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Capacity Enhancement, Governance, and Evidence-Based Diagnostics and Assessments www.worldbank.org/wbi/governance. Background handout for discussion at the EILT—WBI’s Leadership Team DK -- WBIGG WBI, February 4 th , 2004. Institutions &Governance Matters.

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slide1

Capacity Enhancement, Governance, and Evidence-Based Diagnostics and Assessmentswww.worldbank.org/wbi/governance

Background handout for discussion at the EILT—WBI’s Leadership Team

DK -- WBIGG

WBI, February 4th, 2004

institutions governance matters
Institutions &Governance Matters
  • Missing Link in Washington Consensus
  • First Summers’ Lesson from Experience
  • Governance as the weak link in CB/CE
  • ‘Data Power’: governance key for development
  • Yet 5 main challenges about institutions: i) which ones? (prioritizing among institutions & vulnerabilities Diagnostics);

ii) how to? (Implementation Expertise);

iii) where to? (Sectoral Mainstreaming) iv) measure, monitor, research Lessons v) Localize Know-how and Action Programs

governance world map control of corruption 2002
Governance World Map :Control of Corruption, 2002

Source for data: http://www.worldbank.org/wbi/governance/govdata2002 ; Map downloaded from : http://info.worldbank.org/governance/kkz2002/govmap.asp

Colors are assigned according to the following criteria: Red, 25% or less rank worse ( bottom 10% in darker red); Orange, between 25% and 50%; Yellow,

between 50% and 75%; Light Green between 75% and 90% ; Dark Green above 90%

where is financial aid well used where wasted global poll firms rating satisfactory 6 10
Where is Financial Aid Well Used, Where Wasted?Global Poll (% firms rating satisfactory [6-10])

% firms rating satisfactory

listening to stakeholders analysis of responses on donor aid and anti corruption
Listening to Stakeholders: Analysis of Responses on Donor Aid and Anti-Corruption

Figure 9d : Most Important Role for Donors in Helping Country on Anti-Corruption (A-C)

slide6
Anti-Corruption Focus and Quality Assessment by the World Bank Global Poll Respondents, by extent of Corruption in Country(% firms rating satisfactory [6-10])

% firms rating satisfactory

slide7
Figure 8a: Firms evaluate World Bank’s effectiveness in PSD: Governance does matter (Survey, Emerging Economy sample)

Note: The vertical axis depicts the firms’ net effectiveness evaluation of World Bank’s performance in supporting private-sector development (PSD) in their country. Net effectiveness is calculated as the difference between the percent of respondents reporting the institution to be effective minus the percent of respondents reporting it to be ineffective. Each set of two columns displays the net effectiveness ratings provided by countries with a good record in given constraint (in blue) versus those provided by countries with a poor performance in such constraint (in black). Calculations are based on country averages.

Source: Executive Opinion Survey (GCR) 2002.

corporate governance and corporate ethics
Corporate Governance and Corporate Ethics

% firms rate satisfactory

Corporate Governance

Corporate Ethics

Source: EOS 2002-03.

soundness of banks vs control of corruption
Soundness of Banks vs. Control of Corruption

Sound

Relatively Unsound

Source: Executive Opinon Survey 2002; KKZ 2000/01Governance Indicators, http://www.worldbank.org/wbi/governance/govdata2001.htm The Sample of 80 countries has been divided into 3 sub-samples according to their rating in Control of Corruption. The 3 columns therefore represent the average ratings for Soundness of Banks within each sub-sample. The fitted line instead represents the predicted value of Bank Soundness controlling for the effects of GDP per capita and Regulatory Quality through an OLS regression. Each fitted value is computed as the sum of the estimated constant plus the value of Control of Corruption within each group times the estimated coefficient plus the mean values of Regulatory Quality and GDP per capita times their respective estimated coefficients.

slide10
Transparency, Parliaments, Corporate Ethics, and GDP Growth

Annual GDP Growth (%)

Source: Annual GDP growth over 1999-2001 WDI 2002; GDP is computed in PPP terms. The various transparency / governance variables drawn from Executive Opinion Survey, 2002.

kenya the mezzo level of ce assessment 22 clusters
Kenya – the ‘Mezzo’ Level of CE Assessment – 22 clusters

Source: EOS 2003 WEF, preliminary. Percentile ranks based on comparative performance among the 103 countries in the sample. All variables rated from 0 (very bad) to 100 (excellent).

health gap vs active capture high level corruption
Health Gap vs. ‘Active’ Capture (High Level Corruption)

Large Gap

r = 0.83

Small

High Bribery

Low

Source: EOS 2003

slide14
Institutional Capacity:From revisiting ‘Capacity Building’ to Measuring and Diagnosing Capacity Enhancement

Institutional Capacity (IC) unbundling into 3 dimensions:

  • Physical capital and hardware (physical infrastructure, computers, etc.) (K);
  • Human and knowledge capital (including organizational & administrative capital, i.e. the ‘institutional software’) (HK), and,
  •  Governance and political capital (GPK).

