Jopinions

The concept of ‘good governance’ is “relatively new”, receiving attention in circles dealing with developing countries and the so-called transition countries” (Rothstein, 2012). Scholars have identified numerous indicators that constitute good governance. These will be explored in order to determine if the concept can effectively explain developmental success or failure. Furthermore, it will be analysed as to the extent that the concept is applicable to the wider development debate. 

There are different interpretations of the term ‘good governance’. A common understanding of the term “implies government that is democratically organized within a democratic political culture and with efficient administrative organizations” (Smith, 2007). Especially among states in the West, democracy is often considered the catalyst for successful development. States go to great lengths in order to establish democratic institutions in underdeveloped areas as they believe this creates ‘good governance’. With this definition in mind, the extent to which the implementation of democracy contributes to development will be investigated. 

In order to achieve successful development, which organisations such as the Salvation Army (2023) describe as “the elimination of poverty, discrimination and injustice”, many advocate for the creation of democratic and principles and institutions. In Larry Diamond’s (2003) article on democracy and policy, he outlines one of the leading theories that suggests good governance leads to successful development. He notes that often in poor states the “powerful”, “privileged” and “quite often predatory” leaders are “typically a tiny minority”. Therefore the introduction of democracy would allow the “poor” to “constrain these powerful elites” and influence “policies that are conductive to poverty reduction”. 

 Underdeveloped states with powerful governments are susceptible to poor governance and therefore poor development. Roll and Talbot (2003) write that democratic institutions “restrain the economically destructive policies concocted by dictatorship”. Democracies allow the population to “give the government the power to enforce contracts”, “protect property rights, thus preventing the diversion of productive resources”. States with few democratic rights are not “constrained from multiple forms of diversion”. Developing countries often have these types of governance “to the detriment” of “economic development”. The research of this effect has shown mixed results, however Robinson et al (2014) analysed a “panel of countries between 1960 and 2010” finding a “robust and sizeable” effect of democracy on economic growth”. Their research found that “a country that switches from nondemocracy to democracy achieves about 20% higher GDP per capita in the long run (over roughly the next 30 years)”. If democracy is considered a key aspect of ‘good governance’, then this evidence would suggest that it important for successful development. 

While there is evidence that democracy can assist and encourage development, much of the literature is unsure that this relationship is proven. In fact, much of the literature disputes this notion altogether, suggesting that democracy actually hampers development. Scholars such as Ashutosh Varshney (2005 describes how “democracies in poor countries have neither attacked poverty as successfully as some dictatorships in the past five decades, nor failed as monstrously as many authoritarian countries have”. This is furthered by Harber (2002) who mentions how “regime transitions to democracy in Africa have been only patchy in their success with some newly elected regimes rapidly reverting to the more established authoritarianism”. As shown through this research, development has neither increased nor decreased to a significant level with the introduction of democracy. Therefore, it has to be a different aspect of ‘good governance’ if the concept does contribute to successful development. 

Much of the literature identifies that for states to have ‘good governance’ “corruption is minimized” (UN.ESCAP, 2009). Many “argue that corruption discourages private investment by distorting the allocation of entrepreneurial talents and resources” (Zhu and Zhang, 2016). Méon and Sekkat (2005) conducted a study which went as far to “imply that reducing corruption would be more profitable to countries where other aspects of governance are poor”. Their study suggests that corruption is even worse for development when other indicators of ‘good governance’ are missing. They outline one of the mechanisms in which corruption hinders development when they write “that corrupt officials have an incentive to create other distortions in the economy to preserve their illegal source of income. For instance, a civil servant may have an incentive to ration the provision of a public service just to be able to decide to whom to allocate that service in exchange for a bribe”. The implication of this research suggests that corruption exacerbates existing poor governance, which massively hinders development. However, much like how democracy may not have the effect on development as many initially thought, corruption may not significantly affect development, with evidence even suggesting it may improve development in some cases.

Huang (2016) analysed the development of thirteen countries in the “Asia-Pacific region”, concluding that “the impact of corruption on economic growth [was] not significant for all thirteen”. They even found that in China “economic growth … appears to have a significantly positive effect on corruption, indicating that an increase in economic growth had lead to an increase in corruption”. According to this evidence, corruption and economic growth appear to co-exist in cases. Mechanisms that could explain this positive relationship include the concept known as “speed money” (Bardhan, 1997). This concept describes how corruption “reduces delay in moving files in administrative offices … thereby reducing the inefficiency in public administration”. Rather than following the legal framework which requires checks and balances, corruption can get tasks done far faster, increasing the efficiency of development. This notion refutes the idea that corruption hinders development and therefore refutes the idea that good governance is necessary for development. Because the effect that corruption has on development is unclear, more investigation is needed to determine if good governance results in successful development.

