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What are we talking about when we talk about “subnational” governments?

Arturo Herrera Gutierrez's picture
Municipality of Guatapé in Colombia. Photo - Adrienne Hathaway / World Bank
Municipality of Guatapé in Colombia. Photo - Adrienne Hathaway / World Bank

Over the last 25 years, the relevance of local governments (states, provinces, municipalities, etc.) in Latin America has been constantly increasing.

The process started with a wave of decentralization, particularly in the education and health sectors, followed by the increasing of other responsibilities of local governments (with the accompanying budget!), and most recently topped off by the allocation of additional investment resources fueled by the commodities boom of the mid-2000s. Currently, in some countries, half of the national budget is now allocated to lower levels of governments.

The World Bank has a long history supporting countries in the region as they transition political, administrative, and fiscal responsibilities to subnational levels, as part of national strategies for strengthening democracy, transparency, and efficient service delivery. 

Preventing renegotiation, fostering efficiency

Rui Monteiro's picture
Lawyers usually say that “the best contract is the one you never have to pull out of the drawer” — a view that focuses on trust, common understanding and mutual advantages. And then they will add that public-private partnership (PPP) contracts, even with the best government–business relationship, are a bit more complex. That’s because they are based on incentive mechanisms that require not only regular monitoring, but also some degree of cooperation and a modicum of strategic management — the three components of PPP contract management.
Photo: Wikimedia Commons
The ultimate success of a PPP contract depends on effective service delivery under conditions of sustained efficiency. The efficiency comes from linking private operator rewards to performance over the long-term (output focus), and from providing credible commitment by the private partner through private finance (or, as it’s known in some circles, “hostage capital”).
There are many cases, as seen in previous issues of Handshake, of PPPs providing high-quality reliable service to users at a reasonable cost for users and taxpayers. But there is also recognition that, over the long-term, PPP efficiency may be jeopardized by contract renegotiation — by necessity renegotiation under no competitive pressure, with asymmetrical information.

This sort of renegotiation creates a risk of breaking the initial commitment, changing rewards and risk allocation. Though theoretical economists would say 
that “in the long-term” renegotiation of incomplete contracts is unavoidable, PPP practitioners should do their best in order to avoid the need for renegotiation, while simultaneously preparing for renegotiation when it is the best solution in terms of public interest.

Creating good jobs in Africa: demand- and supply-side policies

Stephen Golub's picture
In Africa people do have jobs: they are simply too poor not to work.  Instead, the problem is underemployment; typically 90% (or more) of the labor force is in the informal sector such as subsistence agriculture and urban self-employment in petty services.  African labor markets remain marked by large disparities in incomes between a small number of formal public and private employees, and the vast informal sector. These informal sector workers have no job security, minimal benefits, very low pay, and often face hazardous working conditions.  So the challenge is to create better jobs, as well as more jobs.

Activist strategies to sharpen economies' competitive edge: When Bernanke & Company speaks, policymakers listen

Christopher Colford's picture

So much for the myth that Washington empties out during the month of August. A standing-room-only throng flocked to a Monday-morning Brookings Institution seminar this week featuring a relative newcomer to the think-tank communityBen S. Bernanke, the former chairman of the U.S. Federal Reserve System. His wide-ranging and nuanced analysis – with all the gravitas that he once brought to his graduate economics seminars at Princeton – explored not just Brookings’ main topic of the day (“The Defense Economy and American Prosperity”) but also such subjects as macroeconomic management, the gradual recovery from the Great Recession, and lawmakers’ need to avoid hasty budget-cutting that would damage vital investment in long-term priorities. Offering some of the wit of his new blog for Brookings, Bernanke’s whirlwind analysis whetted Washingtonians’ appetite for the October 4 publication of his latest book, “The Courage To Act.”

The economic impact of U.S. military spending was the focus of Monday’s seminar, chaired by Brookings defense-policy scholar Michael O’Hanlon – but an additional, broader theme was unmistakable throughout the discussion. The competitiveness of every economy is shaped by its ability to make sustained investments in productivity-enhancing technologies – and, as the panelists explored within the context of the U.S. economy, R&D-intensive industries (whether military or civilian) have been on the leading edge of innovation, patenting, productivity growth and job creation.

Competitiveness is the holy grail of economic policymakers everywhere – and activist strategies can help every economy hone its competitive edge. For both theorists and practitioners in development, working with economies large or small, the Brookings panel’s focus on pursuing far-sighted and pro-active investment strategies holds implications for every country’s competitive positioning.

Tourism ecosystems: A way to think about challenges and solutions to tourism development

Shaun Mann's picture

Ecosystem: A complex of living organisms, their physical environment, and all their interrelationships in a particular unit of space.
Tourism: A social, cultural and economic phenomenon that entails the movement of people to countries or places outside their usual environment for personal, business or professional purposes.

