What Is Good Governance? And How Do We Measure It?

While governance is widely mentioned in Nicaragua and increasingly linked with development, the contradictions inherent in attempting to “measure” it are also becoming clearer. Is good governance a chimera? If it is nothing more than a work tool, what should it be used on and what should be measured?

Angel Saldomando

The obsession with governance continues to grow throughout the world, as does the debate about and further elaboration of the concepts of local, national and even world governance. Governance is mentioned in international forums and accords and cooperation agreements, while almost all of the aid agencies have incorporated it into their main areas of work. International networks that bring together these aid agencies, universities, independent researchers, NGOs and the coordinating bodies of social organizations are working precisely to “measure” governance. This wealth of activity around the issue has led to still more actions, projects and funding.

Nicaragua has not missed out on this evolution of the issue since its introduction in 1992. At the outset, it was particularly assimilated to secure political stability and basic agreements to make the country governable. Later, attention switched to the performance of the institutions and the conditions for their functioning, which included the political system. This evolution reflects the concerns of both international cooperation with a presence in the country and domestic stakeholders that see problems related to governance as important obstacles to the country’s democratic development. Governance was included as an agenda point for agreement and follow up in the international consultative group meetings held in Geneva, Washington and Stockholm, and even as a component of the poverty reduction strategy that is a basic requirement for accessing the Highly Indebted Poor Countries (HIPC) initiative aimed at reducing the foreign debt. All of this has happened over the last six years. There is currently even a Good Governance Group made up of representatives of aid agencies present in Nicaragua that follows up on the issue through work commissions. Even more spectacular is the evolution of funding assigned to the various components of governance in Nicaragua.

A political, not technical problem

Ever since the concept was incorporated into the language and practice of multilateral organizations and cooperation agencies through the new conditionality and in the form of projects, it was obvious that governance would have to be measured, that an empirical evaluation would have to be assumed. At a certain moment, there was a need to produce evidence of the real impact of the increasing funding and actions dedicated to “improving governance” in the countries of the South.

There are currently at least three initiatives to “measure” good governance, respectively sponsored by the World Bank, the United Nations University and the Development Assistance Committee of the Organization for Economic Cooperation and Development (OECD), to which should be added the efforts of individual researchers and universities. In Nicaragua, the issue has been gaining official importance since the holding of the Stockholm Consultative Group meeting to support Central America in the wake of the Hurricane Mitch disaster.

But as always, there is many a slip ’twixt cup and lip. It has proved to be quite difficult to take the step from the conceptual design of good governance to the empirical perception of this reality. All of us who have attempted to do so, for different motives and from different starting points, have ended up with partial and exploratory experiences despite the various means employed. Behind all measurements lies a constructed aim that indicates the content and sense of the reality to be measured. As it is not a neutral construction in the case of governance, the measurement process conveys a strong political and social charge.

“Measuring” governance reveals problems well beyond any technical difficulties in the measurement process. It only requires limited installed capacity and funding to produce data, but what is revealed are problems in the conceptions that inspire such efforts.

Intellectual somnambulism

Several years ago I showed some of my work on governance to a specialist who is an obligatory reference for international organizations. He thanked me for my trust in sending him my work on a subject in which, to quote him textually, “we are groping blindly forward.” Although he did not specify how blindly, his statement surprised me. Was so much money and effort really being spent without knowing where we were going? The concept was already in general use at the time—1998-99—and was even part of the new conditionality applied by the multilateral organizations. There were by then some 90 governance projects being implemented in Latin America, over a thousand in the transitional Eastern European countries, over 300 in Asia and many more in Africa.

This impression of intellectual somnambulism appeared to be confirmed when the World Bank itself referred in its document on Governance and Poverty Reduction to the existence of a “black box” on the issue of governance because the impact of the actions was not yet known, and that its contents would in some way affect public sector performance. The bank had carefully reviewed its perspectives on the development process, but had no firm prescription about what should be done. It added that it had no solid ground on which to establish itself.

None of this is in fact true. There is no “blindness” in the subject of governance. Where things are going, or where they are supposed to go, is known exactly. In reality, the difficulties lie elsewhere. Saying that there are different conceptions of governance does not mean being able to sustain that all are equal. Dodging this problem has led to a minimalist, accommodating and normative consensus in which governance is exclusively based on norms to which the different countries should prescriptively open up, including transparency, integrity, elections and the rule of law. But behind the debate on governance is actually a struggle that is sometimes subterranean, but always tough. At the risk of simplifying things, I will mention the three main positions that can be observed in this struggle.

