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HOW TO LINK DEMOCRATIC GOVERNANCE
WITH ECONOMIC GROWTH

Suggestions from Recent Research on the Institutional Dimensions of Participation
(Conclusion)


By Robert E. Mitchell

Implications for Program Strategies and Their Implementation

In this context, although the concept of “participation” has been a cross-cutting theme and operational approach used by USAID for a number of years, the concept has not been systematically linked either to D/G or T&I. In the management philosophy of today, emphasis seems to be placed on how participation creates the social psychological feeling of empowerment, with an emphasis on vertical relations between governments and their citizens, as well as between employers and their employees (including contractual-type relations between the recently re centralized USAID and its field missions, as well as between mission managers and their so-called “team members").

The present paper draws on several examples from current research that helps to distinguish between participation and participants. These concepts are placed in the political context of how institutions structure participation. The NIE is helpful in understanding how positive incentives and negative sanctions are structured in ways that affect voice, choice and market behavior. A dynamic, change-oriented element is introduced by viewing how participants (rather than participation) are organized, why many constituencies and groups evolve, and how the constituency environment affects how these groups act to influence policies affecting them. Theories of collective action are relevant to this perspective on participation.

Higher levels of project-level participation are associated with higher levels of project success, according to researchers who examined World Bank water projects. Bank staff proposed using projects to change institutions in general. Project-level participation is a central feature in the scaling-up process. Although systematic evidence on scaling-up processes is absent, there is research showing a statistical association between national-level participation rates and project-level performance in a number of sectors. This research, however, does not consider how participation is structured. The focus is on levels of participation, although it might be argued that structures would affect levels.

Structure is introduced in a World Bank study of how ethnic diversity in African countries affects the adoption of growth-encouraging policies and economic growth itself. Here the organization of participants has effects on policies and performance. But the World Bank research team notes that institutional arrangements are able to overcome the negative effects associated with how these participants are organized. That is, participation and participants are linked to one another. This linkage was used to move more generally to evolving approaches to using institutions in the design and implementation of strategic plans. The NIE was then tied to theories of collective action to provide a dual approach to linking D/G to economic growth (especially private sector T&I) in development programs.

It is worthwhile to repeat that, in the past, donors often only supported either democracy or economic growth strategic objectives, not necessarily the two in tandem. With the continuing emphasis on focus, the concentration of resources, and a limited number of generic strategic objectives, donors need a better understanding of how programs supportive of one of these two objectives can contribute to the achievement of the other. Without this understanding, the two objectives may only have a serendipitous positive relationship with one another.

Some observers might remark that the above perspective ignores the substance of good policies. To borrow Michael Sandel’s terms in his Democracy’s Discontent (Harvard, 1996), we have described a “procedural republic.” Sandel’s emphasis is on "choice.” Ours is on how participation is structured. However, real-world development programs that address structures are organized around (growth-enhancing) policies managed by organized implementing agencies. One advantage of the NIE is its attention to defining these policies so that they are based on an understanding of underlying economic and market principles. These principles help shift the sole attention that D/G and economic growth programs give to vertical relations between the state and its citizens. Horizontal relations among private individuals and entities are also crucial. Policies that create institutional arrangements to structure these relations are central to approaches covered by the NIE and theories of collective action.

These policies and structures can increase transparency and accountability, overcome the potentially anti-growth implications associated with different patterns of organized (and incipient) interests, and help assure that governments, the private sector, and markets operate in ways to increase economic growth.
Few developing countries are as densely inhabited by organized constituencies and interest groups as are the U.S. and other developed countries. Many developing countries have less social capital, as defined by Robert Putnam in his Making Democracy Work, Civic Traditions in Modern Italy (Princeton, 1993). As Easterly and Levine suggest, ethnic groups are perhaps the most significant constituencies in many countries.4

In addition to their traditional undifferentiated and often weak social-capital infrastructures, many countries also have high levels of economic concentration (monopolies and oligopolies in the formal sector). Most of USAID’s strategic plans for bilateral assistance programs in southern and eastern Africa report these high levels. Not all constituencies are equal in their voice and access.

High levels of economic concentration do not seem to limit entry to the market by informals. Instead, the market repercussions of concentration are expressed in the protection of local markets from foreign competition (for example, governments may prevent insurance companies from neighboring countries from providing their services locally), in failing to provide a level legal playing field, and in providing differential access to credit and other economic growth resources and services. Laws may be on the books providing for equal access and treatment, but the structures of interest groups and the institutions that structure their activities are not supportive of the legal regime.

