October 2016|bsi|

Last week Paolo de Renzio launched a new book at ODI – Open Budgets: The Political Economy of Transparency, Participation, and Accountability. Given the credence bestowed on transparency and accountability in development circles today, the book is timely. Importantly, it shows that budget transparency alone does not necessarily encourage public participation in the budget process and improved accountability between state and citizens. The study identifies four common drivers of fiscal transparency: political transitions, fiscal crises, corruption scandals and external influences. Although it stops short of a theory of how these drivers interact, it suggests that they are an important clue as to whether improvements in participation and accountability will accompany greater transparency in a given country.

I say ‘accompany’ instead of ‘follow’ because I think that the transparency debate has taken a wrong-turn in the assumption that published budget information is a precondition for state accountability to citizens. To explain why, I’d like to take you back to the broader history of budget institutions in Europe, and particularly a stylised account of the rise of Parliamentary accountability in England.

The story told to university students (building on Charles Tilly’s seminal argument in ‘Coercion, Capital, and European States’) starts with a medieval monarch who raises funds directly through patronage, or from his landholdings, and spends these funds as he chooses. With an increase in the sophistication and cost of warfare in the 16th-18th centuries, Europe’s monarchs find their military costs escalating rapidly. To stay in the game they must borrow funds and raise taxes. In some states (notably England and Holland) this gives the elites, represented in early forms of parliaments, new powers vis-à-vis the monarch. In return for contributing to the war chest they demand some say over how funds are managed and spent.

Over the centuries, and often through violent conflict, this tug between monarchs and parliamentarians led to a broadly accepted, formalised and codified budget process that sets out how the state can levy and spend resources (a battle that is still underway in many countries). Allen Schick, and more recently ODI’s Philipp Krause, have pointed out that the formal budget process in England came long after an established practice of Parliamentary engagement in budget matters. Accountability, by which I mean that the English Parliament had credible means of sanctioning a misbehaving monarch, preceded budget transparency.

These early forms of state accountability to parliamentarians and creditors were certainly not broad-based or developmental. (The story of how elite bargains evolve into broad-based representative democracies is a more complicated one – for one persuasive perspective read Acemoglu and Robinson’s much praised ‘Why nations fail’.) However, there is an important conceptual difference between a budget for internal management purposes (akin to an individual balancing her accounts), and a budget that mediates an agreement between different parties with different interests. Krause made a similar distinction between internal versus external accountability at a recent workshop at the IDB. Over the course of several centuries we see a shift in Europe from royal courts producing accounts, essentially for internal management purposes and funded by the monarch, to  budgets as contracts between taxpayers (read landlords, merchants and bankers in the early days) and a nascent state (a concept elaborated by Aaron Wildavsky about the United States budget in ‘The Politics of the Budgetary Process’). Accountability gains from fiscal transparency, as conceptualised in the current development discourse, are only meaningful in the latter case. Furthermore, as parties to the early budget agreements could opt out (the monarch could renege, lords could refuse to raise taxes and the bankers could refuse to continue lending), they sought to meet the spirit of this agreement rather than its word.

This ‘social contract’ is crucial to the accountability relationship because a budget contract, like any contract, is incomplete. Neat and reliable fiscal accounts are only its formal expression. Fast forward a few centuries to consider today’s mature democracies, most would agree that taxpayers judge their government’s performance first and foremost on services they directly observe – passable roads or qualified teachers instructing their children – rather than the integrity of their budget reports. The formal budget document serves as a safeguard for both citizen and government that reduces ambiguity and manages expectations. Much like a commercial contract it can help to reduce conflict between parties stemming from misunderstandings or vague promises. However, we judge our elected officials (as we do our electricity or mobile phone providers) on far more than their ability to meet the letter of the law.

With time, however, the ritual of the budget process has become one of the most important hallmarks of statehood and has been adopted worldwide in a variety of political and institutional contexts, even where it does not reflect an underlying contract between taxpayer and state.

The development industry has further entrenched this practice. Rightly recognising the developmental value of government accountability to citizens, agencies such as the World Bank and DFID have promoted budget institutions that symbolise this accountability relationship. Because it is hard to measure or quantify the nebulous concepts of participation or accountability, these agencies have often used transparency as a proxy, requiring aid-recipient governments to publish budgets and accounts as proof of their commitment to citizen welfare.

An obvious problem with this approach is that when the budget doesn’t reflect a social contract, the government can lie. A study from Malawi, for instance, characterised the budget process as theatre – a deliberate show that keeps donors happy yet bears little resemblance to how funds are actually spent.

Furthermore, transparency, participation and accountability need not be broad-based and pro-poor. Vigorous competition between narrow elites may encourage budget transparency without resulting in more developmental policies.

This is not to say that the international effort to promote budget transparency is a bad idea. Just because the relationship between transparency and accountability is beyond simple causality, doesn’t mean that transparency can’t be a catalyst for civil society action and, with time, better state accountability.

But part of the conundrum of why budget transparency isn’t delivering participation and accountability on the scale we might have hoped lies in our failure to distinguish between budgets as internal accounts and budgets as contracts. Furthermore, unless we know who is party to the budget contract we are unlikely to get the transparency approach right. The drivers of transparency identified by de Renzio and his co-authors are a good starting place, not only to understand the origins of transparency reforms in a given country, but also who the likely winners of those reforms will be.

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