The orthodox approach:

Governance at the service of adjustment
In the first generation of governance policies, the multilateral financial institutions (World Bank, IMF, OECD) considered governments and governance to be good if they managed to push through the liberal economic reforms that emerged from the Washington Consensus while maintaining political stability. The governments were rewarded for their political ability and the authority they exercised to maintain the rhythm of the reforms without backpedaling or yielding to considerations such as social cost, protests or opposition.

At that time there was no consideration of corruption, institutional efficiency, integrity or transparency, and although there were elections, most reforms were not discussed either publicly in the campaign or democratically. This led to a hard-line, orthodox kind of governance unable to organize broad consensus that favored uncontrolled autonomous bureaucracies and interest groups and institutions with no capacity for regulation and policy elaboration but with high levels of corruption.

Up to 1996, governance in Nicaragua was exclusively associated with social and political stability and the government’s capacity to reform the country. During those years, despite the limited transparency of the reforms and anomalies in resource management as well as fraudulent indebtedness and the social, political and institutional impact of the reforms, the approach to governance remained restricted and was not part of any of the conditionalities imposed by the international organizations.

This model is still in operation in most countries. It leads to a weak state hostage to interest groups that are strengthened by or were born out of a deregulated economy where there is no broad or growing consensus, the level of social organization is declining, politics has the exclusive function of maintaining the continuity of the reforms and there is limited recognition of conflict.

The neo-institutionalist approach:

Governance as management capacity Formalizing democracy through this tough, orthodox kind of political mechanics reduces its legitimacy among the population, as recognized in the UNDP Human Development Report of 2002. The bad economic results and social, political and institutional decomposition have already generated a stream of criticism, even within the multilateral institutions themselves, in turn generating and legitimizing another approach to governance, known as neo-institutional governance. Supported by the institutional economic theory—information economy, social capital and institutional capacity—of Douglas North, the neo-institutionalists from the UN, IDB and World Bank circles and certain bilateral agencies sought to change the more regressive postulates of the first generation of governance measures.

This new theory recognizes the model of the deregulated market, but insists that we need intelligent institutions and states able to foster new state leadership capacities and to draw up new social contracts together with a participatory civil society. The instruments with which to fulfill this task are the construction of institutional capacities, social capital, decentralization and networks.

All of this leads to a better-run model of deregulated economy with politically more open national democracies and less standardized, more adapted measures. Governance thus refers to the capacity for open and flexible management and guidance on the part of the government, the institutions and civil society.

This approach aims to straighten things out in countries where standard reform programs have been applied with no appreciable results and the political and social situation remains in a very bad way. This is the new agenda currently being implemented in Nicaragua in what President Bolaños’ has dubbed his “New Era.”

The regulationist approach:
The market-public interest relation

Despite these corrections, the serious nature of the situation in many countries—some of which have even been called “chaotic nongovernmental entities”—and the impact of international deregulation have also resurrected the regulationist thesis in certain European, Latin American and international agency circles.

This third approach to governance promotes the recovery of political management and democratic control over the economic and institutional reform processes. The challenge is to find the right institutional designs and territorial and social anchors to exercise a democratically regulated development. It seeks to strengthen democracy as an expression of broad social arrangements that are validated as public interest, rather than allowing democracy to develop through the exclusionary aggregation of private and very unequal interests.

This approach establishes a boundary between the market and public interests, recognizes the plurality of forms possible in a democratically regulated market economy opposing the mercantilism of all spheres of society, and leads to a kind of governance that establishes clustered linkages among policies, institutions and social agreements to structure and provide sustainability to key development sectors. It seeks to check the entropy of societies in order to prevent disaster and recognizes conflict, the diversity of alternatives and national histories.

Such an approach is indispensable in countries that want to retake control of their own destiny based on more just and democratic economic and social strategies. It amounts to breaking free of the trap of structural adjustment with no productive strategy and of an inequitable development model devoid of participatory democratic balances, vacuums that particularly punish the poor majorities.

Exhausted societies trapped in
a game that produces failures

The apparent obscurity, confusion and debate originate from the fact that we do not all agree about the content of the relation between democracy and the market or about the role derived from this relationship for institutions, the state, policy and the arenas for national action and diversity of interests.