IC = f (K, HK, GPK)

Capacity Enhancement = Changed capacity over time

empirical approach to institutional and governance assessments and diagnostics
Empirical Approach to Institutional and Governance Assessments and Diagnostics
  • ‘Macro’: Worldwide Aggregate Governance Indicators: 200 countries, 6 components, periodic – it permits broad proxy of governance and capacity enhancement
  • ‘Mezzo’ (Middle): Cross-Country Surveys of Enterprises
  • ‘Micro’: Specialized, in-depth, in-country Governance and Institutional Capacity Diagnostics: Includes surveys of: i) user of public services (citizens); ii) firms, and iii) public officials

Item #1 above is central for comparative monitoring worldwide and to ‘flag’ a country’s institutional vulnerabilities. On other extreme, item #3 is in-depth input to concrete capacity enhancement strategy at country level. Due to improvements in cross-country enterprise surveys, item #2 provides a relatively detailed quantitative sense of institutional vulnerabilities, complementary to the other 2.

overall evidence is sobering progress on governance is modest at best so far

Overall Evidence is Sobering:Progress on Governance is modest at best, so far

Evidence points to slow, if any, average progress worldwide on key dimensions of governance

This contrasts with some other developmental dimensions (e.g. quality of infrastructure; quality of math/science education; effective absorption of new technologies), where progress is apparent

At the same time, substantial variation cross-country, even within a region. Some successes.

And it is early days.

capacity enhancement assessment level i the macro or aggregate governance indicators
Capacity Enhancement Assessment, Level I:The ‘Macro’ or Aggregate Governance Indicators+
  • Some Illustrations from updated Governance Indicators database: 200 countries, 1996-2002, to be continued
governance a working definition which contains much of what is relevant for ce
Governance: A working definition – which contains much of what is relevant for CE
  • Governance is the process and institutions by which authority in a country is exercised:

(1) S -- the process by which governments are selected, held accountable, monitored, and replaced;

(2) E -- the capacity of gov’t to manage resources and provide services efficiently, and to formulate and implement sound policies and regulations; and,

(3) R -- the respect for the institutions that govern economic and social interactions among them

slide19
Operationalizing Governance: Unbundling its Definition into Components that can be measured, analyzed, and worked on

Each of the 3 main components of Governance Definition is unbundled into 2 subcomponents:

  • Voice and External Accountability
  • Political Stability and lack of Violence&Terror
  • Quality Regulatory Framework
  • Government Effectiveness
  • Control of Corruption
  • Rule of Law

We measure these six

governance components…

inputs for governance indicators 2002
Publisher Publication Source Country Coverage
  • Wefa’s DRI/McGraw-Hill Country Risk Review Poll 117 developed and developing
  • Business Env. Risk Intelligence BERI Survey 50/115 developed and developing
  • Columbia UniversityColumbia U. State Failure Poll 84 developed and developing
  • World Bank Country Policy & Institution Assmnt Poll 136 developing
  • Gallup International Voice of the People Survey 47 developed and developing
  • Business Env. Risk Intelligence BERI Survey 50/115 developed and developing
  • EBRD Transition Report Poll 27 transition economies
  • Economist Intelligence Unit Country Indicators Poll 115 developed and developing
  • Freedom House Freedom in the World Poll 192 developed and developing
  • Freedom House Nations in Transit Poll 27 transition economies
  • World Economic Forum/CID Global Competitiveness Survey 80 developed and developing
  • Heritage Foundation Economic Freedom Index Poll 156 developed and developing
  • Latino-barometro LBO Survey 17 developing
  • Political Risk Services International Country Risk Guide Poll 140 developed and developing
  • Reporters Without Borders Reporters sans frontieres (RSF) Survey 138 developed and developing
  • World Bank/EBRD BEEPS Survey 27 transition economies
  • IMD, Lausanne World Competitiveness Yearbook Survey 49 developed and developing
  • Binghamton Univ. Human Rights Violations Research Survey 140 developed and developing
Inputs for Governance Indicators 2002
slide21
Control of Corruption: one Aggregate Indicator (selected countries, for illustration, based on 2000/01 research data)

