The term “good governance” has increasingly been used to describe the regulatory interventionist regime necessary to support free markets in order to reduce, minimize and dampen suboptimal market outcomes due to constraints present in the real world. The concept was also adopted by development literature whereby it was argued that better institutions (that is, better governance) is one of the vital factors which differentiates a country’s relative progress in social and economic development.
What is Governance?
Governance has been defined differently depending on the context, however for clarity, lets first understand what governance is not. Governance is not synonymous with government. Therefore, there is always a danger that a governance issue maybe dubbed a ‘government’ issue, with the corollary that the onus for fixing it necessarily rests with the government.
Governance has been defined by the UN ESCAP (United Nations Economic and Social Commission for Asia and the Pacific) as “the process of decision-making and the process by which decisions are implemented or not implemented”. An analysis of governance processes reveals that it involves a number of formal and informal actors including government, private sector, civil society, religious leaders, NGOs, media and others depending on specific governance issues.
Better governance is the result of meaningful and productive interactions between the actors involved in decision-making and its implementation. Thus, the more mature, responsible and educated the actors, the better the results. Good governance is equally important in the international, national, sub-national and corporate governance scenarios, as all of them affect the general
wellbeing and welfare of people.
Democratic Governance – Serving Citizens
In terms of the state and citizens, governance is about provision of public goods to persons living within certain parameters; it is the quality of these public goods that distinguishes strong states from the weaker ones. A well-governed nation provides the rule of law, political and civil freedom, healthcare, education, arteries of communication, a banking and money system, a fiscal and institutional context within which citizens can prosper; support for civil society; and a method of regulating the sharing of the environmental commons. Together, the management, supply and delivery of some or most of these goods constitutes governance, states Rotberg, Director of the Programme on Intrastate Conflict at Harvard University’s John F. Kennedy School of Government.
Key Factors of Good Governance
The distinguishing characteristics of good governance which have been commonly accepted and pioneered by UNDP (United Nations Development Programme) are; accountability, transparency, consensus orientation, participation, rule of law, efficiency and effectiveness, equity and inclusivity.
The World Bank rates over 200 countries annually on its WGI (Worldwide Governance Indicators) to measure the level of governance in these countries. WGI includes six dimensions of governance; voice and accountability (VA), regulatory quality (RQ), political stability and absence of violence/terrorism (PV), government effectiveness (GE), rule of law (RL), control of corruption (CC).
Governance in Pakistan
Successive Pakistani Governments have underscored ‘good governance’ as an essential step towards a prosperous Pakistan. Trade bodies and the private sector and businesses have also aspired towards and demanded good governance which will instigate efficiency, reduce cost of doing business and ensure the implementation of contracts.
A look at Pakistan’s performance on WGI between 1996-2007 reveals that not much progress has been achieved on any of the six determinants of good governance. In fact, Pakistan’s ranking in the world has declined on all of these indices during the last two years.
There is a genuine concern at all levels of elected representatives, public functionaries, civil society and among private businesses, about suboptimal governance in Pakistan, which results in inefficiencies in the economic sector, implementation of basic rights and security, and poor provision and quality of public goods and services.
Pakistan has gone through structural adjustment programmes funded and endorsed by IFI’s (International Financial Institutions) with the aim of improving governance, institutions and the economy. During the last two decades, Pakistan has significantly reduced subsidies on food and fuels, liberalized its financial markets and is now implementing second generation financial reforms. It has successfully privatized the public-run banking sector, fertilizer plants, its national telephone company, public transportation and the Electricity Supply Company of its biggest city.
In spite of these efforts, governance in Pakistan has seen marginal improvement, if any. For example, telephone services have not shown any improvement since the management of the national monopoly has been handed over to a private entity. Amounts spent on the capacity building of judicial officers, public officials and public representatives in three tiers of government over this time period seem to have not affected them in a substantial way.
Rule-based versus Relationbased Governance
This scenario is better explained in the framework of a rule-based system of governance versus a relation-based system. Rule-based governance is based on explicit and clear contracts with clear monitoring mandates.
Maturity Indicator: Rule-Governance
Rule-based governance consists of a mature informational infrastructure such as auditing, accounting, rating agencies, legal codes, cases, and efficient regulatory regimes. Until universal informational sharing is possible; laws on paper are mere ink. All these accumulate with time as accountability processes take root in a continuous and representative democratic system.
Establishment of rule-based governance in a country is a long evolutionary process, since rules can only be implemented if all decisive players have mutually consistent beliefs and they become common knowledge.
Dysfunctionality Indicator: Relation-Governance
In the absence of rule-based governance, countries function under a ‘relation-based governance’ system, whereby most transactions are based on personal and implicit agreements.
Governments are usually not able to enforce contracts and regulate impartially. Players are more interested in getting a larger share in the pie rather than increasing the size of the pie. All decisions are made taking a short-term view and taking into account immediate gains. The incentive matrix in this case resembles a prisoner’s dilemma whereby collaboration will result in value maximization while deviation is unilaterally beneficial and results in inefficiencies. Ex-ante behaviour of players is based on their expectations for their ex-post bargaining power which in turn is dependent on ex-post institutional arrangements and also the behaviour of the government (for example, whether it is predatory, benevolent, partisan or otherwise).
The Effects of Relation-Based Governance in Pakistan
Relation-based governance is common in countries where there is lack of circular monitoring. There is no clear separation between judiciary, legislature and executive levels – or one arm is overwhelmingly powerful. In such scenarios, business is carried out and contracts are made purely on local and personal knowledge and through personal ‘rapport’, resulting in large individual gains at the cost of a maximization of gains.
The transaction cost is negligible in these cases, unlike in the rulebased governance system, which involves large total fixed transaction costs. The average transaction cost however is high in the form of suboptimal use of resources and inefficient outputs.
Quite recently relation-based governance in Pakistan has manifested in the hoarding of food essentials, speculation on commodities and currencies and a price bubble in stock markets in the backdrop of hapless state regulation: Thus, yielding high inflation, devaluation of the rupee, depleting foreign exchange reserves, a slowdown in economy and rising unemployment. The result? Few winners – and the rest, all losers.