I was part of a tourism ecosystem, once, when I built and operated a small lodge on the banks of the Nile in Uganda. While I was living in a tent in the bush building the lodge, life was simple: My little ecosystem was the land around the lodge and the tribulations of fending off monkeys and snakes by day and leopards, hippos, elephants and mosquitoes at night. The sun and rain beat down hard, and tools and workers broke down regularly. The generator was a particular pain in the neck.

Apart from supplies coming in, I was not really connected to the outside world. Money ran out for awhile and I had to rush to Kampala and persuade the bank give me a bigger overdraft (at 26 percent interest – thieves!).
Once the lodge was finished, I had to join another ecosystem: the world of registering the company, getting licenses, drawing up employment contracts, getting a bank overdraft, getting a tax ID number – all the elements of the enabling environment for me to do business. Then I had to join another one: I needed bums on beds, and I had to link my wonderful product to local markets; I had to develop promotional materials and packages; I had to interact and contract with tour operators and local travel agents to supply me business; I needed market access. 

Nile Safari Camp: home for two years

Then, guess what? My business plan wasn’t panning out. I didn’t get the occupancies or the rates that I projected from the local market. I had to step into yet another ecosystem: the world of international long-haul travel. I needed more and better-paying customers. I had to understand how the big international tour operators sold their product, what they were looking for in new product and how they contracted. I had to join another ecosystem to make that happen. Turns out my little product wasn’t enough to attract international customers on its own, I had to team up with other lodges and offer a fuller package; we had to cluster our products. I had to diversify and innovate and find ways to add value to my accommodation offer – birdwatching, fishing, guided walks, weddings and honeymoons, meetings and workshops. . . . Well, there are whole ecosystems around each of those market segments. You need to understand them before you can do business with them.        

Integrity due diligence: How much do we need to know?

Samuel Harrison Datlof's picture

The World Bank’s “zero tolerance” policy on corruption makes clear how thieves and embezzlers will be dealt with, if they are discovered. But what about before corruption actually occurs—how should the Bank go about preventing fraud and corruption in the first place?

The divide between prevention and enforcement shapes the World Bank’s fight against corruption in ways both subtle and profound. Enforcement is easier to conceptualize; it is tangible. Someone commits fraud or corruption, by siphoning Bank funds away from their intended purpose.  When the Office of Suspension and Debarment slams a company with a sanction, we can quantify the effect.

Prevention, on the other hand, is a slippery idea. It evades definition. Quantifying how much fraud a policy prevents relies on counterfactuals, making it far more difficult to pin down. This means, for better or for worse, innovations and efforts towards the prevention perspective may lag behind enforcement.

Fukuyama’s history of the state, book 2: Political Order and Political Decay

Duncan Green's picture

Last week, I reviewed Volume 1 (from pre-history up to the French Revolution), but before reviewing Political Order and Political Decay, the second volume of Francis Fukuyama’s monumental history of the state, it’s probably worth asking, why bother?

Political Order and Political DecayBecause whether providing/denying services, freedoms or functioning markets, the state is the most important institution underpinning development, and yet people in the foreign policy and development world operate with hazy and simplistic understandings of where states came from and how they evolve. Another example of historical amnesia, alas.

That blindness was epitomised by the 2003 invasion of Iraq, where the US government "seemed to think that democracy and a market economy were default conditions to which the country would automatically revert once Saddam Hussein’s dictatorship was removed." Oops.

According to Fukuyama, that is a particular problem because "If there is a single theme that underlies many of the chapters of this book, it is that there is a political deficit around the world, not of states, but of modern states that are capable, impersonal, well organized and autonomous."

The second volume picks up from the late 18th Century (French and American Revolutions) and brings us up to the present day. It feels both dryer in style and more fragmented than Volume One, hopping between discussions of the spread of democracy, geographical determinism, political Islam, the role of the Middle Classes and the experiences of various continents and countries in the developing world, before returning to Fukuyama’s two overriding interests – will China’s rise continue, and will anything arrest the US’ ‘political decay’? So instead of trying to identify a single thread, here are some highlights/insights:

Improving Public Investment Management: Spotlight on Ethiopia

Mario Marcel's picture
Overview of Addis Ababa, Ethiopia. Photo - Arne Hoel / World Bank
Overview of Addis Ababa, Ethiopia. Photo: Arne Hoel / World Bank

Last month I met with ministers and local officials in Addis Ababa to explore areas where we, at the World Bank, can help build institutional capability in Ethiopia. The trip was an enriching experience, both personally and professionally. It was gratifying to see first-hand the good work and commitment to development exhibited by our staff in the country.