There is undoubtedly a possibility of dialogue, understanding and cooperation between the institutionalist and regulationist approaches, but definitely not with the first approach. There is, however, great difficulty in resolving the differences in practice when the countries involved have little choice. This is particularly true when the national states—or their embryos in certain cases—have been cast adrift by the violent deregulation processes and economic openings, with their respective civil societies exhausted or in a state of decomposition and replaced by an exclusionary elite supported by the orthodox hard-line governance approach.

The second and most important difficulty is that the development of institutions is a social and historical product endogenous to each country that cannot be created from outside. We thus reach an impasse, where it is easy for experts to formulate normative frameworks for policies and institutions, but very difficult to put them into practice and find suitable instruments for this process. This game will only continue to produce failures unless we take national histories and the capacity for internal regulation into account and unless we have real participatory processes concerning fundamental matters. This is not an abstract or academic problem that can be addressed by brandishing the kind of purely practical demands that are always invoked when one wants to get to the instrumental part as quickly as possible, without measuring the risks of intoxication from consuming unidentified food of dubious origin.

Two non-technical questions

In terms of governance, the underlying question should be, “What institutions, policies and social arrangements must we produce to have societies that are more socially and politically integrated in democratic conditions?” In our case, this has to do with poverty reduction, political integration and conflict management within the framework of a substantive democracy.

When there is no evidence that all of this is occurring, the next question should be, “What are the obstacles and what process should be initiated to overcome them?” The answers to these two questions have to do with political and social problems rather than technical ones. Such problems are not resolved through institutional engineering and projects. They have to do with the capacity and freedom to design suitable policies, institutions to put them into practice and broad social coalitions to support them. Our conceptions, instruments and results should be subjected to an in-depth revision in the light of this debate.

International experience in this matter over the last ten years has left us in a very critical situation. The reports on the fight against poverty in less advanced countries produced during 2000 by the United Nations Conference on Trade and Development (UNCTAD) and the World Bank’s reports on governance 2001-2002 recognize that the standard adjustment and reform programs implemented in the countries of the South and of Eastern European are exhausted. But they neither abandon the model to which they are linked nor accept their redefinition.

These reports also agree that the countries’ institutions are partly responsible for the limited success of the reforms, but admit that this responsibility is shared with international cooperation, which has not considered the countries’ national contexts. They further recognize that the institutional reforms have been standardized and technocratic, supported above all by consultants and by material produced in offices rather than gathered on the ground. Based on this, they now advocate locally designed programs and improved coordination with the nationals.

What exactly do we want to measure?

But how can this point be reached without first choosing among the different forms of governance? I don’t think anyone denies the need for changes to overcome adverse situations of poverty and social and institutional decomposition to achieve more democratic, stable and integrated societies. This, however, depends on a real increase in the capacities of national and international regulation. This is the core problem when it comes to good governance.

What do we want to measure in terms of governance? Most efforts aimed at measuring and evaluating governance are based on the fact that practical experience in many countries demonstrates that ineffective governance hinders economic and social development and efficient governance promotes it. Thus determining the degree of efficient governance or the degree to which it is hindered represents a fundamental element in motivating and guiding action. But what does this mean? As there is no consensus or established empirical references on democratic governance and its monitoring, the definitions of “efficient” and “inefficient” governance become key elements.

The orthodox approach
to “good government”

I will attempt my own reading based on the axiom that democracy and the market are the two dominant structures in the contemporary social order, that is, since the end of the confrontation between the capitalist and socialist systems. Governance is “something” located between these two elements that allows them to “relate with greater or lesser efficiency.” But both that “something” and that “efficiency” need to be defined.

For the followers of hard-line governance, that “something” is the government’s capacity to pass liberal reforms, while “efficiency” is the institutions’ ability to administrate the reforms according to its focuses of a minimal state and limited resources. In terms of results, governance is linked to the degree to which the reforms facilitate the market. And this means the possibility of doing business with legal security and making policy free of bureaucratic restrictions and the costs produced by regulations, which generate a great deal of corruption.

In this vision, the measurement of good governance is ensuring that there are elections; that the law is upheld, particularly in contracts (more legal security); that there is political stability (fewer social conflicts); and that reforms favoring market deregulation (level of openness, reduction of state regulations, privatization) have been produced. All of this implies an ordered country that is institutionally capable of upholding the law and ensuring stability and that offers facilities for business.

