Sanjay Pradhan, Director Public Sector Group The World Bank

1. Improving Governance: Lessons of International Experience Sanjay Pradhan, Director Public Sector Group The World Bank "Good Governance and Private Sector-Led Growth for Sustainable Development: Challenges and Perspectives“ Madagascar Government Learning Retreat June 14, 2003

2. Outline Importance of Good Governance 1 Implementing a Governance-Anticorruption Program 2 Governance-Anticorruption Diagnostic Surveys 3 Mechanisms to Improve Accountability: Internal Restraints, Voice and Transparency, Competition 4 Strengthening values and ethics 5 Managing the politics of reform 6 Conclusion 7

3. Good governance leads to higher investment & growth. 2% 1.5% 1% 0.5% 0% -0.5% -1.0% -1.5% % Investment share in GDP Income per capita Growth Rate 20% 15% 10% Medium Low High High Medium Low Quality of Governance Quality of Governance in this case was measured by perceptions of 4,000 firms in 67 countries on: (i) protection of property rights; (ii) judicial reliability; (iii) predictability of rules; (iv) control of corruption. Source: World Development Report Survey, 1997

4. ‘Traffic Light’ Map: Rule of Law, 2000 Source for data: http://www.worldbank.org/wbi/governance/govdata2001.htm ; Map downloaded from : http://info.worldbank.org/governance/kkz/gov2001map.asp Colors are assigned according to the following criteria: Red, 25% or less rank worse; Orange, between 25% and 50%; Yellow, between 50% and 75%; Light Green between 75% and 90% ; Dark Green above 90%

5. Control of Corruption: one Aggregate Indicator (selected countries from 155 worldwide, for illustration, based on 1998 research data*) 2 Good Corruption Control Margin of Error Corruption Level 1 0 -1 -2 Iraq Syria Chile Sudan Mexico Ukraine Hungary Pakistan Belgium Australia Thailand Denmark Myanmar Tajikistan Botswana Indonesia Costa Rica Singapore Philippines Korea, South New Zealand GOOD POOR Source: ‘Governance Matters’, 1999, PRWP 2196 by Kaufmann, Kraay and Zoido. http://www.worldbank.org/wbi/governance/

6. Rule of Law and Corruption:Among 48 sub-Saharan African countries, Madagascar scores better than all but 6 countries (Botswana, Mauritius, South Africa, Seychelles, Namibia and Cape Verde). Madagascar

7. What is Good Governance? • Decision makers are held accountablethrough voice of stakeholders • Policy making and implementation processes are transparent and efficient • Decisions are contestable • Rules and regulations are predictable

8. GOOD GOVERNANCE Good governance requires well-functioning institutions • Institutional Checks & Balances • Independent, effective judiciary • Legislative oversight • Decentralization with accountability • Independent prosecution, enforcement • Political Accountability • Political competition, credible political parties • Transparency in party financing • Disclosure of parliamentary votes • Asset declaration, conflict-of-interest rules • Civil Society Voice & Participation • Freedom of information • Public hearings on draft laws • Media/NGOs • Community empowerment • Report cards, client surveys • Competitive Private Sector • Economic policies • Restructuring of monopolies • Effective, streamlined regulation • Robust financial systems • Corporate governance • Collective business associations • Public Sector Management • Meritocratic civil service with adequate pay • Public expenditure, financial management, procurement • Tax and customs • Frontline service delivery (health, education, infrastructure)

9. Percentage of Respondents Who Should take the lead in a National Governance/Anticorruption Program?

10. Governance Diagnostic Surveys • Surveys of firms, households, public officials to highlight problems experienced by respondents • Identifies key problems and priorities of reform • Quantifies and makes transparent the nature of the problem • Public dissemination of results generates pressures for reform and imperative for action • Benchmark for assessing progress

11. The “Bribe Fee” List Unofficial payments by firms in Ukraine Enterprises Type of License/Service/”Favor” Average fee required admitting need to pay (1996) “unofficially” Enterprise registration $176 66% Each visit by fire/health inspector $42 81% Tax inspector (each regular visit) $87 51% Telephone line installation $894 78% Lease in state space (square ft. per month) $7 66% Export license/registration $123 61% Import license/registration $278 71% Border crossing (lump sum) $211 100% Border crossing (percent of value) 3% 57% Domestic currency loan from bank on 4% 81% preferential terms (percent of value) Hard currency loan on preferential 4% 85% terms (percent of value)