Theories of collective action, as developed by Mancur Olson and others, provide a useful approach to understanding the dynamics of interest group formation and how these groups affect the institutional environment for D/G and economic growth. It is beyond the confines of this article to survey this action-relevant supplement to the NIE in ways that give a time and cause-effect dimension to stake holder analysis. Several quotations from Olson’s The Logic of Collective Action must suffice:

Since relatively small groups will frequently be able voluntarily to organize and act in support of their common interests, and since large groups will not be able to do so, the outcome of the political struggle among the various groups in society will not be symmetrical. That is, small, narrow groups have a permanent and inherent advantage. They “often triumph over the numerically superior forces because the former are generally organized and active while the latter are normally unorganized and inactive. . . . The great majority of special interest organizations redistribute income rather than create it, and in ways that reduce social efficiency and outputs.”

USAID and other donors encourage the growth of interest groups as a means to create democratic pluralism.5 This pluralism provides new opportunities for citizen participation and access to policy-makers. Both voice and choice are increased. But Olson argues that not all groups are equal in how they operate and in the influence they have.

The NIE provides possible options to level the playing field among interest groups, to maximize the voice of individuals who are not affiliated with interest groups, and to create an institutional infrastructure that helps assure that all citizens and interest groups are treated equally. That is, the NIE gives insights on how to overcome the anti-growth processes and structures that the theory of collective action helps explain. These suggestions include means to maximize transparency and accountability by structuring different forms of participation. Linking participation, laws, institutions, transparency and accountability are ways of relating D/G to economic growth through private T&I.

Suggestion 1: Structuring Parliaments
Legislative bodies differ in their type and the authority vested in them. The Westminster model often limits voting to up or down choices on legislation submitted by the prime minister (the ruling party’s leader). The American model allows legislation to arise from elected legislators or from the executive branch (but introduced by members of the legislature). Changes can and are made by committees, and committees have hearings that allow interest groups and members of the public to testify on problems and proposed legislative solutions for them. The legislature also conducts oversight hearings, benefits from its own (the General Accounting Office — GAO) audits and evaluations, and has access to other specialized research services — e.g., those provided by the Library of Congress.

U.S. executive agencies are also structured to provide public comment and participation, as reflected in hearings, comments on proposed administrative regulations published in the Federal Register, and administrative court proceedings. State and local governments are similarly structured to provide for citizen participation and public oversight. And there are many independent interest groups, think tanks, the media and others that provide comments and oversight.

As noted, Mancur Olson and his colleagues argue that, despite this rich texture of processes and structures, not all interest groups are equal in their voice and their influence over choice. Jonathan Rauch draws on Olson’s approach to explore the negative effects that interest group conditions have on American democracy because of these social and organizational conditions. (See his Demosclerosis: The Silent Killer of American Government, Random House, 1994.) Peter Skerry explores how weak-membership interest groups contribute to the confrontational environment in American politics, an environment that would weaken political, social and economic environments in many developing countries. (See his "The Strange Politics of Affirmative Action” in the winter 1997 issues of The Wilson Quarterly.)

Developing countries tend to be at the opposite pole to what Rauch found and Olson explains. These countries provide minimal opportunity for meaningful public participation (voice) in the development of legislation, implementation of government programs, and oversight of either the legislative or executive branches. As a consequence, there is neither much transparency nor accountability. This in turn allows for arbitrary and inequitable treatment that can adversely affect markets and economic growth -- for example, access to licenses and credit, the enforcement of loan agreements, payment of taxes, and decisions by courts. Institutions are currently structured to inhibit participation and the resulting transparency and accountability. There is little wonder that many countries suffer from widespread corruption and its debilitating effects on T&I.

In short, parliaments and executive agencies can be institutionally structured to facilitate different forms of public participation that in turn can contribute to the creation and constructive operation of market-friendly environments. Democracy certainly has meanings extending well beyond the free and open elections of legislative and executive leaders.

