How can effective, accountable public authority be increased? This paper synthesises research findings from the Centre for the Future State. It explores how public authority is created through processes of bargaining between state and society actors, and the interaction of formal and informal institutions. Findings highlight the need for a fundamental reassessment of existing assumptions about governance and development. Informal institutions and personalised relationships are pervasive and powerful, but they can contribute to progressive as well as to regressive outcomes. Rather than focusing on rules-based reform, policymakers should consider using indirect strategies to influence local actors.
The report outlines findings from: i) case studies of informal relationships between politicians, policymakers and private investors; ii) research into informal local governance institutions; and iii) political economy studies of taxation and accountability. It argues that programmes to improve the investment climate, strengthen the rule of law, or fight corruption do not fail just for lack of ‘ownership’ or attention to politics. They fail because of a false assumption: that progressive change consists in, and can be achieved through, strengthening formal, rules-based institutions that reflect a clear division between public and private spheres of life.
Elements of effective public authority are being created in a variety of ways. In the short-to-medium term, informal arrangements and relationships can help stimulate investment, improve services, connect citizens to the state and facilitate the transition to more inclusive, rules-based governance. For example, the research found that:
- Informal relations between politicians and investors that build on common interests can compensate for weak formal property rights and contract enforcement, boosting investment (Egypt)
- Formal participatory mechanisms may be less important as channels for policy influence than informal networks and relationships (São Paulo, Brazil)
- Informal village-level councils remain very influential, and can complement or undermine formal institutions (South Asia)
- Governments’ need for tax revenue has driven implicit or explicit bargaining with citizens, with the potential to enhance accountability (Ghana, Kenya, Ethiopia).
Informal institutions and personalised relationships are usually seen as governance problems, but they can also be part of the solution. This does not mean rejecting the longer-term goal of helping poor countries to build inclusive, rules-based public authority. However, the key to progress in the short-to-medium term may not be direct external intervention focused on rules-based reform, but more indirect strategies to shift or influence the incentives and interests of local actors. Policymakers therefore need to change their perspective on governance and development, and should:
- Prioritise international action to improve financial regulation and constrain criminal activity. This counteracts perverse incentives for political elites to perpetuate fragile states.
- Facilitate dialogue between politicians and investors and support collective action by business associations, rather than focusing solely on improving the formal investment climate.
- Be more alert to ways in which the design of public programmes influences opportunities and incentives for collective action to demand better services. Involvement at significant moments of policy reform can enhance opportunities for effective ongoing engagement.
- Take more account of the diverse and influential informal village-level institutions in efforts to improve local governance. Understanding their origins is helpful for programme design.
- Prioritise equity, transparency and improved collection in tax reforms.
When attempting to identify causes of bad governance and to identify ways of supporting more constructive bargaining between public and private actors, analysts should ask:
- What shapes the interests of political elites? (Sources of revenue are likely to be critical.)
- What shapes relations between politicians and investors? Are there common interests among and between public and private actors which could produce ‘win/win’ outcomes?
- What might stimulate collective social action to demand better services, or to support or resist public policy?
- What informal local institutions are at work and how are they interacting with formal institutions?
- Where does the government get its revenue from? Is there scope for productive bargaining around taxation?
