The report is devoted to the role and effectiveness of the state: what it should do, how it should do it, and how it can improve in a rapidly changing world. Governments with both centrally-planned and mixed economies are shrinking their market role because of failed state interventions. This report takes an opposite stance: that state’s role in the institutional environment underlying the economy, that is, its ability to enforce a rule of law to underpin transactions, is vital to making government contribute more effectively to development. It argues against reducing government to a minimalist state, explaining that development requires an effective state that plays a facilitator role in encouraging and complementing the activities of private businesses and individuals.
The report presents a state reform framework strategy: First, focus the state’s activities to match its capabilities; and second, look for ways to improve the state’s capability by re-invigorating public institutions. Successful and unsuccessful examples of states and state reform provide illustrations.
Key Findings:
- The key to predictable and consistent implementation of policy is a good fit between the state’s institutional capabilities and its actions. In well-developed states, administrative capability is normally strong, and institutionalized checks and balances restrain arbitrary action, even as they provide government organizations the flexibility to pursue their mandates. By contrast, states with weaker institutions may need to err on the side of less flexibility and more restraint. This can be done in two ways: through self-restricting rules and through working in partnership with firms and citizens.
- The second key task of state reform is to reinvigorate the state’s institutional capability, by providing incentives for public officials to perform better while keeping arbitrary action in check.
- Governments can improve their capability and effectiveness by introducing much greater competition in a variety of areas: in hiring and promotion, in policymaking, and in the way services are delivered.
- Governments are more effective when they listen to businesses and citizens and work in partnership with them in deciding and implementing policy. The best-established mechanism for giving citizens voice is the ballot box.
Recommendations:
International agencies can encourage and help sustain reform in four ways:
- First, they can provide important technical advice on what to do and what not to do. This assistance is often invaluable, especially for smaller states that lack the resources to handle all the technical issues internally. But it must be complemented by local expertise, to adapt reforms to local conditions and institutions.
- Second, international agencies can provide a wealth of cross-country experience on a wide range of issues. Often staffed by people from all over the world, they can bring in experts from different backgrounds.
- Third, the financial assistance these agencies provide can help countries endure the early, painful period of reform until the benefits kick in.
- Fourth, they can provide a mechanism for countries to make external commitments, making it more difficult to backtrack on reforms. If the history of development assistance teaches anything, however, it is that external support can achieve little where the domestic will to reform is lacking.