1 Governance Matters – Power of Data Challenging Orthodoxies on Democracy, Corruption and Poverty Daniel Kaufmann and Colleagues Seminario Democracia y Desarrollo Vallalolid, Spain, March 7-8

2 Setting the Governance ‘Straw Man’ and Challenging Orthodoxies Good Governance and Democracy a Luxury good? Democracy necessarily rapid growth? Improved Governance = Control of Corruption? Failed States = Dysfunctional Bureaucracy Administrative Bribery main Corruption problem? Unreliability & Unavailability of Data in governance? These orthodoxies will be answered in the negative and suggestions for strategic approach put forth.

3 Broadening Analytical Framework: Governance: A working definition Governance is the process and institutions by which authority in a country is exercised: (1) the process by which governments are selected, held accountable, monitored, and replaced; (2) the capacity of governments to manage resources efficiently, and to formulate, implement, and enforce sound policies and regulations; and, (3) the respect for the institutions that govern economic and social interactions among them

4 Operationalizing Governance: Unbundling its Definition into Components that can be measured, analyzed, and worked on Each of the 3 main components of Governance Definition is unbundled into 2 subcomponents: Voice and Accountability Political Stability and lack of Violence&Terror Quality Regulatory Framework Government Effectiveness Control of Corruption Rule of Law We measure these six governance components…

5 Control of Corruption: one Aggregate Indicator (selected countries from 155 worldwide, for illustration, based on 1998 research data*) Source: ‘Governance Matters’, PRWP 2196 by Kaufmann, Kraay and Zoido. POOR GOOD Corruption Level Margin of Error Good Corruption Control

6 ‘Traffic Light’ World Maps Rule of Law – 2000/01 Source for data: ; Map downloaded from : Colors are assigned according to the following criteria: Red, 25% or less rank worse; Orange, between 25% and 50%; Yellow, between 50% and 75%; Light Green between 75% and 90% ; Dark Green above 90%

7 Rule of Law Index, 2001 (preliminary, selected countries) : Failed States, in Crisis, Vulnerable, Out of Danger… Rankings were calculated on the basis of 2001 country estimates. Source: KKZ01. Preliminary Poor Good

8 ‘Traffic Light’ World Maps Voice and Accountability – 2000/01 Source for data: ; Map downloaded from : Colors are assigned according to the following criteria: Red, 25% or less rank worse; Orange, between 25% and 50%; Yellow, between 50% and 75%; Light Green between 75% and 90% ; Dark Green above 90%

9 ‘Traffic Light’ World Maps Control of Corruption – 2000/01 Source for data: ; Map downloaded from : Colors are assigned according to the following criteria: Red, 25% or less rank worse; Orange, between 25% and 50%; Yellow, between 50% and 75%; Light Green between 75% and 90% ; Dark Green above 90%

10 ‘Traffic Light’ Map – Latin America Control of Corruption – 2000/01 Source for data: ; Map downloaded from : Colors are assigned according to the following criteria: Red, 25% or less rank worse; Orange, between 25% and 50%; Yellow, between 50% and 75%; Light Green between 75% and 90% ; Dark Green above 90%

11 Mapa “Luz de Semaforo” – America Latina Control de la Corrupción – 2000/01, Ajustado por Ingreso Fuente de datos: ; Grafico bajado de : Los colores estan assignados de acuerdo a los siguientes criterios: Rojo, 25% o menos ; Naranja, entre 25% y 50%; Amarillo, entre 50% y 75%; Verte, mas de 75%

12 ‘Traffic Light’ Map – Latin America Voice and Accountability – 2000/01 Source for data: ; Map downloaded from : Colors are assigned according to the following criteria: Red, 25% or less rank worse; Orange, between 25% and 50%; Yellow, between 50% and 75%; Light Green between 75% and 90% ; Dark Green above 90%

13 Mapa “Luz de Semaforo” – America Latina Voz y Rendición de Cuentas – 2000/01, Ajustado por ingreso Fuente de datos: ; Grafico bajado de : Los colores estan assignados de acuerdo a los siguientes criterios: Rojo, 25% o menos ; Naranja, entre 25% y 50%; Amarillo, entre 50% y 75%; Verte, mas de 75%

14 Governance Indicators for Angola, 1997/ /01 Note: the thin lines depict 90% confidence intervals. Source: KKZ Governance Research Indicators Chart and data downloaded from web-interactive program at : Governance Research Indicators

15 Zimbabwe Over Time (vs. Botswana) 6 Aggregate Governance Indicators (Percentile Rankings, / ) Rankings were calculated on the basis of 2001 and 1998 country estimates. Sources: KKZ98/KKZ01. Number of countries in worldwide sample, depending on component of governance ranges between 161 and 194.

16 The ‘Dividend’ of Good Governance Infant Mortality and Corruption WeakAverageGood Control of Corruption x Development Dividend 0 2,000 4,000 6,000 8,000 10,000 12,000 WeakAverageGood Regulatory Burden x Development Dividend Per Capita Income and Regulatory Burden Literacy and Rule of Law WeakAverageGood Rule of Law x Development Dividend Per Capita Income and Voice and Accountability WeakAverageStrong Voice and Accountability x Development Dividend :

17 Lower Income Households ‘Pay’ Disproportionally Bribe/Total Income ratio % ( A Latin American Country )

18 Romania: Disproportionally Negative Impact on the Poor

19 Citizen Voice Improves Accessibility of Public Services to the Poor Based on Public Officials Survey. The sample of institutions includes 44 national, departmental, and municipal agencies which are a prior anticipated to be accessible to the poor

20 Citizen Voice Helps Control Bribery in country in LatAm Based on 90 national, departmental, and municipal agencies covered in the Bolivia Public Officials Survey.

21 Transparency within Government Agencies Prevents Purchase of Public Positions Based on 90 national, departmental, and municipal agencies covered in the Public Officials Survey.

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23 Defining and Measuring State Capture Elite firms illicitly shape rules of the game to their advantage, particularly through: –private purchase of legislative votes –private purchase of executive decrees –private purchase of court decisions –Illicit influence of Central Bank regulations/policies –illicit political party financing

24 An Index of State Capture

25 Measuring State Capture

26 …at an enormous Socio-Economic Cost

27 At A Very High Socio-Economic Cost

28 Do Foreign Firms bring Good Governance?

29 Towards a Solution: More Political Competition Pace of Econ Reform Political Reforms

30 Towards a Solution: Collective Action by Firms

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33 Strategic Implications for Debate Prioritized, Differentiated ‘Comprehensiveness’ Governance Indicators as strategic input, for Monitoring, for lessons from failures and successes Need to complement with in-depth country diagnostic Addressing challenge of State Capture (not just gov’t…) Upgrade role of private/business sector / associations Citizen Voice and Transparency as key developmental variables -- Collective Action & Power of Data Synthesis: IG = K.I + PL + CA (also for donors…) Webtool access to data, charts, analysis and methods:

34 Data Presented for Analysis and informing Policy Advise, not for Precise Rankings The data contained in this presentation originates from various enterprise surveys (as well as outside expert rating agencies) and are subject to a margin of error. The purpose is therefore not to present precise comparative rankings across countries, but instead to illustrate characteristics of governmental and corporate performance in order to assist in drawing implications for action. No ranking of countries is intended in presenting results from these external sources by either the presenter of this work, the World Bank or its Board of Directors. Further details and data, visit: