?Hereitmaybepossibletotakestepstoensure

thatdemocraticsocietiesremaindemocratic.Ofkeyimportanceisepistemic

capacity,sinceitsmaintenanceandimprovementappeartobeconnectedwiththe

abilityforasocietytochoosetechnologiesthatenlargethesizeofthepiewhile

ensuringarelativelyconstantlevelofpowerandpayoffinequality.

Onthisissue,oneofthekeyproblemsfacingademocraticsocietyisacollective

actionproblem.Sinceepistemiccapacityiscreatedandmaintainedthroughthe

actionsofeveryone—theeducationpeoplereceive,thedegreetowhichpeoplerely

onevidence,theabilityofpeopletoexperiment—andsincetheseactionsareoften

personallycostly,thetendencyisforthepeopletounderinvestinsuchactivities.

Tacklingthistendencyrequireslarge-scaleco-operation,co-operationthatcan

likelyonlybesustainedthroughthedevelopmentofwidelyacceptednormssuchas

universalism(Mungiu-Pippidi2006,2015),andexperimentationand

28

consequentialism(KnightandJohnson2007,2011).Justasnormsaretheculprit

behindcorruptionandtheacceptanceofwidespreaddisparitiesinpowerand

payoffs,sotooarenormsthemeansofovercomingtheseproblems.Aswehaveseen

inthispaper,normsplayakeyroleintheco-determinationofgovernancesystems,

thedistributionofpower,andthegrowthandallocationoftheeconomicpie.Asa

resultitisnotsurprisingthattheyshouldbekeyfactorsinthedevelopmentand

maintenanceofgoodgovernance.

29

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