October 2016|admin|

Carlos Scartascini is a Principal Economist at the Research Department of the Inter-American Development Bank (IDB). This post draws extensively on joint work with Mariano Tommasi. The opinions expressed in the note are those of the author and do not necessarily reflect the views of the IDB, its Board of Directors, or the countries they represent. For more information on the author and his publications, see www.cscartascini.org

In my previous post I argued that government capabilities matter for the quality of policies and for the implementation and success of public financial reforms. The post also pointed out a very important factor for those involved in helping governments. Government capabilities can’t be imposed. Big structural and permanent changes cannot be introduced exogenously. Instead, government capabilities are the equilibrium outcome over time of endogenous choices by key political actors. Still, there is plenty of room for helping governments to develop. Here are some ideas.

What can be done?

First, working on reforms requires good diagnostics of the political equilibrium in each country, and of the key determinants of political incentives, in order to identify the levers that might eventually permit a transition towards a better equilibrium. If the incentives of principals (elected officials) are not well aligned, copying the best civil service law in the world will not give you a more capable state. It is important to make sure that political incentives are aligned in the direction of increasing capabilities, and how to make them aligned should be part of the tasks for donors and development banks before committing funds to reform.

Second, when working at the level of specific technical reforms, it is important to pay attention to feedback effects vis-à-vis the overall incentives of the political game, and on incentives to build capacity. Policy reforms often have feedback effects on the policymaking game. In some sectors, these feedback effects are likely to alter the specific sector policy game by creating new actors or changing the rules of engagement among them. But some reforms (particularly in areas such as decentralisation, budget processes or civil service reforms) can have a much broader impact, and alter the dynamics of the country policymaking process. Policy or institutional reforms that have important feedback effects on the policymaking process should be considered with special care, and with an understanding of the potential ramifications.

Third, there are also reforms that are ‘safe bets’, such as measures that increase transparency of government operations. They may be unlikely to change a bad equilibrium by themselves, but could be useful complementary handles if the equilibrium were to change for other reasons.

Finally, donors and international development institutions have to intervene in intelligent ways to facilitate virtuous dynamics that are endogenous and specific to each country.  Perhaps one of their most valuable contribution might be to act as enforcement and commitment technologies for the implementation and maintenance of political agreements among domestic players to build their country’s institutions; protecting those agreements against the short-term opportunistic temptations of actors with short-term power.  This would require attempting to help in working out country consensus and including actors beyond the executive of the day, such as parliament and the main political parties. This implies avoiding doing things that are too tied to a particular administration; accepting middle-of-the-road solutions that are more likely to be sustained; and being aware of strategic timing issues. Doing so would require steering away from the technocratic triumphalism that ignores institution building and consensus when pushing for favoured economic policies, as well as standing up to those who would prefer to ignore republican institutions.

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