The ‘good governance’ concept refers to more than just democratic ideas and corruption. Rothstein (2012) identifies the rule of law as a key aspect of good governance. Weingast (1997) states that the rule of law is “a set of stable political rules and rights applied impartially to all citizens”. By stable, Weingast refers to the effective deterrence of criminal activity. To have a stable rule of law, the consequences of breaking the law must be great enough. The rule of law is essential for good governance as criminal activity can seriously hamper government effectiveness and economic stability. 

“In many developing countries—the so-called failed states—it is the weakness of the government and the inability to provide law and order in the most basic sense that constitute the most profound barrier to growth” (Haggard and Tiede, 2011). Cooter (1997) provides an interesting perspective that theorises that the rule of law can have a positive or negative effect in economic development depending on whether the law aligns “with social norms”. When laws conflict with social norms, “many people perceive the law as unjust or irrelevant and disobey it … private citizens are reluctant to help officials enforce laws that are perceived as unjust or irrelevant. When state law conflicts with social norms in such areas as contracts, property, and torts, citizens and businesses often disobey the law out of ignorance or willfulness and follow morality instead”. Therefore it can be said that if the rule of conflicts public opinion, development suffers as the conditions for growth are not present and businesses cannot operate at full efficiency if contracts and property are not protected. 

Another aspect of good governance, mentioned also by Rothstein (2012) is government size. It’s frequently mentioned in the literature that “good governance equals small government”. The term small government is often used interchangeably with limited government. “A limited government is one where legalized force is restricted through delegated and enumerated authorities. Countries with limited governments have fewer laws about what individuals and businesses can and cannot do. In many countries, a written constitution is used to spell out the powers and limitations of government power” (Hayes, 2019). 

There are numerous article indicating that small governments are superior for economic development. “The primary benefit of limited government is the emphasis on freedom and liberty. With fewer regulations and laws, individuals have more autonomy to make decisions for themselves. This means that the state is less involved in people’s lives, and individuals have more control over their own destiny. As a result, limited government tends to promote individualism, innovation, and entrepreneurship” (Layne, 2023). Layne perfectly captures the main advantages of limited government. If states implement high levels of regulation, businesses are not encouraged as regulations usually decrease profitability. If business activity is reduced, most likely economic development will suffer. Furthermore, high taxes, which usually comes with large government, have the same effect on business and development. 

“However, too little government control can be harmful. Without proper regulation, corporations may engage in unethical or illegal behaviour, and individuals may engage in criminal activity. Additionally, without government intervention, certain public goods and services may not be provided, which can harm society as a whole” (Layne, 2023). Clearly, there is a middle ground, where the size of government effects developmental success differently depending on the case under investigation. There are multiple other factors that affect development, and therefore it is impossible to conclude that smaller governments significantly increase development. 

Thus far, good governance has provided some insight into effective development policies, however the research has often been disputed or inconclusive. A major critique of the ‘good governance’ concept is difficulty to define and apply. Rothstein (2012) writes, “neither the absence of corruption, nor representative democracy, nor the size of government, nor the rule of law, nor administrative effectiveness captures what should be counted as good governance”. He also points to the fact that the concept cannot be universally applied to all cases of development. Not every developing country has the same institutional set up, culture and goals. Good governance could explain developmental success in one state, yet not in another. It is difficult to determine why good governance works in certain situations. 

