Is the importance of governance and anti-corruption overrated? Is governance is a luxury that only rich countries can afford? Doesn't it take generations for governance to improve? Not according to Daniel Kaufmann, Director of Global Programs at the World Bank Institute. In his article 10 Myths About Governance and Corruption, just published in Finance & Development, Kaufman tackles those and other myths. The potential economic gains from improved governance are big:
The research generally shows that countries can derive a very large "development dividend" from better governance. We estimate that a country that improves its governance from a relatively low level to an average level could almost triple the income per capita of its population in the long term, and similarly reduce infant mortality and illiteracy.
But it is a fallacy that one "fights corruption by fighting corruption":
..through yet another anticorruption campaign, the creation of more 'commissions' and ethics agencies, and the incessant drafting of new laws, decrees, and codes of conduct. Overall, such initiatives appear to have little impact, and are often politically expedient ways of reacting to pressures to do something about corruption, substituting for the need for fundamental and systemic governance reforms.
Kaufman argues against the 'business-as-usual' modus operandi: "a bolder approach is needed". A key part of the solution is greater transparency and accountability. To do that you need among other things, better measures. The World Bank Institute's good governance and anti-corruption activities have developed Worldwide Governance Research Indicators covering 209 countries, helped to build governance diagnostic capacity, and are now seeking to better measure transparency.
In a forthcoming World Bank Policy working paper, Transparenting Transparency: Initial Empirics and Policy Applications, Ana Bellver and Daniel Kaufmann construct an initial transparency index for 194 countries. The aggregate index is based on over 20 independent sources, and has two sub-components: economic/institutional transparency, and political transparency. An unobserved component model was used to generate country ratings and margins of error. What did they find?
The results emphasize variance. First, the preliminary evidence based on these initial indicators suggests enormous variation across countries in the extent of transparency. ...Further, there is significant within-country variation, with large differences in performance between economic/ institutional and political dimensions of transparency.
Liberia and north Korea had the worst economic/institutional transparency, while the United States had the highest, closely followed by Canada, Chile and the UK. Political transparency estimates saw North Korea and Libya at the bottom, while the Nordic countries fared best. Though "mindful of the challenges in inferring causality", their analysis finds that:
..transparency is associated with better economic and human development indicators, even after controlling for differences in income. Thus, for the same level of income per capita, countries which rank higher in the overall transparency index are also more competitive in international markets and their population has higher life expectancy at birth, female literacy and child immunization levels.
This paper is very much a work-in-progress. The authors emphasise its preliminary nature, and hope "to elicit feedback at an early stage". Go read it.