Designing good policies is one thing, implementing them is another

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What key insights have emerged from development economics in the past decade, and how should they impact the work of the World Bank? A new working paper Toward Successful Development Policies: Insights from Research in Development Economics from the Bank’s research department captures 13 of the most significant insights in the world of development economics.

Here’s insight #5 on the need for complementary policies and institutions and how critical is a strong implementation capacity. See all previous insights here: Thirteen insights for successful development policies

Forging and adopting technically sound policies is necessary for successful development, but it is not enough: any policy is only as good as its implementation. Policy implementation can fail for two broad reasons: (1) the absence of complementary measures needed to make the chosen policy effective; and (2) the inadequate capability of prevailing institutions and administrative systems.ref1

The development community has long championed individual policies and programs as the solution to development problems: building schools and making schooling mandatory to improve education, lowering barriers to entry for enterprises to reduce informality, increasing the number of policemen to fight crime, pegging the exchange rate to lower inflation, and so on. But without a supporting institutional framework and capable public sector organizations to implement them, even technically sound policies and programs are likely to fail. This realization can explain the wide variety of outcomes of specific interventions and policies, as well as broad developmental approaches. It can also explain the frustrating performance of foreign aid in driving development outcomes – providing money to countries without competent institutions and accountable leaders may only result in waste and corruption.ref2,ref3

The need for complementary policies and institutions

Complementary policies can make reforms successful.ref4 Children do not learn if they are hungry, so educational and nutritional policies should go hand in hand.ref5 Parents do not vaccinate their children if they are struggling to survive, so immunization campaigns should target the poor and provide pecuniary benefits to families that participate.ref6 Farmers do not adopt new crops and technologies that are potentially more profitable but also riskier, so introducing new farming practices should be accompanied by improved insurance mechanisms and access to markets.ref7 This principle of complementarity also applies to macroeconomic policies. Trade openness cannot promote competitiveness if domestic industries are burdened with excessive regulations, so international openness should be accompanied by streamlining regulations and improving public infrastructure.ref8    

Beyond a mix of policies, complementary institutions are also needed for successful reforms.ref9 Consider, for instance, the “Washington Consensus,” which in the early 1990s encouraged a familiar combination of macroeconomic stabilization, trade openness, and market liberalization policies to promote economic growth and poverty alleviation.ref10 The Washington Consensus policies by themselves make sense and are potentially useful, but this potential can only be realized when the policies are accompanied by complementary institutions and organizations that make them synergistic and sustainable:ref11,ref12 a regulatory framework that promotes competition and market flexibility; an autonomous central bank that directs monetary policy to promote price and financial stability; and a government that manages resources responsibly to provide public services, social protection, and infrastructure. Failure to improve the institutional environment can lead to disappointing economic and social outcomes and even the reversal of well-intended policy reforms. Arguably, this is what happened in Argentina over the last two decades, as the country searched for macroeconomic stability and growth without the ability to reform the institutions that controlled fiscal resources at the national and regional levels.ref13 From specific sectoral interventions to large macroeconomic reforms, a conducive institutional environment is critical to their success.

The critical importance of strong implementation capacity

No less important is the capacity of the public sector to implement policies and manage institutions. Inadequate public sector capacity undermines policy effectiveness. This gap is often evident in service-delivery sectors that require many people to interact over long periods of time and to exercise considerable discretion – and who are often under pressure not to do their job (such as tax collectors and law enforcement officers).ref14 For instance, to “produce” a young adult able to contribute to the modern economy takes at least 12 years of formal education, which equates to roughly 12,000 hours of classroom instruction. Yet many countries struggle to implement even the most rudimentary aspect of the education challenge: ensuring that their teachers actually show up for work, let alone deliver a thousand hours of classroom time each year. More broadly, most countries have enacted sound policies pertaining to the provision of universal primary education, but many of them lack robust institutional support and implementation capability to carry out those policies.ref15 This results in enormous variation in performance: students in Vietnam perform as well as those in many OECD countries, while students in other middle-income countries can attend school for a decade yet still struggle to read a newspaper headline or do double-digit subtraction.

Much the same can be said of anti-corruption campaigns: countries can hire experts to write laws denouncing the use of public resources for private gain, but in practice such policies only work to the extent that front-line staff, their managers, and the whole public sector hierarchy are bound by strong standards, norms, and controls and are provided with incentives that are effectively enforced. Experimental and other research has carefully documented the ways in which organizational norms and incentives shape employee performance. In India, the same doctor working in her private practice after hours is vastly more diligent than when working in the public sector;ref16 in Ghana, certain units within national ministries have created work environments enabling them to perform at considerably higher levels than others.ref17

The World Bank is taking these concerns more seriously, even as it has struggled, over multiple decades, to become a true learning organization.ref18 The expansion of the Bank’s sectoral agenda (into wide-ranging areas such as governance, social development, gender equality, and climate change) and the global imperative to become more active in fragile states have generated a corresponding demand to deploy an array of implementation strategies. Meeting the Bank’s corporate objectives and, more importantly, helping our clients meet theirs, will entail not only adopting better policies but also giving more focused attention to building complementary support systems and organizations with strong implementation capacity.

Authors

Norman Loayza

Lead Economist, Research Department, World Bank

Michael Woolcock

Lead Social Scientist, Development Research Group, World Bank

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