Good Corruption Control

Margin of Error

Corruption Level

POOR

GOOD

Source: KKZ 2000/01

governance world map voice and accountability 2002
Governance World Map :Voice and Accountability, 2002

Source for data: http://www.worldbank.org/wbi/governance/govdata2002 ; Map downloaded from : http://info.worldbank.org/governance/kkz2002/govmap.asp

Colors are assigned according to the following criteria: Red, 25% or less rank worse ( bottom 10% in darker red); Orange, between 25% and 50%; Yellow,

between 50% and 75%; Light Green between 75% and 90% ; Dark Green above 90%

governance world map government effectiveness 2002
Governance World Map :Government Effectiveness, 2002

Source for data: http://www.worldbank.org/wbi/governance/govdata2002 ; Map downloaded from : http://info.worldbank.org/governance/kkz2002/govmap.asp

Colors are assigned according to the following criteria: Red, 25% or less rank worse ( bottom 10% in darker red); Orange, between 25% and 50%; Yellow,

between 50% and 75%; Light Green between 75% and 90% ; Dark Green above 90%

governance world map regulatory quality 2002
Governance World Map:Regulatory Quality, 2002

Source for data: http://www.worldbank.org/wbi/governance/govdata2002 ; Map downloaded from : http://info.worldbank.org/governance/kkz2002/govmap.asp

Colors are assigned according to the following criteria: Red, 25% or less rank worse ( bottom 10% in darker red); Orange, between 25% and 50%; Yellow,

between 50% and 75%; Light Green between 75% and 90% ; Dark Green above 90%

governance world map rule of law 2002
Governance World Map :Rule of Law, 2002

Source for data: http://www.worldbank.org/wbi/governance/govdata2002 ; Map downloaded from : http://info.worldbank.org/governance/kkz2002/govmap.asp

Colors are assigned according to the following criteria: Red, 25% or less rank worse ( bottom 10% in darker red); Orange, between 25% and 50%; Yellow,

between 50% and 75%; Light Green between 75% and 90% ; Dark Green above 90%

governance indicators chile 1998 vs 2002
Governance Indicators: Chile 1998 vs. 2002

Source for data: http://www.worldbank.org/wbi/governance/govdata2002 ; Colors are assigned according to the following criteria: Dark Red, bottom 10th

percentile rank; Light Red between 10th and 25th ; Orange, between 25th and 50th ; Yellow, between 50th and 75th ; Light Green between 75th and 90th ;

Dark Green above 90th.

governance indicators kenya 1996 2002
Governance Indicators: Kenya, 1996-2002

Source for data: http://www.worldbank.org/wbi/governance/govdata2002 ; Colors are assigned according to the following criteria: Dark Red, bottom 10th

percentile rank; Light Red between 10th and 25th ; Orange, between 25th and 50th ; Yellow, between 50th and 75th ; Light Green between 75th and 90th ;

Dark Green above 90th.

slide28
Another ‘Macro’ Evidence-Based approach at WBI—KAM Kenya : Knowledge Economy Indexes and Pillars

Source: KAM website (www.worldbank.org/kam) – Basic Scorecard mode

slide29
Knowledge Economy Index and pillar contribution

Souce: KAM website (www.worldbank.org/kam) – Cross country comparison mode

2 nd level the mezzo empirical assessment
2nd Level: The ‘Mezzo’ Empirical Assessment
  • More detailed institutional vulnerability assessment possible
  • Comparative across over 100 countries
  • Annually
  • Cluster Comparative Analysis permits identification of (relative) vulnerabilities
  • Illustrating Kenya and Chile
kenya the mezzo level of ce assessment 22 clusters31
Kenya – the ‘Mezzo’ Level of CE Assessment – 22 clusters

Source: EOS 2003 WEF, preliminary. Percentile ranks based on comparative performance among the 103 countries in the sample. All variables rated from 0 (very bad) to 100 (excellent).

chile the mezzo level of ce assessment 22 clusters
Chile – the ‘Mezzo’ Level of CE Assessment; 22 clusters

Source: EOS 2003 WEF, preliminary. Percentile ranks based on comparative performance among the 103 countries in the sample. All variables rated from 0 (very bad) to 100 (excellent).