Suggestion 2: Improving the Administration of Justice
Many developing countries (and former communist ones) had laws supportive of a command economy. These countries are now forced to change and update their commercial codes and civil procedures to protect private property, strengthen private contracts, and cast the state in a new role of adjudicating conflict among private parties representing their respective claims on one another — and on the state. Again, the NIE has a role in these developments, for the rules of the game should be based on an understanding of how competitive markets operate.

As important as legal reform is, it will be a wasted investment without a judicial system to administer it in an impartial and expeditious manner. Developing this system is a challenge extending well beyond training judges and lawyers, as well as supplying the physical infrastructure and support services for courts. This is because the judicial system, along with the legislative and executive branches, exists within the unbalanced and often thinly developed structures of interest groups that Olson and others analyze. Access to justice can be as constrained as are other forms of voice, choice and participation.

Increasing the transparency and accountability of judges and other court personnel can also be done through institutionalized arrangements for participation. Relying exclusively on executive or legislative oversight, however, may not be the best solution under some governance systems. Nor would court-appointed overseers be in the best position to identify and act on corruption and other deficiencies in their own industry.

Donor agencies concerned with this governance challenge — of making important government services responsive to broad public interests — might look for independent oversight possibilities. Human Rights groups do this for one segment of the law. Chambers of Commerce might make periodic reports on the administration of commercial justice; bar associations could perform related services. Mechanisms would also be needed to bring the findings of these overseers to the attention of policy-makers for corrective action.

Oversight services that increase transparency and accountability strengthen the rule of law that extends beyond commercial codes to cover the rights of individuals and groups, regardless of their sector of activity. Modes and structures of participation make these developments possible. Although this approach to participation and the sectors in which they apply have not been viewed as “political” by many analysts, the distribution of opportunities for voice and choice, the way institutions structure participation, and the consequences these structures have for transparency and accountability are political in nature, they further define governance, and they suggest ways that donor agencies are able to link D/G to economic growth.

Summing Up

Democracy and D/G are extremely important ends in themselves, but donor agencies such as USAID are challenged to link the pursuit of these ends to programs that increase private sector T&I and, therefore, broad-based, sustainable economic growth. There are different views on what constitutes D/G and market-friendly policy environments that will increase T&I. Analysts using different concepts, variables, and measures, as well as different time periods and countries, yield mixed but generally negative findings on the relationship between D/G and economic growth.

To borrow a thought from C. Wright Mills, democracy and the other concepts discussed above are sponge terms. My use of “generally negative findings,” therefore, is not meant to end the debate or to criticize donors for misallocating their resources. Instead, democracy programs typically have ends that are valued in their own right. But donors need to broaden their understanding of democracy and not truncate their approaches (e.g., focusing only on elections).

Some might argue that democracy becomes confused with other popular terms - - such as civil society, the rule-of-law, and institutional development. Perhaps it is time for new concepts and terms for them. Our concern has been with how recent studies have made operational older and newer concepts; how donor programs can influence the reality underlying these concepts; and how programs in apparently different sectors (governance, markets and economic growth) can be mutually supportive of one another.

Return to
How to Link Democratic Governance
with Economic Growth (Part I)


END NOTES
(Part II)


4. Ethnic groups differ in how tightly they are organized. For example, the Fula and Mandinga ethnic groups in Guinea-Bissau have fairly strong lineages allocating considerable legitimate authority to lineage leaders. In contrast to these two Muslim groups, the acephalous (without a head) Balanta diffuse authority much more widely. An acephalous, more pluralistic structure might be considered more democratic. Similarly, despite the existence of two major tribal confederations in Yemen, the individual member tribes are able to act in an organized manner in a pluralistic tribal governance environment that represents a form of local voice and choice (democracy). National governments typically attempt to strengthen themselves in ways that weaken these centrifugal forces. South Africa’s decentralization of government powers is an interesting exception, one similar to Italy’s that Robert Putnam studied over time.

5. In institutionally weak (low social capital) countries, support for a narrow interest group — for example, a chamber of commerce or other trade association — may be the only feasible countervailing power to a government wedded to command-economy policies. D/G and growth strategies would not, however, stop with these initial interest groups.


Robert E. Mitchell, a retired USAID official who served in the Near East and Africa, has been a marketing consultant, professor of urban and regional planning, has directed university research centers in the United States and abroad, and has consulted widely on marketing questions. He earned an undergraduate degree from the University of Michigan, an M.A. in China studies at Harvard University, and a doctorate in sociology from Columbia University.


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