Political Imperatives and Public Sector
Reforms in Developing Countries
INTERNATIONAL CENTRE FOR PARLIAMENTARY STUDIES
LONDON 11th December 2013
Mushtaq H. Khan,
SOAS, UNIVERSITY OF London
http://www.soas.ac.uk/staff/staff31246.php
Definitions
 Public
sector reforms refer to improvements in service
delivery capacities of the state based on improvements in
accountability, anti-corruption, and improvements in state
capacity
 There are political pressures on developing country states to
improve service delivery but there are also political
imperatives slowing down reforms
 A failure to understand the political constraints facing
particular public sector reforms in a country often results in
wasted opportunities and frustration
 The policy challenge is to design public sector reforms in ways
that can be implemented so that development outcomes can
be accelerated
2
The Functions of the Public Sector
 Functions
of the public sector:
 Provision of public goods that the private sector will not
provide: this requires tax collection and making decisions about
spending priorities in transparent and accountable ways,
followed by effective monitoring and accountability for failures
and poor delivery
 Policies that assist the private sector overcome ‘market
failures’: subsidies and regulations have to be designed and
allocated effectively, monitoring of outcomes has to be
effective and transparent, support has to be withdrawn or
redesigned if outcomes are poor or not achieved
 Welfarist redistributions to maintain political stability and
achieve socially desirable distributive outcomes
3
Governance Reforms that Appear to Address these Problems
 Strategies
to reduce corruption so that decisions to spend
money are not influenced by special interest groups, delivery is
efficient and leakages reduced
 Strategies to improve democratic processes and accountability:
this is desirable anyway but also because it can help to monitor
service delivery and achieve better distributive outcomes
 Strategies to improve the quality of personnel and technical
skills in different departments: in particular to reduce
politicization of appointments, for instance by having an
effective public service commission to make bureaucratic
appointments
 However, attempts at achieving these goals in developing
countries often resulted in limited success
4
The conventional strategy for controlling corruption
The standard economic theory of corruption focuses on a very general view of
corruption as an illegal transaction driven by public officials with the ability to
take discretionary actions
In this theory, corruption is driven by
a) the greed of public officials and
b) their ability to take discretionary action
Anti-corruption strategy according to this view should reduce or remove
discretion and mitigate greed through incentives for rule-following behaviour
by public officials
But this analysis is a good description of the drivers of a very narrow range of
corruption in developing countries
Even for this subset of corruption, the institutionalization of rule-following
behaviour is not simple in developing countries
Anti-Corruption Policy According to the Standard Theory
According to the simple theory, anti-corruption strategy should
a)reduce or remove discretion (by removing unnecessary functions and/or
introducing procedures to reduce discretion such as tighter procurement
rules) and
b)change the cost-benefit equation facing public officials by raising the costs of
corruption by measures such as
i) raising salaries of public officials (which raises the cost of losing the
official jobs),
ii) harsh penalties if detected (like prison sentences),
iii) greater democracy, transparency and a better rule of law (to raise
the probability of getting caught and punished)
But the ‘standard theory’ fails to put corrupt transactions within a macropolitical economy context: in developing countries, targeting individual costbenefit calculations appear to have little effect because it is usually not an
individual decision
Corruption: General Features Hide Many Differences
Corruption is an illegal form of a rent-seeking ‘exchange’ between public officials and
private organizations/citizens
Corrupt transactions have two parts: the ‘influencing activity’ is almost always illegal (but
some forms of influencing can be legal: for instance lobbying). The ‘intervention’ may be
legal or illegal, socially beneficial or otherwise. If either or both parts of the transaction
are illegal we have a corrupt transaction.
Legal versus illegal rent seeking
Corruption can be seen (for the most part) as illegal rent seeking
Much of the decline in corruption in richer countries is simply the
conversion of illegal rent seeking into legal rent seeking
a)the greater legitimacy of property owners in advanced countries allows
them to legitimately spend resources to influence policy and this allows
legalized rent seeking
b)higher tax revenues allow property rights and regulations to be better
protected and enforced and make it more difficult for public officials to
violate these rights
c)In addition, the imperative for political corruption declines as we will
see: higher tax revenues allow winning electoral strategies to emerge
that do not require off-budget resource allocation to clients
8
Legal versus illegal rent seeking