slide33
Politics Can be Measured as Well, and it Matters Inequality of Influence: a major governance challenge
3 rd level country diagnostics
3rd Level: Country Diagnostics
  • Key to Localize Know-how
  • Key Input to Action program, Monitoring
  • One country at the time; staff and resource intensive
key features of 3 survey governance anticorruption and institutional diagnostics
Key Features of 3-survey Governance, Anticorruption and Institutional Diagnostics
  • Three surveys: households, firms, and public officials [‘triangulation’]
  • Questions can be chosen to focus on experience and/orperceptions
  • Specially designed and tested closed questions, thoroughly piloted and adapted to local realities
  • Rigorous technical requirements in implementation
  • Local institution implements, with World Bank guidance
  • Recognizes multidimensionality of governance
type of information elicited 1
Type of information elicited (1)
  • Households
    • Experience on interactions with state bodies for health care, education, driver’s licence, police, courts, social benefits, and other agencies
    • Payments solicited, where, how much and how frequently
    • Clarification of what people consider to be corruption, perceptions of levels, their sources of information on corruption, extent of knowledge of their rights, duties, and possible recourse
type of information elicited 2
Type of information elicited (2)
  • Enterprises
    • Experience with customs, tax, procurement, courts, inspections, licences and permits
    • Payments solicited, where, how frequently, how much paid
    • Quality of govt. services, level of red tape
    • Ways in which firms make their views known (e.g. through business associations)
    • Private sector perspectives on state initiatives
type of information elicited 3
Type of information elicited (3)
  • Public officials
    • How hiring and firing decisions are made
    • How “mission-oriented” the body is
    • What complaint mechanisms or public consultations exist
    • What types of problem and risks officials perceive as the worst affecting their organizations
implementation steps 1
Implementation steps (1)
  • Define objectives, scope, terms of reference
  • Issue tender for work by local firm/institution
  • Review existing standard questionnaires and adapt to local objectives and conditions, commission review by local experts before questionnaire finalized
  • Determine size of sample relative to degree of stratification desired: e.g. by region, sector, size/type of firm, income level; for public officials, level of govt., seniority level, sectors (e.g. health and education); SOEs?
implementation steps 2
Implementation steps (2)
  • Sample size: usually a minimum of 1000 households, 400 enterprises, 400 officials
  • Pilot in variety of situations (e.g. urban/rural, high income/low income) and review results, discuss quality of results with focus groups
  • Be prepared to revise radically or abandon if data quality too poor
  • Launch surveys (face-to-face more effective than mail or telephone)
  • Respondents must feel confident of anonymity if results are to be reliable
implementation steps 3
Implementation steps (3)
  • Code data, produce statistical transformations, graphs
  • Analyze and write up for draft report
  • Usually discuss with focus groups to bring out underlying issues
  • Resources needed ? Depends on local costs, size of survey (was $60,000 in several ECA countries)
  • Time taken: 6-9 months
the power of diagnostic data and key dimensions for analysis
The power of diagnostic data and key dimensions for analysis
  • Unbundle corruption by type – administrative level corruption, capture of the state, bidding, theft of goods and public resources, purchase of licenses and regulations
  • Identify both weak institutions (in need of reform) and strong institutions (example of good governance)
the power of diagnostic data and key dimensions for analysis con t
The power of diagnostic data and key dimensions for analysis (con’t)
  • Assess the cost of each type of corruption on different social and economic groups
  • Identify key determinants of good governance
  • Help to develop policy recommendations

The reality of institutional vulnerabilities

vary greatly from country to country…

some illustrations from diagnostics...

slide44
The “Bribe Fee List”

Unofficial Payments by Enterprises

for Official Licenses and Services, Ukraine and Russia

1996

Average "unofficial" fee required for “favor”

"Unofficial fee": type of license/"favor"

Russia

Ukraine

$ 288

$ 176

Enterprise registration

$ 67

$ 42

Each visit by fire/health inspector

$ 250

$ 87

Tax inspector (each regular visit)

$ 1,071

$ 894

Each phone line installation

Lease in state space

(sq. meter per month)

$ 26

$ 7

Each export registration/consignment

$ 643

$ 123

Each import registration/consignment

$ 133

$ 278

8%

4%

Domestic currency loan from bank (preferential terms)