This was the vision of a “well governed” country during the most drastic application phase of the adjustment programs. Things started to change when the poor economic, social and demographic results of the reforms were attributed to bad administration and the low institutional capacities of the states and governments involved. There was thus an attempt to introduce aspects that would counterbalance bad administration, including public opinion, accountability, corruption control and strengthening the government’s institutional capacity. In addition to having to pass the reforms, the quality of the government and the institutions had to be improved for the reforms to be more effective. What was measured is summarized in Table 1.

This set of indicators aims to provide useful information on the quality of administration by the government and institutions. However, it assumes certain things that have to be highlighted. It takes as a given that the reforms are intrinsically good and does not question, for example, whether they themselves generate greater or lesser corruption or greater or lesser social stability. This eternally reductionist vision, tacked on to what is considered the only possible model to be implemented, has been losing ground with the emergence of renewed interest in the state, creating an opening for the neo-institutionalists to gain ground.

What do the neo-institutionalists measure?

The neo-institutionalist tendency focuses on the rules that determine the context in which the state and civil society interact to design and apply policy. By definition an open problem in every society, it is bounded by the concept of good governance taken from the liberal democracy model applied in Western countries, which assumes that state-civil society relations should be defined to allow the good exercise of liberal democracy, with the whole providing good governance.

The variables selected for monitoring this approach are presented in Table 2. Although more complex and complete, this approach still suffers from a normative formalism while being based more on perceptions than on the production of hard data to be linked with policy, institutional intervention and whatever social agreements might exist.

Viewing these aspects as a bridge relating market and democracy leads us to the regulations organizing this relation and their results, to whether they can truly provide the grounds for managing the social order, increasing the democratic collaboration among the state, government, private actors and social organizations with positive results. This is the concern of those who see governance as a new way of referring to the problems involved in regulating the social order.

Democratically regulating the social order

In the democratic regulation approach, it is thought that the state of a particular society is a systemic result of stability, social and political integration and conflict management. The internal conditions for governing the social order in a country are the product of the interaction among institutions, policies and social arrangements to connect the market and democracy when these two structures are economically and politically dominant.

The following three areas need to be measured to determine the kind of results—in this case development results—obtained:
1. Social validation of the economy with respect to social integration versus exclusion and poverty.

2. Conflict management in the sense of the institutions’ capacity to negotiate and perform democratically versus repress, limit negotiations and provide a weak response to demands.

3. Pluralism and political integration in terms of democratization, access to the political system and respect for individual and social rights.

The production of democratic regulations for development is the capacity to produce policies, institutions and social arrangements in democratic conditions that can move the structural processes towards positive results. The expected result of this influence on the mentioned variables is an improvement in the state of the society as the product of a specific governing of the social order.

It has become commonplace to say “Ineffective governance hinders development,” but what does this actually mean? From our perspective, it concretely means that the production of policies, institutions and social arrangements that should have a positive impact on the market-democracy relationship in fact have negative results.

The measuring process must thus gather information about each sector’s social situation and evidence of the social arrangements made, how the institutions performed and what policies were applied, as can be seen in Table 3.

Where do the similarities
and differences take us?

The three approaches to governance share a common problem: how to govern the social order. But the differences among them lead to very different practices and objectives.

First difference. The starting point for the first two approaches is a standard for how the institutions function, although the second is broader and tries to understand meso-institutional relations and the government’s degree of political commitment as the foundation of a political ethic among the elite. The third approach, in contrast, sees the social situation as a starting point for determining the modes for regulating it. This means that the first two approaches are top-down and the third starts from below and moves upwards.

Second difference. Although the foundations of the social order are identified with democracy and the market in all three approaches, there is considerable distance between the three kinds of results. The first two approaches favor a certain kind of institutional functioning, questioning the conditions in which the institutions and government act and concentrating on verifying the normative characteristics. What matters in the last approach is the impact on important sectors, leaving the internal arrangements and policies and the institutions that apply them open for identification and analysis. It thus relates the original situation to the political and social resources that a given society specifically invests in the problems identified in each sector to produce greater or lesser social and political integration and manage its conflicts and tensions. This determines the notion of effectiveness from the viewpoint of impact, rather than linking it exclusively to fulfillment of a normative framework not linked to concrete results. What do phrases such as “appropriate policy and laws” and “government capacity to administer public resources” mean if they are not related to specific results in the society?
Third difference. The approaches also necessarily differ in the data required to establish the diagnostic studies and construct the analyses. While the first two work with surveys and focus groups to establish opinion trends about the behavior of the institutions, the third first looks at hard data about the societal situation to later identify the kind of intervention and configurations produced among policies, institutional behavior and social arrangements.

