Whether it is in the U.S. presidential election campaign or as a result of the debt crisis in Europe, people on both sides of the Atlantic are debating the role of the state. Do we need more government or less of it? Do we want more public services provided by the state and funded with taxpayers’ money? Or are we better off with the private sector and nongovernmental organizations (NGOs) doing the job? After all, sometimes, the state does a lousy job and, on top of that, it can put countries on unsustainable debt paths.
This is a fascinating question, and one quite old. Since the early state-building experiences of Europe, the fiscal contract has underpinned the relationship between citizens and their governments. In return for broad based taxation, governments provide their people with basic services, welfare benefits, and public goods.
In the developing world, however, sometimes one is struck by the absence of these services. In some countries, provisions such as roads, hospitals, security and sanitation are largely scarce. Not surprisingly, the social contract barely exists in those cases. As a result, new actors have emerged to bridge the gap in service delivery. Civil society organizations, philanthropic donors and private entrepreneurs have become key players in the development space. For instance, the NGO BRAC  employs over 120,000 people, and provides services across Bangladesh in areas as diverse as education, agriculture and health.
Has the emergence of non-state actors altered the fiscal contract? Do citizens still consider their governments legitimate when they are not the primary service provider?
In the new edition of the World Bank’s Economic Premise , ”Can Donors and Non-State Actors Undermine Citizens’ Legitimating Beliefs ,” Audrey Sacks evaluates the growing role of non-state actors in service provision, and whether it undermines the credibility of the state. Evidence suggests that an increase in service delivery, regardless of who provides it, strengthens the citizen-state relationship.
In Zambia, for instance, where World Vision among other NGOs has been providing a substantial number of services, a survey carried out by Audrey Sacks in some provinces from 2008 to 2009 found that almost half of respondents believed that public services in their community have improved. And of those who said services didn’t improve, 88 percent blamed the government, not the NGOs.
Citizens who observe government officials collaborating with NGO staff in the field are likely to hold positive views of the state’s role in development. Favorable opinions are amplified when the general public perceives its government to be legitimate, competent, effective, and fair in serving the population. This in turn creates a virtuous circle, increasing legitimacy of the state, and allowing it to tax and expect compliance with its laws.
However, the development landscape is rocky. Many states in the developing world remain mired in poor governance and corruption, and public trust in governments is often low. On the other hand, not all non-state actors are benevolent. Many take the form of sectarian or militant groups, exploiting the absence of government.
“Unlike sectarian and rebel movements that tend to flourish where they can provide the goods that citizens are not receiving from their own government (…), NGOs and donors do not have aspirations to wrest control from the government and are therefore unlikely to replace the state as a source of authority,” writes Sacks.
Another aspect is when governments can exercise very little control over donor aid. But when accountable government institutions are in place, governments coordinate well with donors and non-state providers, as it’s been the case of Botswana.
Despite all the challenges, the proliferation of new players is a clear tendency. The interaction between state and non-state actors plays out as a game: with sub-optimal outcomes when competition prevails, or with a “triple win” (for governments, non-state actors and the population) in the cooperative-game case.
Follow the latest from Otaviano Canuto at twitter.com/OCanuto  and keep up with the World Bank's efforts to help countries fight poverty and close gaps in income and opportunity at twitter.com/WBPoverty . For more Economic Premise notes, go to worldbank.org/economicpremise .