At one level, there is no difference between legal and illegal rent seeking:
either can be more or less damaging and the policy priority is to address
the damaging types of rent seeking
However, illegal rent seeking or corruption is more problematic for
several reasons
a) corruption undermines the legitimacy of the state and the ruling
coalition and can contribute to growing political instability in a society
b) legal rent seeking can be regulated using formal rules, and these can be
enforced. If outcomes are poor, the formal regulatory structure can be
changed.
c) In the case of corruption the outcome of the rent seeking process
depends on the balance of power and capabilities of organizations and the
outcome is not easy to regulate. The only policy option may be to fit
developmental policies to the political realities to minimize damaging
outcomes
9
Limitations of the standard governance and corruption agenda
There are structural drivers of corruption in developing countries that are
not addressed by liberalization, transparency, harsh punishments, salary
increases, the work of anti-corruption agencies or sanctions imposed by
donors
Corruption is often not an individual choice that can be affected by changing
individual costs and benefits. Rather, the choice in a developing country is
often of joining public office or staying out: once in, an individual may face
little ‘choice’ because politics is organized in a particular way
However, this does not mean that corruption should be tolerated because
many types of corruption are damaging for development: the point is to
identify and design feasible policies that can reduce avoidable and damaging
corruption even in the presence of unavoidable types of corruption
Taxes, Property Rights and Democracy
Democracy
in advanced countries is characterized by powerful
feedbacks between the economy and politics
The
economy is broad-based and productive with many taxpaying
(capitalist) enterprises with an interest in the protection of their rights
and in efficient service delivery
Economic
and political power are ‘aligned’: the formal economic sector
has ability to protect their rights and to pay sufficient taxes for service
delivery and political stabilization through rule-following politics
Developing
countries do not have a broad productive economy
Economic
and political power are not aligned: property rights can be
routinely changed by those with political power
Moreover, either
because the tax base is limited or it comes from
natural resources, redistributive politics is not rule-following: informal
(patron-client) politics is the norm
Constraints on Democratization Strategies
i)
Democracy in developing countries typically takes the form of
patron-client politics (where the powerful violate rules to satisfy
their clients) rather than social democracy (where redistribution
and subsidies are organized in rule-following ways).
ii) The political imperative to create jobs for clients results in the
politicization of appointments and can lead to low quality in public
service
iii) A low tax base means expenditures on enforcement (including
salaries of public officials) is low
iv) Some developing countries have natural resources like oil, copper
or iron ore: this gives them a large budget but without a broad
taxpayer base. Here there are taxes but they do not come from a
broad-base of taxpayers who can hold the government to account
and the state is once again likely to face weak public scrutiny
A More Complex View of Public Sector Reform Strategies

General anti-corruption, democratization and capacity building
strategies have achieved very limited success in developing countries

The political structure of developing countries and the configuration of
powerful groups and organizations determines the types of political
distribution that are required for maintaining political stability

Viable public sector reform strategies have to work with some types of
patron-client politics that will continue in the medium term: reforms
should focus on improving capacity in critical departments and sectors

Not all types of corruption can be immediately addressed: many types
of political corruption are structural and some illegal rent seeking is
likely to continue as long as all rights and rules have not been fully
institutionalized
Reforms to Strengthen Developmental Policies
All
interventions including potentially developmental ones create new
income opportunities (rents), and outcomes depend on whether the
rents can be ‘managed’ in a way that desirable outcomes can be
achieved
When developmental policies fail, this is usually because powerful
organizations influence the allocation or management of the rents to
affect outcomes (for instance subsidies fail to achieve results or are
allocated to the wrong recipients)
Attempts to solve this problem by reducing corruption or improving
transparency and accountability across the board are likely to result in
limited benefits
A more feasible strategy is to focus on the most important
development priorities and i) design policy so that the requirements of
monitoring and disciplining rents are minimized (if possible by avoiding
policies that require powerful players to be disciplined) and ii) focus on
technical and administrative capacity building for critical government
departments
14