12. Client Survey: Report Card of Government Services in Latvia Post Office State Educational Institutions Office of Social Benefits Polyclinic/Health Services Agency of Immigration & Citizenship Prosecutor Customs Service Courts Local Housing Authority Police 0 10 20 30 40 Percent giving favorable rating

13. Public Officials Survey: Purchasing Public Positions 60 Customs inspectors 48 41 52 Tax inspectors 41 25 43 Natural resource licensers 33 27 39 Judges 32 16 Albania 25 Ordinary police 40 23 Georgia 32 Investigators/ prosecutors Latvia 33 14 24 Local officials 21 18 5 Ministers 10 19 0 20 40 60 80 Percent of public officials believed to have purchased their positions Based on 1998 World Bank surveys of public officials in these countries: 218 public officials in Latvia (with Latvia Facts); 350 public officials in Georgia (with GORBI); and 97 public officials in Albania (with ACER).

14. Contact with road police Building permits State banking services Phone line installation Lease of state-owned Enterprise registration commercial real estate Registration of ownership of Water and electricity physical or real property Border crossing at customs Weights and measurements inspection Fire and sanitary inspections Export or import permit Clearances for procurement or privatization Inspection by tax or financial authorities based on a World Bank - GORBI survey of 350 enterprises in May 1998. Firms Survey: Composition of Corruption in Georgia

15. Mechanisms to improve accountability Internal Restraints • Judicial Independence • Anti-corruption bodies • Merit-based recruitment • Decen-tralization • Public-private deliberation councils • Contracting Out • Benchmarking • Competitive • Procurement • Client Surveys • Communityparticipation Voice & Participation • Citizen Charters CompetitivePressure

16. Internal Restraints: Anticorruption bodies Anti-Corruption Strategy • Creation of stand alone or ad hoc anti-corruption entities: independent commissions (Korea);anti-corruption offices (Argentina, Ecuador); committees (Paraguay, Peru); Ombudsman (Philippines). • Often work with civil society organizations (e.g. in Ecuador) Experience -- Mixed • if there is a lack of political will, stand alone bodies will be ineffective: -- Tokenism and political capture (Argentina’s AC Office during Menem administration). -- Intentional limitation of powers and resources • countries with strong political commitment, can actually mainstream anti- corruption efforts in the ministries. • where there is some political will, such bodies may be effective but: -- not advisable to combine investigative, prosecutorial, andjudicial functions -- don not expect them to solve problems in the judiciary or the Attorney General’s office

17. Internal Restraints: Capable, Motivated Civil Service • Merit-based recruitment and promotion • Reduction in politicized, premature transfers: stability of tenure • Building esprit de corps (Singapore, Ceara-Brazil)

18. 4.0 3.5 3.0 2.5 2.0 1.5 Meritocracy enhances government capability Index of government capability Low Medium High Index of meritocracy in recruitment and promotion

19. Depth of political appointments Philippines Other East Asia Minister Secretary Index of bureaucratic capability Under secretary Level 2 Assistant secretary Level 3 1.0 Bureau Director Level 4 0.6 Regional Director Service Director 0.5 Division chief Division chief 0.2 Political appointees Ratio of public to private wages Percent 0.0 100 Philippines Other East Asia 66 80 60 26 40 20 0 Philippines Other East Asia

20. 13 12 11 10 9 8 7 2.5 3 3.5 4 4.5 5 5.5 6 6.5 As public employment has risen, wages have fallen (African countries, 1972-93) Central government average real wage relative to real per capita GDP (in logs) Central government employment relative to population (in logs)

21. Citizen Voice/Feedback Improve Access of Public Services to the Poor (Bolivia diagnostic) 100 r = 0.54 80 Controlled Causal Link 60 Accessibility to the Poor 40 20 0 10 20 30 40 50 60 70 80 90 Voice / External Accountability Based on Public Officials Survey. The sample of institutions includes 44 national, departmental, and municipal agencies which are a prior anticipated to be accessible to the poor

22. 76 72 Bribery 68 64 60 Low Medium High Citizen Voice Simple Average Association Controlled Link Based on 36 public agencies covered in the Indonesia Public Officials Survey. Indonesia: Agencies with External Accountability / Feedback Mechanisms Have Less Bribery

