Governance and Growth: History, Ideology, and Methods of Proof

Abstract

There is a broad consensus that sustaining growth in poor countries is a challenge not only because the right economic policies have to be identified but also because policies have to be supported by appropriate governance capabilities, which in poor countries are correspondingly weak. Weaknesses in governance have therefore received a great deal of attention in Africa and other poorly performing areas of the world. However, there is much less agreement about the specific governance capabilities that are required to trigger and sustain growth in countries at different levels of development and facing different development problems. This chapter points out ideological, methodological and historical differences in the ways that governance is understood by making a distinction between the dominant liberal approach to governance, which we call 'market-enhancing' governance (and which is generally referred to as good governance), and an alternative view of governance appropriate for developing countries which draws on the historical evidence of catching up. We describe the alternative approach as 'growth-enhancing' governance.The divide between these approaches is not just about the underlying economic theory and reading of history. Their differences touch on broader differences within economics and the social sciences about how relevant knowledge about social change and policy can be acquired and tested with data and historical knowledge. As such, the debate about governance also flags deeper differences within the social sciences that policy-makers need to be aware of. Methods of research and testing of hypotheses are not 'right' or 'wrong' because it is very difficult to disprove the validity or otherwise of broad analytical methods. Instead, we can at least make policy-makers aware of the differences between methods, the strengths and weaknesses of each, and allow them to assess the plausibility of competing explanations and their applicability and appropriateness for their particular context. Governance refers to how state and society interact. Therefore questions about governance cannot be separated from broader questions about the economic role of the state in sustaining growth. Many of the dominant views on governance reform priorities for developing countries implicitly draw on a particular view of the role of the state that is based on a view of markets as largely able on their own to allocate resources and draw forth entrepreneurial capabilities that are necessary for sustaining economic development. This view argues that the appropriate governance capabilities to ensure growth and development should be market-supporting governance capabilities to maintain a rule of law, stable property rights, control corruption and operate political institutions that ensure accountability through democratic processes.This view, which we describe as the liberal 'good governance' or 'market-enhancing' approach draws heavily on contemporary advanced capitalist countries as models for the types of governance capabilities dev...

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