What do we know? Executive summary
Institutions – formal and informal rules and norms – matter because they create incentives that shape behaviour. Many aid interventions have failed because they did not take into account governance and institutional issues. It is now widely accepted that institutions play a critical role in poverty reduction and growth. Influential econometric evidence has been important in showing the links between institutions and growth in particular.
The public sector is the single most important investment instrument for the state, and improving the way it is managed is critical for development outcomes including service delivery, social protection and private sector regulation. Public sector governance reform involves institutional reform – that is, changing the rules and norms that govern public sector activity. Donor support to institutional reform aims to improve the performance of the state through changing institutions and generating greater capacity, commitment, efficiency, integrity, and/or responsiveness to achieve poverty reduction and other developmental goals (Bunse & Fritz, 2012, p. 4).
However, while understanding of institutions and the role of aid has deepened in recent decades, critical knowledge gaps and unresolved debates remain. There is little rigorous and systematic evidence on how to design effective institutional support. The distribution of economic, social and political power influences the way institutions work in practice (Booth, 2013). The key challenge in this area is measurement and attribution—how to measure the effectiveness of institutional reform interventions in achieving poverty reduction and growth (Fukuyama, 2013).
Common challenges that need to be taken into account in public sector institutional reform are:
- Embedding a ‘thinking and working politically’ approach to reform
- Resolving the tension between the long-term processes of institutional change and short-term political horizons
- Ensuring reforms tackle problems with underlying functional effectiveness as opposed to simply adopting institutional forms
- Finding the right balance between a large scale centre of government approach and a small scale islands of effectiveness approach in specific contexts
- Achieving sustainable and systemic change through changes in the motivation and incentives of individuals, groups and organisations
- Ensuring that public sector institutions are inclusive and integrate a gendered perspective
- Working with non-state institutions, including informal norms and clientelism
- Fostering political support and local ownership to open space for reforms
- Building the capacity of individuals, organisations and the broader institutional framework
The following emerging lessons have been identified by experts:
- To be effective, reform processes need to work within the political logic of the context
- Informal institutions are pervasive, and can undermine reforms unless they are taken into account
- Building on what’s there can help to maximise existing capacity and develop contextually appropriate reform
- The process of reform may be more important than its content
- Incremental, adaptive reforms can generate learning and momentum for change
- Successful reforms have started by identifying and framing the problem
- Power and political economy analysis can help in the ongoing process of identifying windows of opportunity
- Broad engagement with leaders and networks can help to build constituencies for change
- Brokering and convening change can provide effective assistance
- Institutional reform processes need to be aware of, and work with, the organisational constraints of donor agencies
- Complementary long-term, flexible and ‘hands-on’ aid modalities and instruments have been required to address institutional blockages
Strength of evidence
There is a lack of rigorous, systematic evidence on what external support for public sector institutional reform has or has not been effective, and on how and why this is the case. In the last decade, in-depth qualitative research programmes have started to fill this gap. Nevertheless the nature of the topic means that building the evidence base will continue to be challenging. The challenge is one of measurement: observed outcomes are very difficult to attribute to specific interventions (Fukuyama, 2013).
The evidence guide presented in this table (PDF, 360 KB) summarises the evidence discussed in this topic guide about the impacts that various approaches to institutional reform have had. It is not a comprehensive map of all evidence available; it covers a selection of evaluations, chosen because they are most often mentioned in key publications. Multi-year, multi-case research programmes with multiple findings are categorised according to their main recommendations.
The literature largely consists of individual success stories of particular kinds of reform approaches, or stories of failure that are attributed to not following a particular approach. This explains the lack of evidence of negative impacts. There is a lack of rigorous evaluations of each individual reform approach – of evaluations that identify multiple cases where an approach was intended and investigate whether or not it was successful, and why. This lack of evidence is not accidental: there are enormous problems of measurement and attribution in assessing public sector institutional reform that need to be addressed (Fukuyama, 2013).
- The evidence base on external support to public sector institutional reform predominantly relies on qualitative research methods. The findings show what has worked in particular contexts. Andrews’ (2013) work includes quantitative analysis while others are starting to apply experimental methods in this field, focusing on corruption, community development and election programmes (Mcloughlin & Walton, 2011).
- Bunse, S., & Fritz, V. (2012). Making public sector reforms work: political and economic contexts, incentives, and strategies (Policy Research Working Paper No. WPS 6174). Washington D.C.: World Bank. See document online
- Fukuyama, F. (2013). What is governance? Governance, 26(3), 347-368. See document online