Fourth difference. The three also propose different instruments for practically dealing with the problems once they are ready to put the approach into operation through policies and projects.

The relationship between
poverty and governance

Certain implications of these three approaches can be illustrated through the controversial issue of poverty. The orthodox and institutionalist approaches do not directly view poverty as a factor of good or bad governance, although in certain cases they consider it a threat to political and social stability. This judgment is symptomatic. The emphasis in the orthodox liberal approach is on efficiency, corruption and the norms that facilitate market functioning, taking for granted both growth and, indirectly, its impact on poverty reduction. The institutionalist approach mentions certain conditions of equity and social cohesion as well as subjective elements such as government commitments, but they are not incorporated into the analysis as hard data.

The regulationist approach states that certain poverty levels make governance objectively bad and considers that if this persists over time the three components of regulation have evidently not produced results or are even helping reproduce the situation. This requires producing specific evidence on the quality of the policies, the institutional performance in implementing them and the impact of the existing social arrangements aimed at reducing poverty. Concern about institutional engineering or the civil service, which are privileged aspects of the normative and bureaucratic governance approaches, makes no contribution whatever to poverty reduction.

Poverty has a different place in the relation between market and democracy, depending on the governance and measurement approach used. The diagram on the previous page illustrates the relations established according to the approach adopted.

In the regulations approach, poverty is seen as a result of and thus at the center of the relationship between democracy and the market, with the indicators verifying how the social arrangements, policies and institutions should be articulated to reproduce or change the results. By demonstrating with data that poverty results from the way democracy-market relations work, this approach reveals when the social arrangements have produced an exclusionary power structure, or at best one not very favorable to inclusion, the policies are not geared toward or have had little impact on poverty reduction and the institutions reflect this state of affairs. Concentrating on neither corruption nor efficiency from a normative viewpoint gets to such structural problems, because they require an analysis based on political economy rather than institutional engineering.

Conflicts and governance

There are also marked differences among the three approaches regarding conflicts. While the orthodox and institutional analyses see the absence of conflict as synonymous with stability, the regulation approach differentiates between conventional conflicts inherent to democracy and non-conventional conflicts linked to crises. These differences run deeper than the role of the institutions, since the first two approaches stress authority and firmness of the law, while the latter focuses on the democratic performance of the institutions as consistent with their capacity to negotiate and provide a response to conflicts and social demands. This is in turn reflected in the information gathered.

There are also differences regarding the institutions themselves. The orthodox and institutional analyses stress certain general characteristics (corruption, transparency, budgetary administration), while the regulation-based analysis observes the relation between the institutional models and the policies in light of the fixed objectives and results achieved, without ignoring the demands related to functioning.

The true yardstick

The regulation approach cannot be used only on the macro level. It must be applied to sectors considered essential or strategic to the development of a society. It is this point that generates the most important differences among the three approaches and different measuring methods.

For example, if it is considered that the rural sector is fundamental for the country’s development with a vital impact on poverty, regulation of this sector becomes a key to measuring governance and discovering what kind of governance has been constructed. This implies looking at the policies for the sector, the institutions that act in it and the quality of the social arrangements to construct a dynamic vision that gathers impact data for evaluating progress and identifying strong and weak points.

At one historical point during the formation of its national state, Denmark regulated its agricultural sector in a way that allowed it to make an enormous qualitative leap in the rural sector, establishing generalized micro-credits, price regulations, and protection and social support for agricultural producers. These elements combined in a sustained way over time until a kind of governance was achieved that strengthened both the nation-state and the development of a key sector, a combination that exerted positive pressure on the whole country’s social development.

We could extend this kind of reflection to other experiences and other spheres, such as the environment, the informal sector, social services, public services, etc. In reality, measuring governance implies revising ideas such as “institutional strengthening” and “capacity building,” which may not be bad in themselves but are useless unless they are rooted in concrete strategies, policies and specific social arrangements. This is nothing new, in fact it is how a country’s institutional development has always been verified.

Angel Saldomando is an independent researcher specializing in governance. The above is a summary of his presentation to France’s International Aid Council in September 2002.

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