23. Citizen participation can improve project performance (rural water) Percent of projects successful 70 60 50 40 30 20 10 0 Low High Level of beneficiary participation

24. Looking Ahead: Strengthening reformist LGUs (KGRIP-UGRIP) • Encouraging participation; link AC reforms closely to service delivery; reward good governance • Challenge: Choosing winners carefully; evaluate/manage risk; convince CSOs to join effort Indonesia: Community empowerment & governance Current program: • Kecamatan Development Project: • (3rd Phase, covers more than ½ of country) • Information & community empowerment • Some local officials jailed – a first • 2 provinces suspended until corrupt official fired & money returned • Costs reduced by more than 20% in procurement of infrastructure • Communities demanding rights to information • Corruption still prevalent; formal system still not responsive to victories under KDP Approach Results Challenges

25. Transparency • Necessary regardless of political system • Needed to help underpin and support accountability and contestability • Internal processes of government, e.g. -- procurement (Chile, Mexico, South Korea, Philippines, Brazil) -- expenditure tracking surveys -- public dissemination of government priorities -- monitoring and evaluation • Role of a responsible media

26. The Power of Transparency and Monitoring Primary Education in Uganda US$ per Student 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 1990 1991 1993 1994 1995 1999 Intended Grant Amount Received by School (mean)

27. Internet-based Public Procurement: Transparency (and Competition) • All supplier companies register, indicating areas of business (e.g., IT, construction, furniture) • Public agencies submit tenders through internet • Automatic e-mail to all companies in selected area • Online information on name, position of official in-charge • Online information on results: who participated, proposals made, scores received, who won bid, historical record of agency’s purchases and contracts

28. Bribery in Government Procurement(View of the Firm, GCS 2001, Selected Countries) High Bribery 7 4 Low 1 Italy Chile China Korea Finland Nigeria Ukraine Hungary Malaysia Indonesia Source: Global Competitiveness Survey, 2001; Values range from 1 (good) to 7 (bad). Estimates subject to margin of error. Question: “How commonly do firms in your industry give irregular extra payments or bribes when getting connected to public utilities?”

29. 2.5 DNK FIN SWE 2 CHE NZL CAN NLD SGP ISL CYP GBR NOR LUX DEU AUS 1.5 IRL AUT USA HKG ISR FRA ESP PRT 1 CHL SVN FJI GRC ITA JPN ! MYS KWT HUN TWN EST 0.5 CRI QAT BWA TTO OMN POL MLT BHS URY NAM CZE MUS ZAF CUB LSO MAR JOR KOR 0 BRA SVK LTU TUN SWZ ARE SLE BRN GMB SUR GUY CIV JAM LKA MNG GNB THA BHR PER MWI PHL TGO SEN EGY LVA CHN BGD MEX ARG GHA IND ZWE VNM BIH TUR SLV BFA MDA LBN -0.5 ETH BOL ROM PAN HRV UGA MDG MLI COL PRK HTI MOZ MKD BGR SAU TCD COG ZMB RUS BLR KEN VEN GEO KGZ PAK DOM IDN SYR BEN ARM GTM NIC ECU IRN YEM GIN PNG DZA LBY AGO KAZ UKR -1 TZA HND NGA UZB PRY ALB YUG AZE SDN GAB SOM LBR MMR CMR IRG TKM TJK -1.5 ZAR NER -2 r = 0.68 -2.5 0 0.2 0.4 0.6 0.8 1 Control of Graft and Freedom of the Press High ] kkz Control of Graft [ r = .68 Low High Low Freedom of the Press (Freedom House)

30. Contestability • Competitive bidding – public procurement • Contracting out competitively • Outsourcing • Benchmarking • Meritocratic recruitment and promotion

31. ‘State Capture’ – the obverse of contestability Defining State Capture: Influential firms that shape the formation of rules of the game (laws, regulations and policies of the state) to their advantage -- through illicit, non-transparent private payments to officials/politicians Includes the following measurable manifestations: • purchase of legislative votes • purchase of executive decrees • purchase of major court decisions • illicit political party financing • Illicit influence on Central Bank policies/regulations

32. Measuring State Capture in Transition 45 40 35 30 Proportion of 25 firms affected by capture of.. 20 15 Parliamentary Votes 10 Presidential 5 Administrative Decrees 0 Civil court Hungary Estonia Russia Ukraine Decrees Source: J. Hellman, G. Jones, D. Kaufmann. 2000. “Seize the State, Seize the Day: State Capture, Corruption and Influence in Transition” World Bank Policy Research Working Paper 2444.

