1. NS4540 Winter Term 2016 Government Performance Indicators (GPIs)

2. Overview Oxford Analytica, Governance Indicators Hide Risks, January 27, 2016 Recent release of three annual governance performande (GPIs) indicators, Freedom House, Freedom of The World, 2016 Human Rights 2016 World Report Transparency International's 2015 Corruption Perceptions Index GPIs are used increasingly by donors, lenders and investors, to inform or justify their decisions 2

3. Index Influence I Ways in which indexes are used Aid conditionality International donors often see such indices as an important tool of “soft power” to motivate governments to undertake reforms Increasingly donors make aid conditional not on future promises of compliance but on demonstrated performance on such criteria Millennium Challenge Corporation, a US aid agency established in 2004 disburses aid only to countries that score higher than the median (compared with peers in the same income category) on at least one half set of governance criteria Of these World Bank’s control of corruption has a special status 3

4. Index Influence II Multinational companies use such indices in their risk assessment when considering destinations for direct investment Treat countries ranked as more corrupt as higher risk They take greater precautions before entering into investments or business relations – clauses in contracts in contracts to allow greater control over partners International donors also use indices for risk assessment to judge whether a government is likely to use donations wisely Increasingly critical given donor’s need to convince skeptical supporters that aid money not wasted Thus strong performance on indicators can bring concrete benefits to countries – represent a way for them to build a good international reputation 4

5. Inputs and Methods I Despite their importance relatively little attention is paid to evaluating the credibility of these indicators or their methodological basis. Many indices are composite of a range of inputs Expert Analysis Many indicators use expert views as at least one input Experts chosen are often individuals with a reputation for writing about or researching a particular country Often academics, journalists and business-risk analysts However there may be few checks whether their views are well substantiated. Moreover considerable scope for cultural and national biases; experts from developed countries might judge developing countries by unrealistic standards or might fail to understand local practices. 5

6. Inputs and Methods II Public opinion surveys Many indices also use surveys of public or of sub-sets of the public such as small businesses Surveys of perceptions Bound to be subjective, and May be affected disproportionately by scandals or high profile incidents Surveys of experience are potentially more accurate although many surveys ask individuals about a broad swathe of government activities Raises doubts as to whether respondents have sufficient experience to merit meaningful responses 6

7. Problems I Political Tool Some indicators are not composites of several inputs, but reflect the views of one organization Some commentators therefore question their independence from political influence and thus the credibility of such indicators The Tracking in Persons Reports and Terrorism reports produced by the State Department represent a unilateral opinion on a government’s performance Have been suggestions that the State Department is influenced in its ratings of particular countries by other factors in the context that affect bilateral relations State Department sometimes accused of being less critical of a country at times when it relies on that government’s partnership in other spheres 7

8. Problems II Gaming Potential Some indices focus on measuring the formal regulatory environment rather than how things work in practice One criticism of the World Bank’s Ease of Doing Business Index. Several scholars have found discrepancies between the scores that countries receive for their regulations, and reported experiences of firms seeking to navigate those same regulations One possible explanation is that governments are proficient in harmonizing legislation with donors’ or lenders’ requirements but do not invest in implementation Another possibility is that government officials reform regulations in ways designed to increase their ability to extract rents, for example by increasing discretionary power 8

9. Problems III The potential for gaming may be exacerbated because the data from some indices is collected from individuals who are the subject of the ratings The data for the Doing Business Index reflects inputs from government officials as well as professional service firms such as lawyers, business consultants and accountants raising questions about objectivity 9

10. Conclusions Government performance Indicators (GPIs) represent a significant form of soft power, potentially able to influence government’s to reform policies However questions about the underlying methodologies Raise doubts about the validity of decisions based on such indicators and Suggest the potential for protagonists to fake or manipulate scores. The indices may also exacerbate polarization among countries with some refusing to play the game of seeking to improve their performance, but also thereby cutting themselves off from aid and investment 10