Why does  Political Economy of reform work matter for Operations ?

Sanjay Pradhan, Vice President, World Bank InstituteMarch 6, 2009

Political economy (PE) approach enhances development effectiveness

Country teams often lack systematic approach to PE This often results in over-estimating support for reforms,

stalled/problem projects, failed implementation The process of change is central to development but is

not well reflected in the conceptual or operational work of most development organizations

Yet there are good examples of quick and practical Bank PE work with promising results

For better results on the ground, systematically integrate PE in work of country teams

The Foundation: Three layers of problem-driven analysis

Political economy

Vulnerabilities& concerns

Institutional arrangements & capacities

What is the evidence of poor outcomes?

Growth diagnostics, poverty assessments, CAS completion reports, project evaluations, etc.

What institutional arrangements & capabilities contribute to poor outcomes?

Why are things this way, and how to bring about change?

Mapping of institutions, Public Expenditure Tracking Surveys (PETS), corruption assessments/governance diagnostic surveys

Analysis of stakeholders (using various tools), incentives, rents/rent-distribution, etc.

Zambia: Country governance and political economy diagnosis

Problem/ Concern Stalled implementation

Political economy drivers Centralized authority Significant space for citizen voice Elite economic nationalism Extreme tilt to status quo

Implications for sectors/CAS platforms No electricity & water price rebalancing (strong voice of urban consumer) => no unbundling or international concessions in electricity (economic nationalism) No telecom gateway liberalization (economic nationalism)

Zambia (cont.): Tailored sector engagement

Target elite incentives Electricity generation: Mining company

incentives to accept full cost of new generation capacity

Telecoms: Focus on domestic cellphone pricing which impacts urban consumers rather than international gateway which impacts influential Zamtel

Build local coalitions for specific interventions Urban water and electricity distribution:

Build support from urban coalitions with incentive to protect system from decay

Impact Approach being mainstreamed in CAS

implementation

Sequencing reforms given existing reform space

Seeking to expand

reform space pro-actively

Philippines public procurement reform – pro-active coalition building to combat entrenched corruption networks

Zambia telecoms: focus on domestic pricing impacting urban than international impacting influential Zamtel

Mongolia Mining: TA with local think tank for public debateParaguay & Bangladesh roads: external monitoring by stakeholders

Ethiopia PBS to mitigate reputational risk: support subnational service delivery with participation

India power: reform sequencing

Making Reforms HappenManaging & Overcoming Political Obstacles

Media Private

SectorMunicipal Government Military

State (Bureaucracy)Political Parties

Civil Society

International Legislative Branch

Judiciary

1

Source: “Robust Web of Corruption: Peru’s Intelligence Chief Vladimiro Montesinos,” Kennedy School of Government Case Program, Case C14-04-1722.0, based on research by Professor Luis Moreno Ocampo; Peru: Resource Dependency Network, 2000

Vladimiro Montesinos

Alberto Fujimori

Entrenched corruption networks: Montesinos’ corruption network in Peru

Transparency and Accountability Network (20+ member groups)

Walang Ku-Corrupt Movement (Youth)

PAGBA &AGAP(w/in Gov’t)

CBCP(Church)

Philippine Contractors Association(private sector – main stakeholder)

Local chambers of Commerce (Private sector)

Procurement Watch:Procurement Watch:Drew other civil society groups into the advocacy efforts and

coordinated the activities

Forging coalitions for reform: Philippines procurement reform

Some emerging lessonsOperational value of PE work for better results

Help unveil underlying drivers of poor development outcomes

Enhance likelihood of success through better design

Propose where and how to engage: selectivity within existing space vs. proactive expansion of existing space

Tangible results require Action-oriented PE rather than academic analysis Managerial attention to translate findings into action Shifting the focus from what needs to happen, to

how to make it happen, for moving from a poor equilibrium to a better one

A WBI Perspective

“Safe-space” engagement with the multiplicity of stakeholders needed to make reforms sustainable

Helping to turn analytical frameworks into action through dialogue with government, civil society and other stakeholders

Helping Bank operations and country stakeholders identify entry points and priorities for reform with higher ownership and likelihood of success

