Wednesday, July 11, 2007

Institutions and Demography

In the FT today:

Countries unhappy at World Bank ratings

Governance has improved significantly in Serbia, ­Algeria, Tajikistan and Rwanda since 1998, but Thailand and Argentina have fallen back on several key measures, according to a World Bank report published on Tuesday.

The Governance Indicators report also shows a deterioration in governance on multiple measures in Zimbabwe, Eritrea, Côte D’Ivoire, Nepal and Venezuela.

It finds that government effectiveness – one of six criteria monitored – has declined significantly in Italy and Spain. By contrast, control of corruption has improved noticeably in Tanzania and Serbia.

A number of governments are angry about the headline findings, including Argentina, though the data show that its ratings, which fell sharply in the early 2000s, have improved over the past four years.

Some governments argue that the bank is in no position to preach on governance, following its own crisis over former president Paul Wolfowitz’s handling of a secondment package for his girlfriend. Others, including China, question whether the World Bank should be involved at all in rating countries on metrics such as accountability.

Daniel Kaufmann, one of the report’s authors, told the Financial Times: “We are not in this to win any popularity contest.” He said the bank viewed the study, which is based on 33 underlying surveys, as a research project that needed to be interpreted carefully and not as “the final word” on governance.

He said the findings provided valuable insight into the relationship between governance and development. “The data explode the myth that governance and anti-corruption is a luxury good – that you have to be a rich industrialised country to do well,” he said. “There are a number of emerging countries that are showing the way, such as Chile, Costa Rica, Uruguay, the Baltic states and Botswana.”

Mr Kaufmann said the data showed that good governance boosted development, rather than the other way round. It also showed it was possible to improve the governance of a country in a statistically significant way within a decade.

This argued against the “institutional fatalism or Afro-pessimism” view that it takes many generations to improve governance.

The report’s author – who along with his colleagues wrote a letter to the board at the height of the Wolfowitz crisis demanding action to deal with the threat to the bank’s credibility – also took issue with the notion that the bank is not qualified to preach on governance.

“What we find again and again is that what matters is not measured by the absence of integrity challenges but how an institution responds,” he said.

The Governance Indicators report is not used as a basis for World Bank resource allocation. But it is influential in development circles, including within the bank itself. Mr Kaufmann said officials from a range of governments asked the bank for advice as to how they could improve their governance ratings.

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