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Efficient, resilient, and accountable governance systems are essential to successfully manage natural resources, provide public services, foster trade, attract private investment, and manage aid relationships. Corruption and secrecy are often at odds with such goals. Illicit financial flows, for example, undermine development and governance while secrecy in extractive industries can squander a nation’s wealth and weaken the social contract.
CGD’s work in this area focuses on contact transparency, tax evasion and avoidance, efforts to combat money laundering and terrorism financing, and the negative effects they can have on remittance flows and international security.
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Abstract: Patronage is a tool used throughout the world to reward political allies. In this paper I create a dataset of Yemeni tribes to explore their role in an educational patronage network that accounts for upwards of 6% of the entire Yemeni government budget. My analysis has two key results. First, conditional on a rich set of controls, I find that the number of tribes has a significant impact on the quantity of patronage. This impact is negative between regions, though positive within regions, as regions with more tribes have less patronage while sub-regions with more tribes have more patronage. The contrast between these effects illustrates the differing influence of tribes in local and national politics. Second, I find no evidence that a recent decentralization reform affected this patronage network. The paper provides insight into how pre-Islamic institutions have an important role in the development outcomes of the Muslim Middle East and why decentralization reforms proposed for countries similar to Yemen, such as Afghanistan and Somalia, may be ineffective in weakening the power of local elites.
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On October 30, 2006, Nancy Birdsall spoke at the Hilton Humanitarian Prize Symposium on Democracy and Development in New York City. Her speech entitled, Aid, State Formation and the Missing Middle, centers around the following questions: "What is the connection between political and human rights and the role of the middle class in a country's economy?" and "What does that connection have to do with foreign aid?"
To address these questions, she suggests the following:
1. That there are powerful reinforcing links among political and human rights and democracy on the one hand, and economic “rights” in market economies and the middle class on the other.
2. That the implications of those links for the management of foreign aid – both aid managed by the U.S. and other official government and international agencies, and aid managed and delivered by non-governmental organizations.
By Dennis de Tray
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How has the West fared in fighting corruption in developing countries? Not well, according to CGD vice president Dennis de Tray. In a Nov. 16, 2006 speech to the 1818 Society, de Tray offered an impolitic critique of the World Bank’s strategy on corruption. While corruption is a barrier to development, de Tray said that the Bank must think differently about it - first by acknowledging that not all corrupt leaders are alike. Suharto, for example, brought Indonesia from near collapse to a functioning state, even as he and his family siphoned off millions of dollars. Categorizing all corrupt leaders as "bad" is wrong, de Tray argued, the reality is more nuanced. The Bank needs to realize that elites run most developing countries, politically and in business. It is seen as corruption when these elites enrich their children; de Tray provocatively asks how their behavior is different from the Wal-Mart clan enriching themselves.
De Tray offers eight principles that could serve as the basis of a new approach to fighting corruption. Chief among them:
Realize corruption is only one of many constraints to development
"More of the same, but this time we're serious" is not a new approach
Ring-fencing donor projects may make donors happy but is a cop-out when it comes to fighting the corruption that matters
Be clear on goals: is it serving the poor now or building institutions? The two are often at competing ends
And simply require recipients of foreign assistance to inform their citizens of how much they got, what it was supposed to do, and what the outcome was.
Bottom line: No one likes corruption, but not liking it and doing something about it are two very different things.
"More Lessons from the Trenches: From Indonesia to Vietnam to Central Asia"
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In this speech delivered at World Bank headquarters on Feb. 23, de Tray, who joined CGD as vice president on Feb. 1, and previously was a World Bank country director in Central Asia, addresses three issues. First, the Bank’s role in middle-income countries. Second, the long-term development agenda. And third, a set of issues around performance-based allocations and related issues such as corruption, governance, and the need, for balance in the way the Bank approaches anti-corruption work. In particular, he urges the Bank to maintain a balanced perspective and exercise patience in the fight against corruption in developing countries. "More practical advice and less rhetoric would be a good way to increase effectiveness in the fight against corruption," he said. "No one denies that reducing corruption and improving governance strengthen the odds for sustainable development and poverty reduction.
But the relationship between governance and corruption and development is more complex than often portrayed. It is not black and white, not 1 or 0," he said.De Tray, whose career includes 12 years on the frontlines of development assistance delivery, said that corruption and weak governance often stem from poverty within government: poverty in the traditional sense (the low wages of officials), poverty of opportunity, and poverty of institutional support. He said that the Bank officials working in poor countries must constantly weigh whether their involvement perpetuates a problem or contributes to a solution. The answer is rarely straightforward, he said. "It’s just too easy to sit in Washington and say we should be tough on corruption," he said. "In the real world, there are many shades of grey."
De Tray also said that decentralization--having senior Bank staff resident in the countries they serve--had been crucial to improving the Bank’s effectiveness. To make the most of decentralization, the Bank should rely more on talented local staff and provide adequate incentives for the Bank’s most experienced and able international staff to work in the most challenging countries. He argued that at present, the toughest jobs attract too few qualified applicants.
By Kimberly Ann Elliott
A decade ago, the multilateral development banks (MDBs) were rightly subject to harsh criticism for ignoring the role of corruption in undermining growth and development. Since then, corruption and related issues of “institutional quality” have moved to the center of the
development agenda and, led by the World Bank, the MDBs have significantly beefed up internal controls to prevent corruption in projects that they finance.
These changes were driven by several factors that have fundamentally changed the environment in which the MDBs operate. Perhaps most important, major shareholders began to take corruption issues more seriously in the 1990s and members of the Organization for Economic
Cooperation and Development finally agreed in 1997 to a convention criminalizing corrupt behavior by OECD-based multinational corporations even when it occurs abroad. Second, external scrutiny of the MDBs and other international institutions has been increasing for two decades, including by Transparency International, a non-governmental organization founded by former World Bank employees that focuses on corruption issues. Finally, World Bank President James Wolfensohn personally embraced and promoted the anti-corruption agenda as the key to
development in poor countries.
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It is a pleasure for me to be participating for the first time as President of the Center for Global Development at a sister think tank here in Washington, the Center for Strategic and International Studies. In his opening remarks, Ambassador Diego Guelar (of Argentina to the White House) said it well: “The roots of Argentina's crisis go deep.” My message is fundamentally the same. The crisis in Argentina is rooted in the longstanding problems of political chicanery and social injustice, combined with truly bad luck in the last several years. It is not due to technical economic errors, and will not be resolved by economic fixes alone.
Let me set out what I mean by discussing five problems. I'll begin with the exchange rate, but only to emphasize it was not an economic straitjacket in itself as much as a symptom of Argentina's political straitjacket. The other problems are mediocre fiscal management throughout the 1990s, and three “bads”: bad politics, bad parenting, and bad luck.
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Recent setbacks in Bolivia, Venezuela, Russia, and Georgia have raised concerns about democracy's viability in developing countries. In their CGD-sponsored book, The Fate of Young Democracies, CGD visiting fellow Ethan Kapstein and co-author Nathan Converse draw on a unique data set of every democratization episode since 1960 to explore the reasons for backsliding and reversal in the world’s fledgling democracies. In a new Q&A with CGD publications coordinator John Osterman, the authors suggest ways the international community, President Obama, and Secretary of State Clinton can support young democracies.
Q: You write in the book that there's been a backlash against democracy in some places recently. What's going on?
A: In the last five years or so, we've seen setbacks in a number of young democracies, and outright reversals in several. In some countries the military has become dissatisfied with the democratic process and opted to overthrow elected governments. In others, such as Russia, Venezuela, and Bolivia, democratically elected governments have removed important institutional constraints on the chief executive, arguing that the president or prime minister needs freedom to address pressing problems.
Examine the authors' data set
View Ethan Kapstein's presentation
Buy the book from Cambridge University Press
Q: Is this new?
A: We believe that it is, but it's also important to put these recent events in context. Three out of four countries that became democratic in the past 25 years are still democracies. Most young democracies enjoy wide popular support, as in Indonesia and much of Eastern Europe. In fact, democratic reversals were more common in the 1960s and 1970s than they have been since the collapse of the Soviet Union.
