The Telegraph
Since 1st March, 1999
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- Good governance and per capita income: is there a correlation'

I have mentioned some governance surveys in two earlier articles. How does India perform in some of these rankings' Let us pick ones that have direct connections with economic rights, as opposed to political or civil rights alone. Let us also pick ones that are more visible and are more widely quoted.

First, Freedom House's 'Freedom in the World 2005' rankings ' 1 is a country that is most free, while 7 is a country that is least free. India obtains 2 on political rights and 3 on civil liberties and is described as a country that is 'free'.

Second, Transparency International's 'Corruption Perception Index' for 2004. The scores range between 0 (highly corrupt) and 10 (highly clean). India obtains a score of 2.8 and is ranked 90th, together with Gambia, Malawi, Mozambique, Nepal, Russia and Tanzania. Whenever I confront such Transparency International rankings, I ask myself the following question. Would I prefer to live in India or in any of the other countries with which India shares a similar rank' I am sorry to say that none of the other bracketed countries appeals to me, should I have free choice to decide on my country of domicile.

Third, the World Bank Institute's 'Governance Matters' set of indicators. These cover six sets of indicators, voice and accountability, political stability and absence of violence, government effectiveness, regulatory quality, rule of law and corruption. These have several sets of figures. But the easiest one to use for illustrative purposes is the percentile rank, indicating the percentage of countries that rank worse than the chosen country. In 2004, among 209 countries, India had a percentile rank of 53.9 per cent for voice and accountability, 24.3 per cent for political stability, 55.8 per cent for government effectiveness, 26.6 per cent for regulatory quality, 50.7 per cent for rule of law and 47.3 per cent for control of corruption. While on the World Bank, there is also the Investment Climate Survey. Fourth, there is the World Economic Forum's 'Global Competitiveness Index', the latest one being for 2004. The higher the score, the better. Out of 104 countries, India obtains a rank of 55th, with a GCI score of 4.07.

Fifth, there is Heritage Foundation and Wall Street Journal's 'Index of Economic Freedom'. A hundred and sixty-one countries are ranked in 2005. With a score of 3.53 (the lower, the better), India ranks 118th. India's individual scores are 5.0 for trade policy, 4.3 for fiscal burden, 3.0 for government intervention, 2.0 for monetary policy, 3.0 for foreign investment, 4.0 for banking and finance, 3.0 for wages and prices, 3.0 for property rights, 4.0 for regulation and 4.0 for informal markets.

The thrust of the argument is the obvious one. Measurement of economic development is more robust than measurement of governance. And partly as a result of this, there are problems when we attempt to correlate the two. Jeffrey Sachs needs no introduction, and recently, Sachs has produced a popular and extremely readable book titled, The End of Poverty. The goal of eradicating poverty is a laudable one and, if the world as a whole is falling behind on the millennium development goals, that's largely because of sub-Saharan Africa.

The Sachs argument is one of increasing official development assistance or aid. While the merits of that argument can be debated, there is a chapter in that book, titled 'Myths and Magic Bullets'. In that chapter, Sachs tries to counter the argument that aid will not work in Africa because of governance problems. A quote is in order. 'The point is that virtually all poor countries have governance and corruption indicators that are below those of the high-income countries. Governance and higher incomes go hand in hand not only because good governance raises incomes, but also, and perhaps even more important, because higher income leads to improved governance. As a country's income rises, governance improves for two major reasons. First, a more literate and affluent society is better able to keep the government honest by playing a watchdog role over government processes.

Newspapers, television, books, telephones, transport, and now the internet, all of which are vastly more available in rich countries, enhance this watchdog function and empower civil society. Second, a more affluent society can afford to invest in high-quality governance. When governments are backed by ample tax receipts, the civil service is better educated, extensive computerization improves information flows, and the public administration is professionally managed.'

There are two kinds of issues that arise. How strong is the correlation between per capita income and governance' There is a strong positive correlation for some indicators of governance. But there are various indicators of governance, and such strong positive correlations do not characterize all indicators of governance. And this is precisely what Sachs means by arguing that the correlation between governance and economic growth is not all that robust, although a weak correlation does indeed exist. The second issue is an even more important one. Does this correlation establish causation, and if so, in what direction is the causal relationship' Does better governance lead to a benign effect on per capita incomes' Do higher incomes lead to governance improvements' Or is the correlation entirely spurious and are there other factors that lead to improvements in both economic development and governance' Based on time series data, in India, there is a high degree of correlation between the number of reported rape cases and the number of books published. Surely that doesn't indicate causation. The jury is still out on causation and is unlikely to ever come in. Proponents of better governance tend to argue that good governance is good for economic development and over-state their case. The statistical support for such a strong assertion is weak.

However defined, measured and quantified, good governance is desirable. It is a 'good' rather than a 'bad'. Hence, it is an end in itself and need not be looked upon as a means to trigger economic development. We should look at better education and health outcomes no differently. Higher literacy levels have a positive impact on economic development and so do lower levels of mortality and morbidity. But even if that were to be not the case, better education and health are desirable outcomes, and governance is no different. And it is for this reason that the assorted governance indicators perform a useful function. However, in using these governance indicators, a caveat is in order. Since there are serious subjectivity issues in evolving such indicators, how much credence should we attach to cross-country comparisons' It seems to me that cross-country comparisons should be taken with a pinch of salt. The use of pepper is more warranted when such indicators are used to track a single country's improvement over time, so that progress can be benchmarked.

How do we ensure improvements in governance' Do we have to wait for income and literacy levels to increase or are there other ways' In India, there is a great deal of variation across states. There is also a great deal of cynicism about the three main organs of state, the executive, the legislature and the judiciary. John Kenneth Galbraith spoke of the secession of the successful in a slightly different context. Relatively richer sections of society, the relatively successful, can afford to secede.

But if the three organs of state are to deliver, or deliver better, countervailing force has to be exerted by civil society. And the catalyst for civil society action or pressure invariably has to come from the successful sections, who are more educated and more literate, and also more aware of their rights. Across India, there are indeed successful instances of where such better- off citizens have not seceded. The resultant civil society pressure has led to right to information laws, citizens' charters and transparency and accountability in public expenditure.

Corruption has many dimensions, and no single solution can eliminate all forms of corruption. But discretionary and arbitrary administrative-cum-executive decisions have also been curbed by such pressure, and rent-seeking, bribery and corruption reduced. After all, all machinery require oil and grease and the government machinery is no different. Public interest litigation, invoking the court system, has also goaded the executive from inaction to action. All of these illustrate the rise of what David Bornstein's book has called the social entrepreneur. These are instances of non-secession.

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