A major reason for varying results is ethnic divides. Easterly and Levine (1997) sought to “seek a better understanding of cross-country growth differences by examining the direct effect of ethnic diversity on economic growth and by evaluating the indirect effect of ethnic diversity on public policy choices that in turn influence long-run growth rates”. Ethnic diversity and divisions are exaggerated in underdeveloped states in Africa due to colonial action. “The borders of African nations were determined [by] European powers in the nineteenth century”. These Europeans had little knowledge on the cultures they were dividing, not realising the unfortunate consequences of heightening “pre-existing high levels of ethnic and linguistic diversity”. While ethnic diversity has several negative effects on development, it has severe effects on aspects of ‘good governance’, which in part explains how the concept is difficult to apply. Easterly and Levine comment on how increased ethnic divisions exacerbate the negative effects of corruption on development. They write, “corruption may be particularly damaging when there is more than one bribe-taker. If each independent bribe-taker does internalize the effect of his bribes on the other bribe-takers revenues, then the result is more bribes per unit of output and less input. Ethnically diverse societies may be more likely to yield independent bribe-takers since each ethnic group may be allocated a region or ministry in the power structure”. This effectively describes how strongly perceived differences in politics encourage bribes and therefore corruption. Ethnic differences are perceived very strongly in many developing states, resulting in high levels of corruption. However, not every state experiences high ethnic diversity, explaining why the ‘good governance’ concept can be unreliable on a case-to-case basis. 

To conclude, the good governance concept is difficult to define. This essay has analysed numerous different aspects of the concept, finding that the data and research in the field is inconclusive in proving it can explain developmental success or failure. Many scholars have determined that there is a strong link between aspects such as democracy and successful development, yet due to how many refute this research no conclusion can be made. If the concept of ‘good governance’ is accepted, far more research must be done to determine if it can explain development as there are too many other variables that must be controlled for. Furthermore, scholars such as Rothstein (2012) have doubt that the concept can be universal, while also stating that it is too difficult to define to be useful. 

Bibliography

Bardhan , P. (1997). Corruption and Development: A Review of Issues. Journal of Economic Literature, 35(3).

Cooter, R.D. (1997). The rule of state law and the rule-of-law state: Economic analysis of the legal foundations of development. Annual World Bank Conference on Development Economics, 1997.

Diamond , L. (2003). Moving Up Out of Poverty: What Does Democracy Have to Do With It? World Bank Workshop ‘Moving out of Poverty: Growth and Freedom from the Bottom Up’, Washington, DC: World Bank.

Easterly , W. and Levine, R. (1997). Africa’s Growth Tragedy: Policies and Ethnic Divisions. The Quarterly Journal of Economics, 112(4), pp.1203–1250.

Haggard, S. and Tiede, L. (2011). The Rule of Law and Economic Growth: Where are We? World Development, 39(5), pp.673–685.

Harber, C. (2002). Education, Democracy and Poverty Reduction in Africa. Comparative Education, 38(3), pp.267–276.

Hayes, A. (2019). Limited Government. [online] Investopedia. Available at: https://www.investopedia.com/terms/l/limited-government.asp.

Huang, C.-J. (2016). Is corruption bad for economic growth? Evidence from Asia-Pacific countries. The North American Journal of Economics and Finance, 35(1), pp.247–256.

Layne, J. (2023). Pros And Cons Of Limited Government 2023 – Ablison. [online] http://www.ablison.com. Available at: https://www.ablison.com/pros-and-cons-of-limited-government/ [Accessed 15 May 2023].

Méon, P.-G. and Sekkat, K. (2005). Does corruption grease or sand the wheels of growth? Public Choice, 122(1-2), pp.69–97.

Robinson, J., Naidu, S., Restrepo, P. and Acemoğlu, D. (2014). Democracy causes economic development? [online] CEPR. Available at: https://cepr.org/voxeu/columns/democracy-causes-economic-development.

Roll, R. and Talbott, J. (2003). Political and Economic Freedoms and Prosperity. J. Democracy, 14.

Rothstein, B. (2012). Good Governance. The Oxford Handbook of Governance.

Smith, B. (2007). Good Governance and Development. Bloomsbury Publishing.

UN.ESCAP (2009). What is good governance? repository.unescap.org. [online] Available at: https://repository.unescap.org/handle/20.500.12870/3794.

Varshney, A. (2005). Democracy and poverty. Measuring Empowerment: Cross-Disciplinary Perspectives, pp.383–401.

Weingast, B.R. (1997). The political foundations of democracy and the rule of the law. American political science review, 91(2), pp.245–263.

http://www.salvationarmy.org.au. (n.d.). What is International Development? | International Development | The Salvation Army. [online] Available at: https://www.salvationarmy.org.au/international-development/learn/what-is-international-development/#:~:text=International%20Development%20is%20the%20pursuit.

Zhu, J. and Zhang, D. (2016). Does Corruption Hinder Private Businesses? Leadership Stability and Predictable Corruption in China. Governance, 30(3), pp.343–363.

‌