Q: What do the countries that suffer reversals have in common?
A: Democracies that start off in poverty are at greater risk of reversal, and poor economic performance boosts the risk that a young democracy will be overthrown. Institutional factors, too, play an important role: effective checks and balances do much to reduce the likelihood that democracy will fail. In certain cases, inequality and ethnic fragmentation can prove problematic. When leaders routinely come from one group, other groups are offended and may rebel. Leaders may shore up their power base at the expense of other groups.
Q: Yet your book says that economic performance may not be the key to stability. Why?
A: Our research confirms that good economic performance makes democracies more likely to survive. But many nascent democratic governments have been overthrown despite impressive growth. Several democracies that have suffered setbacks or outright reversals, including Venezuela, Russia, and Thailand, were enjoying economic booms. Conversely, several democracies have survived economic collapse. The discussion must go beyond economics, to also consider institutional arrangements, especially checks and balances.
Q: If effective checks and balances are key, are parliamentary systems better than presidential systems?
A: Not necessarily. Surprisingly, we find that parliamentary systems are no better than presidential systems in checking executive power. How much the legislature actually checks executive power matters more than the institutional structure. We studied formal institutions, and we think much more work needs to be done on informal institutions like a free press and civil society. Just as markets can’t function without information about prices, perhaps democracy can’t function effectively without information about government policies and their consequences.
Q: You mentioned ethnic fragmentation. How does this affect the chances of a young democracy surviving? Why have some nations been able to cohere despite such divisions and others not?
A: At first glance, it does appear that ethnic divisions pose a problem for young democracies. In the democratizations we look at, democracy was reversed 51 percent of the time in countries with above average ethnic fragmentation, compared with 38 percent in countries with below average fragmentation. One can also find numerous individual cases where it seems clear that ethnic divisions contributed to the downfall of a democratic government.
That said, in our cross-country regression, ethnic fragmentation was not significantly associated with a higher probability of reversal once we controlled for economic, institutional, and other factors. This points to another core finding: difficult initial conditions do not necessarily mean democratization is doomed. Ethnic divisions may create problems, but the right political institutions, along with policies promoting economic growth, can go a long way toward overcoming those problems.
Q: What does all this mean for foreign aid?
A: It’s a problem that economic and political programs run on separate tracks. Those who target economic growth have generally pursued “Washington Consensus” policies while those who focus on politics have emphasized assistance to parliaments and to civil society. The aid community needs to think harder about how to bring these tracks together. The U.S. Millennium Challenge Corp. (MCC) has taken a step in that direction, for example, by concentrating on land tenure and the related judicial and financial institutions that will support small-holders.
Q: How do you see the current financial crisis affecting young democracies?
A: A prolonged global crisis could challenge the world’s youngest democracies in several ways. There’s a risk that weak economic performance will lead to frustration with the democratic process and to a willingness to allow chief executives a freer hand. U.S. and European Union support may falter. And if authoritarian regimes in China and elsewhere weather the storm better than the leading democracies, some countries may be tempted to abandon the democratic path. A collapse of world trade or a retreat to protectionism also could drive these countries away from democracy. Finally, reversals in large young democracies could undermine neighboring smaller democracies, leading to a string of such failures. Against these risks, it will be vital to reinforce institutional structures associated with democratic survival.
Q: What advice would you give to President Obama and Secretary of State Clinton as they take the reins of U.S. foreign policy?
A: We would emphasize the crucial role of U.S. programs—like the MCC—that contribute to the institutional development of young democracies. International support for these governments costs little in budgetary terms but can make a huge difference. If we can support young democracies during their earliest, most difficult years, we greatly increase their chances of success.
Returns to our investments in democratic development are large. Beyond the intrinsic value of democratic freedoms, democracies are better than authoritarian regimes at providing public goods, such as education, public health, and infrastructure. In short, U.S. support for democratic institutions can contribute to a world in which more people are not only freer but more prosperous.
CGD helped to fund Kapstein’s research and manuscript preparation.