Is Politics Bankable? Philip Keefer Development Research Group

1. Is Politics Bankable? Philip KeeferDevelopment Research Group

2. Why do politics matter? • Politicians are the ultimate arbiters of welfare-enhancing, growth-promoting, equitable policies. • A fortiori, they are the ultimate arbiters of success of foreign assistance. • The political economy question: What are the incentives of politicians to pursue development-oriented policies?

3. The paradox • Efficient public goods and broad public policies (e.g., appropriate regulation) are the cornerstone of development. • Government incentives are therefore more pro-development the more they favor these over rent-seeking and private good provision. Why? governments can improve social welfare with 100 Rs. of public goods by much more than they can improve welfare with 100 Rs. of transfer payments/private goods. • The paradox: in many countries, policies that benefit fewer people predominate, when with the same resources politicians could choose policies that benefit more people.

4. Priority questions for addressing the paradox in development policy • The primary development question: what interventions improve political incentives to pursue development-oriented policies? • The secondary question: How can we design sector interventions to be compatible with political incentives? • The tertiary question: How can we build constituencies for reform? • The “quaternary” question: are key decision makers supportive of reform?

5. These priorities reverse usual practice • Our general tendency is to put the cart before the horse. • Great concern about the identity of key politicians; about building constituencies to secure passage of specific reforms. • However, sustainable development/projects require direct attention to the incentives of politicians, more than their leadership qualities and personal dedication to reform.

6. Political market imperfections • I’ll focus on four conditions that reduce political incentives to reform. • Incomplete citizen information • Limited political credibility • Social polarization • Violence and extra-institutional political competition • Project success more likely when projects are designed to take these into account. More importantly. . . • these are themselves significant obstacles to development; should themselves be the object of donor attention.

7. Political market imperfection: info • We can’t expect political accountability for development outcomes when: • public doesn’t know what political decisions were made; • public can’t observe outcome of decisions. • public can’t observe the impact of decisions on their welfare. • Most donor interventions do not increase citizen info; most that do fail to provide the right kind of info. • But they should: informed citizens (exposed to media) much more likely to receive transfers (India, US); (probably) more likely to demand public goods.

8. PMIs: credibility • Politics is not about policy/public goods in poor countries: high tax/high redistrib. vs. low tax/low redistrib; competition in social service delivery versus no competition; deregulation versus regulation. • Few programmatic political parties in poor countries at best, we see populist reputations (e.g., free power); more often, purely clientelist (vote-buying/vote blocs/jobs in gov). • Why? • Politicians cannot credibly promise high quality public goods, public policy to most citizens. • Can sometimes credibly promise populist transfers (free power) to most citizens. • Can usually credibly promise clientelist benefits (pork barrel, jobs in government) to a few citizens.

9. PMIs: credibility • Donors do not generally monitor whether development-oriented policies are the subject of political debate, nor consider how to bridge the credibility gap. • But they should: young democracies and democracies lacking programmatic political parties: • do significantly worse on governance; • spend significantly more on government employees and “pork barrel” projects; • exhibit significantly larger market share of government-owned newspapers; • significantly less secondary school enrollment; • are significantly more vulnerable to civil war.

10. PMIs: polarization • Political market imperfections – social polarization • Citizen polarization leads them to care more about who benefits from policy than the welfare effects of policy. • Related to credibility and information: in credibility- and information-free environments, promises to co-religionists most credible, easiest to monitor. • Donors pay insufficient attention to how they might mitigate (1) the political factors that exacerbate polarization and (2) effects of polarization on implementation of reforms. • But they should: substantial evidence (India, Kenya, US, etc.) that public good provision suffers in multi-ethnic settings.

11. PMIs: violence • Violence and extra-institutional forces • Short-circuit “institutionalized” political competition Citizens care more about who can protect them; politicians care more about who has the guns or who can threaten them (strikes that cut off energy). • The most difficult situation that donors confront. • Donors are far better at delivering aid to poor households than changing the political economy equation that undermines development (e.g., lack of confidence in central gov).

12. Implications for donors- info • Information components already in some programs/projects. • Citizen report cards, PETS dissemination, media outreach… • Often lack information crucial to political accountability. • Outcomes (benchmarking of school/health performance); decision process (e.g., how much money approved, by whom). • PMI analysis yields design elements that increase impact. Uttar Pradesh– “best practice” interventions to encourage better-informed participation have no effect on education (Khemani, et al). New “PMI-informed” design being tested in Karnataka. • PMI analysis can allow citizens to use impact evaluation to hold governments accountable.

13. Implications for donors-particip • CDDs: rely on local governance to improve service delivery. • However, PMIs need not be fewer at the local level (Khemani, et al.). • Most successful CDD = KDP-Indonesia. Donors participate in ongoing governance, however. • PRSPs: build local ownership for reform agenda. • PRSPs have no/limited effect on PMIs, but these determine “who” owns “what”. • Uninformed citizens in non-credible environments cannot “own” reform. • CDDs and PRSPs need to focus on credibility, information. E.g.: Directly, CDDs do nothing for credibility of national policy makers; may help indirectly by building up credible local challengers to national politicians.

14. Implications for donors-how to make tradeoffs • PMI analysis pinpoints tradeoff between political development and economic development. • Example: Aid to households in strife-torn areas of Nepal (or food baskets in Iraq, infra in Afghanistan). • Objectives: alleviate suffering AND reduce conflict. • Tradeoff: well-targeted, hard to monitor versus badly-targeted, easy to monitor. • Second is more transparent about central gov role and about whom should benefit; gives citizens greater confidence in central government. • High political efficiencies could offset economic inefficiencies.

15. Implications for donors: monitoring • Don’t just ask whether finance ministers are pro-reform. Ask whether politicians are investing political capital in promises to provide public goods. • Track whether citizens have info. to monitor these promises. • Use supervision strategically: to improve credibility of governments to citizens; to substitute for accountability where PMIs are high and citizen leverage over government officials low. Increase supervision budgets where accountability is low – reduce where high.

16. What about the 3rd question? We’ve addressed first two questions: incentives of politicians, and design of sector interventions. What about the 3rd: Building constituencies for reform? • Difficulty of building reform constituencies is precisely a function of political market imperfections/violence. • Have to ask: why haven’t consituencies reformed already? PMIs are likely answer. • If they are: deals with reform opponents and mobilization of reform supporters likely to be too difficult unless PMIs identified and addressed.

17. What about the 4th question? Are key decision makers supportive of reform? How should we support “reform champions”? • Natural to look for cooperative, visionary counterparts. • But we have to ask: do they support reform because of or despite political incentives. If the latter (if PMIs large), sustainable reform must take into account the alleviation of political market imperfections that will confront subsequent leaders who are less “enlightened.” • CAN’T rely on the promise of snowballing reforms.

18. Conclusion • Ample evidence that political market failures are at the root of development failure. • Strategies of building reform constituencies and supporting visionary leaders have not generally been informed by an analysis of these failures . . . but should be. • But more importantly, far more can be done to shape development strategies to mitigate these political market failures. • This does not mean that every project is dedicated to political market failures (is “political”). • It does mean that every project can be seen as an opportunity to chip away at these failures.