Is Politics Bankable?
Philip Keefer
Development Research Group
Why do politics matter?
• Politicians are the ultimate arbiters of welfareenhancing, 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 developmentoriented policies?
The paradox
• Efficient public goods and broad public policies
(e.g., appropriate regulation) are the cornerstone of
development.
• Government incentives are therefore more prodevelopment the more they favor these over rentseeking 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.
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?
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.
Political market imperfections
• I’ll focus on four conditions that reduce political
incentives to reform.
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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.
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.
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.
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 governmentowned newspapers;
– significantly less secondary school enrollment;
– are significantly more vulnerable to civil war.
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.
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).
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 betterinformed 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.
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.
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 badlytargeted, 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.
Implications for donors: monitoring
• Don’t just ask whether finance ministers are proreform. 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.
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.
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.
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.