23%

4%

Hard currency loan (preferential terms)

misgoverned vs well governed agencies in ecuador as ranked by public officials 2000 diagnostic
Misgoverned vs. well Governed Agencies in Ecuador (as ranked by public officials, 2000 diagnostic)
understanding causal factors in ce and governance underperformance
Understanding Causal Factors in CE and Governance Underperformance
  • Illustrating the extent to which political determinants, meritocracy, transparency, and voice and accountability matters
slide48
New Diagnostic Tools permit measuring important dimensions of capacity – illustration #1 from Bolivia diagnostics:

How Politicized Agencies exhibit Budgetary Leakages

Yellow columns depict the unconditional average for each category. Blue line depicts the controlled causal effect from X to Y variables. Dotted red lines depict the confidence ranges around the causal effect depicted by the blue line.

slide49
Illustration of empirical analysis based on diagnostic: Users’ Feedback to Public Agencies Helps Control Bribery

Based on 90 national, departmental, and municipal agencies covered in the Bolivia Public Officials Survey.

citizen voice improves accessibility of public services to the poor
Citizen Voice Improves Accessibility of Public Services to the Poor

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

transparency within government agencies prevents purchase of public positions
Transparency within Government Agencies Prevents Purchase of Public Positions

Based on 90 national, departmental, and municipal agencies covered in the Public Officials Survey.

evidence based it has contributed some
Evidence-Based: it has contributed some
  • Institutions Matter Enormously – but major challenge to identify the how, which, where…
  • Debunked Myths and popular misconceptions
  • Suggested new approaches and strategic focus
  • Donor rethinking on aid effectiveness; aid allocation; capacity enhancement
  • De-emotionalize/De-personalize/De-verbosize
  • Dialogue with state leaders
  • New field of rigorous empirical research -- But still tough ‘tradeoffs’ within the Bank…
the dividend of good governance
Per Capita Income and

Infant Mortality and Corruption

Regulatory Burden

12,000

90

80

10,000

70

8,000

60

50

6,000

40

4,000

30

20

2,000

10

0

0

Weak

Average

Good

Weak

Average

Good

Development

Regulatory Burden

Control of Corruption

Development

x

x

Dividend

Dividend

Literacy and Rule of Law

Per Capita Income and

Voice and Accountability

100

10000

9000

8000

75

7000

6000

50

5000

4000

3000

25

2000

1000

0

0

Weak

Average

Good

Weak

Average

Strong

Development

Development

Rule of Law

x

x

Voice and Accountability

Dividend

Dividend

The ‘Dividend’ of Good Governance

Note

: The bars depict the simple correlation between good governance and development outcomes. The line depicts the

predicted value when taking into account the causality effects (“Development Dividend”) from improved governance to better

development outcomes. For data and methodological details visit http://www.worldbank.org/wbi/governance.

slide54
Transparency, Parliaments, Corporate Ethics, and GDP Growth

Annual GDP Growth (%)

Source: Annual GDP growth over 1999-2001 WDI 2002; GDP is computed in PPP terms. The various transparency / governance variables drawn from Executive Opinion Survey, 2002.

no evidence to support some popular notions
No Evidence to support some ‘popular’ notions
  • Constant drafting of new A-C laws/regulations
  • Creating many new Commissions & Agencies
  • Blaming Globalization
  • Blaming (or stopping) Privatization
  • Cultural Relativism (Corruption is ‘culturally-determined’)
  • Blaming History or Regional Characteristics…

by contrast, what may be particularly important (cont…)

in sum strategies that can work
In sum, strategies that can work
  • Transparency Mechanisms (e*governance, data)
  • Democratic Accountability & Collective Action (Judcry, Legislative, Exec, Private, CS)
  • Judicial Independence (& good rule of law institutions)
  • Budgetary Reforms & Meritocracy in Public Sector
  • Addressing the challenge of State Capture
  • Decrease Regulatory Burden on Firms
  • Focus on Prevention & Incentives
  • Political Finance Reform
  • Private Firms, Multinationals, Corporate Ethics
  • IFI, G-7, OECD Responsibility (Global Compact)
challenges for us at wbi
Challenges for us at WBI

Scaling up in some key dimensions, across all activities:

  • Evidence-based activities: from 4% to 25% in a year, then to 50% in 2 years? [& lessening PCC…]
  • Action Program/Action Plan content: from 9% to 20% in a year, then to one-third in 2 years?
  • Substantive Institution-Building Content: …%…%
  • Mainstreaming Governance in thematic learning
  • Evidence-based input to ROC/OC/CASes [++]
  • The Web as central tool
  • Substantive/tough input to Bank policy formulation
  • OECD, G-7, UN, NATO, WEF – [non-governance..]
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