33. Addressing Capture: Economic Reform and Political/Civil Liberties Matter 0.4 0.3 State Capture Index 0.2 Slow Partial 0.1 Pace of Econ Reform Advanced 0 Partial Civil Libs High Civil Libs Political/Civil Liberties Reforms

34. Generating Early Wins: Reforming High-priority Agencies and Services(Malaysia, Karnataka-India) • Select services with large public or private interface to demonstrate impact (e.g., stamps & registration, tax-customs) • Clear Published Standards • Grievance Redressal Mechanisms • Organizational Restructuring and E-governance to improve performance • User Surveys

35. Reforming a Revenue Agency:SUNAT, Peru • Comprehensive staff evaluation and replacement program • Introduction of new salary policy based on comparable employment in private sector • Financial autonomy through guaranteed sources of income • Comprehensive streamlining of procedures and services • Investment in infrastructure and technology • Building private sector partnership RESULTS: • Tax collection increased by 4% of GDP • 90% of large taxpayers believed that service had improved

36. Central Challenge: Erosion of Values and Ethics • How to change the mind-set of public officials accustomed to corruption? • How to restore the ethic of public service? • How to balance negative incentives – curbing negative behavior – to reinforcing positive incentives and behavior? • Better pay is not enough: building a shared commitment for public service is central for improving performance • Ethic: values and norms that animate politicians and managers to regard good performance as the purpose for government work

37. Building Worker Dedication:Ceara State, Brazil • 1987: Fiscal crisis, deteriorating services • State created a sense of mission around key programs and its workers • Publicity campaigns to build awareness and facilitate community monitoring • Civil Service: rewards, recognition for good performance • Outcomes: Dramatic improvements in quality and coverage of services

38. Strengthening Values and Ethics: 5C’s to counter corruption • Connectedness: Creating a sense of belongingness with society • Courage: Overcoming insecurity and incessant quest for material acquisition • Cosmology: Broaden vision by seeing one’s life in context of the huge universe and unfathomable time • Care and Compassion: Creating a sense of dedication to care for the more needy in society • Commitment to Contribute: Creating commitment to a higher cause, to public service, to give rather than take -- H.H. Sri Sri Ravishankar (Founder, IAHV) @ The International Anticorruption Conference, Korea

39. Strengthening Values and Ethics:Some recent trends in India • AP, India: Dynamic Chief Minister and prominent reform leader • Comprehensive governance reforms launched - E-governance: successful one-stop shops to eliminate discretion - Crackdown on massive power sector theft - Independent anticorruption commission, right to information • These reforms yielded impact but were not enough -- politicians and bureaucrats blocked reforms • Chief Minister made value-based training mandatory for Cabinet, legislative assembly, bureaucracy • Partnership with IAHV (global NGO) providing innovative value-based training to build sense of public service and combat corruption

40. Governance reforms can be politically difficult • Powerful vested interests, institutionalized over a long period • Distributional conflicts and uncertainty • Institutional design (coalitions, party systems)

41. How can reforms be initiated and sustained? • Windows of opportunity (fiscal crises, new government) • Strategic sequencing (early, visible wins) • Leadership, consensus building and communicating the case for reforms -- empowering allies

42. Options for Consideration • Diagnostic surveys • Public dissemination of survey results and time-bound action program • Demonsratable early wins: improved delivery of selected services with large public interface (e.g., stamps-registration, customs) • Team based training for public service ethic and values (agency staff, core civil service, Cabinet) • Periodic monitoring, evaluation and reporting

43. Countries have successfully undertaken reforms to improve governance THERE IS HOPE Diagnostics, public dissemination of results and strategy, focused agency reforms with visible impact can generate early wins. GENERATE EARLY WINS Strengthening internal restraints, public oversight, community empowerment, and competition can improve incentives STRENGTHEN ACCOUNTABILITY Instilling ethic of public service is crucial for creating a powerful momentum for improving performance FOCUS ON VALUES & ETHICS IN PUBLIC SERVICE Reforms require committed leadership and early wins generate and sustain public support POLITICAL LEADERSHIP & SUPPORT IS VITAL International Experience: Five Key Messages

44. Q&A