A focus on capacity development Programs to help enhance leadership, dialogue, coalitions,

change management and innovation Participatory diagnostics to help reformers de-politicize policy

debates to focus on specific weaknesses with wider buy-in and understanding of problems

Linking into local, regional and global networks of practitioners and countries that have faced similar challenges

Discussion

Selected further examples

Bangladesh roads sector: DiagnosisProblem

Corruption in road construction and maintenance

Set up Poor planning with weak links to budgeting

Weak procurement system and internal controls

Political economy drivers Highly partisan road agency Roads a major source of campaign finance

Bangladesh roads: Bank Engagement

Difference in Approach Extensive operational sector risk analysis

Result Diagnosis : Internal market for public

office Recommendation: Engage external

stakeholders in monitoring roads construction and maintenance

P-E Approach Combined an economist and an

anthropologist Explaining persistence of

dysfunctionalities; exploring ways of addressing them

Philippine procurement reform (1998-08)Problem

Corruption perceived as a very serious problem with public procurement and tax collection as major sources

“Great Wall” phenomenon – corruption pervasiveSet up

Legal foundation a mess Over 100 laws, regulations, executive orders

(promulgated over a thirty year period) governing public procurement, creating inconsistencies and loopholes

Public procurement consistently perceived to be highly corrupt in annual surveys

Political economy drivers Vested interests Procurement of infrastructure and key goods, e.g.

drugs/textbooks, source of campaign funds for incumbent politicians

Philippine procurement reform (cont.)Difference in approach

Break up into two phases; focus first on getting an omnibus procurement law passed instead of launching a broad anti-corruption program

Anchor effort on building a support coalition within and outside, fueled in part by a well thought out and cleverly implemented communications strategy

Result Despite vested interests and political pressures, law

passed in 2003 (it took 3 years, 3 presidents, 11th and 12th Congress)

New challenges emerge in implementing law. WB Global Polls (Nov 08) and Client Survey (Sept 08) show strong demand for WB assistance with anti-corruption work. Public opinion survey (Nov 06) showed public support for procurement reform.

PE Approach Focus on the “how” – moving from a bad equilibrium to a

better one

Philippines tax administration reformProblem/concern

Previous Bank reform effort unsuccessfulDiagnosis

Country-level political economy drivers … Culture of corruption and patronage Elite capture of politics Weak legal enforcement Low revenue mobilization

… and implications for sectors/project Low capacity, obsolete tax administration system Low tax compliance; Discontinuity of political leadership at agency level Weak staff commitment/resistance to reform

Philippines tax administration reform (cont.)Implications

Adjusted project strategy : Limited goals, small investment loan Focus on demonstrating modest early

successes Resources to change management strategy

within agency

Impact to date Revenue collection up Incipient system-wide improvements Ongoing monitoring envisioned

Governance and political economy diagnostics framework

GPE can be applied to country, sector, or specific operationsMacro: country level

Analysis of overall country context. Also as a background note for meso and micro level work

Meso: thematic and sector level Thematic problem-driven GPE analysis, e.g. on natural

resource management, linking governance and growth Sector-focused problem-driven GPE to inform CAS

pillars, sector strategies & Development Policy Loans, complementing technical sector analysis

Micro: specific operations or policies Such analysis is focused on generating direct advice to

a single operation or for the dialogue on a specific policy issue (e.g. Prior Action)

Complementary analysis Vulnerability/ problemconstraints to growth/poverty

reduction, challenges to achieve results in

sectors; unsatisfactory operations

Technical diagnostic What can be done?

(setting out options) – e.g. of infrastructure

needs, social protection systems, etc.

Problem driven governance

and political economy diagnostics

1) Identification of governance arrangements and underlying

political economy drivers2) Assessment of feasibility of

policy options

dialogue

Approach to reformsWBG policy advice to

government/engagement with local

stakeholders

Country-level GPEfeatures & situation

Structural

Constitutional set up, electoral rules; policy and budget processes,  Set-up of government; ministries and their roles and mandates  

Informal: rules of patronage networks Political leaders; political parties, (organized) interest groups; heads of SOEs;  external stakeholders

Examples

Economic base and level of development, commodity prices; population dynamics;  

Institutions

Variables

Actors/ stakeholders In

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Three groups of factors for political economy analysis

Thank you.