We have had a decade-long engagement with Ethiopia with a successful track-record. Ethiopia has one of the largest World Bank portfolios in the Africa Region (US$6.1 billion in 2014) and the partnership is strong, with a robust future.

During my visit, I gave a lecture at Addis Ababa University on Public Investment Management before an audience of faculty, students, civil society organizations and donors. I shared with them how much public infrastructure investment has done for the country. Ethiopia has the third-largest public investment rate in the world and three times the average for Sub Saharan Africa.

This effort has contributed to growth that has averaged 10.9 percent since 2004—a figure higher than that of their neighbors or low-income countries on average. Infrastructure investment has also been helpful in expanding access to services and in gaining competitiveness, being a large landlocked country. 

‘Authoritarianism Goes Global’

Sina Odugbemi's picture

Policeman patrols 99% protestNorms, especially global norms, are exceedingly fragile things…like morning dew confronting the sun. As more players conform to a norm, it gets stronger. In the same way, as more players flout it, disregard it or loudly attack it, it begins to lose that ever so subtle effect on the mind that is the basis of its power.  When a norm is flouted and consequences do not follow the norm begins to die.

Looking back now, we clearly had a magical moment in global affairs a while back. Post 1989, as the Berlin wall fell, communism ended in most places, apartheid South Africa magically turned into democratic South Africa, and so on; it seemed like an especially blessed moment. The bells of freedom tolled so vigorously mountains echoed the joyous sound. It seemed as though anything was possible, that the form of governance known as liberal constitutional democracy would sweep imperiously into every cranny of the globe.

Just as important, there were precious few defenders of autocracy in those days. Almost every regime on earth claimed to be democratic, even if the evidence was discrepant. They could at least claim to be ‘democratic’ in some utterly singular if implausible way. Now, all that has changed. Despots and sundry autocrats strut the earth. They are not ashamed. They are not afraid. They are brazen. They are in your face. They say to anyone who asks: “Hey, I am a despot. I have my own League of Despots. Deal with it”.  And what is confronting the brazenness? The apparently exhausted ideals of liberal constitutionalism suddenly bereft of defenders.

The specific occasion for these reflections is the July 2015 issue of the Journal of Democracy (Volume 26, Number 3). It is a special issue focused on these matters, and I took my title from the lead essay: “Authoritarianism Goes Global: Countering Democratic Norms”, written by Alexander Cooley, Director of the Harriman Institute at Columbia University. His basic claim is as follows:

"Over the past decade, authoritarians have experimented with and refined a number of tools, practices, and institutions that are meant to shield their regimes from external criticism and to erode the norms that inform and underlie the liberal international political order." (Page 49)

What will it take to realize Pakistan’s potential?

Sri Mulyani Indrawati's picture
Sri Mulyani Indrawati meeting beneficiaries
Meeting with beneficiaries of the Benazir Income Support Programme in Lahore, Pakistan.

As Pakistan readies to celebrate its independence day, we can all feel satisfied about progress in restoring macroeconomic stability, but should also realise that the country can and should do much better. Pakistan has many assets, of which it can make better use — from its vast water and river endowment, to its coastline and cities, to its natural resources. And there are upsides: a growing middle class, a lively informal economy and a strong influx of remittances. Pakistan can also be proud of the first peaceful transfer of power between two civilian governments. But to reach its full potential, Pakistan needs to focus on two critical areas, both obvious and urgent. It needs to ensure that its people have the means to fully participate in and contribute to the economy. And it needs to integrate itself more, globally and regionally.

The first challenge is demographic. As a result of rapid population growth, 1.5 million youngsters reach the working age each year. The question is, will the private sector be able to provide the jobs they need and want? And will the youth have the skills to get good jobs? Pakistan must do far better in education. Primary school net enrollment is about 57 per cent, well below other South Asian countries. Enrollment drops by half in middle school, with much lower levels for girls and children from poor families. This is not a good foundation to build on.

It is not surprising then that Pakistan also struggles to give all its citizens the opportunity to participate in building better lives for themselves. Only 25 per cent of women participate in the labour force, compared to 50 and 80 per cent in most developing countries. Women and girls deserve better. Research shows that girls with little or no education are far more likely to be married as children, suffer domestic violence, and live in poverty. This harms not only them, but also their children, their communities and the economy. Greater gender equality can enhance productivity and improve development outcomes for the next generation. It is smart economics.

Pakistan has taken steps to empower women. The Benazir Income Support Program, supported by the World Bank, has provided millions of women with national ID cards and makes direct payments to them, strengthening their ability to take decisions and move out of poverty.