Poverty Reduction - Good Institutions

Good Institutions

Efficient institutions that are not corrupt and obey the rule of law make and enforce good laws that provide security to property and businesses. Efficient and fair governments would work to invest in the long-term interests of the nation rather than plunder resources through corruption. Researchers at UC Berkeley developed what they called a "Weberianness scale" which measures aspects of bureaucracies and governments which Max Weber described as most important for rational-legal and efficient government over 100 years ago. Comparative research has found that the scale is correlated with higher rates of economic development. With their related concept of good governance World Bank researchers have found much the same: Data from 150 nations have shown several measures of good governance (such as accountability, effectiveness, rule of law, low corruption) to be related to higher rates of economic development.

Funds from aid and natural resources are often diverted into private hands and then sent to banks overseas as a result of graft. If Western banks rejected stolen money, says a report by Global Witness, ordinary people would benefit “in a way that aid flows will never achieve”. The report asked for more regulation of banks as they have proved capable of stanching the flow of funds linked to terrorism, money-laundering or tax evasion.

Some, like Thomas Pogge, call for a global organization that can manage some form of Global Resources Dividend, which could evolve in complexity with time.

Examples of good governance leading to economic development and poverty reduction include Thailand, Taiwan, Malaysia, South Korea, and Vietnam, which tend to have a strong government, called a hard state or development state. These “hard states” have the will and authority to create and maintain policies that lead to long-term development that helps all their citizens, not just the wealthy. Multinational corporations are regulated so that they follow reasonable standards for pay and labor conditions, pay reasonable taxes to help develop the country, and keep some of the profits in the country, reinvesting them to provide further development.

The United Nations Development Program published a report in April 2000 which focused on good governance in poor countries as a key to economic development and overcoming the selfish interests of wealthy elites often behind state actions in developing nations. The report concludes that “Without good governance, reliance on trickle-down economic development and a host of other strategies will not work.” Despite the promise of such research several questions remain, such as where good governance comes from and how it can be achieved. The comparative analysis of one sociologist suggests that broad historical forces have shaped the likelihood of good governance. Ancient civilizations with more developed government organization before colonialism, as well as elite responsibility, have helped create strong states with the means and efficiency to carry out development policies today. On the other hand strong states are not always the form of political organization most conducive to economic development. Other historical factors, especially the experiences of colonialism for each country, have intervened to make a strong state and/or good governance less likely for some countries, especially in Africa. Another important factor that has been found to affect the quality of institutions and governance was the pattern of colonization (how it took place) and even the identity of colonizing power. International agencies may be able to promote good governance through various policies of intervention in developing nations as indicated in a few African countries, but comparative analysis suggests it may be much more difficult to achieve in most poor nations around the world.