Democracy and good governance promote economic development. Real democracy - that is competitive, open, participatory, and responsive - provides a means for citizens to monitor and evaluate the performance of government, and to remove officials and representatives who do not serve the public interest.
A manifest commitment to the public welfare on the part of government also breeds a civic spirit in society, including a willingness to pay taxes and obey the law. Ordinary citizens will sacrifice immediate advantages for the longer-term common good only when they believe that their fellow citizens will as well. When government itself is transparent and disciplined in its commitment to the public good, it provides credible signals to the rest of society about what types of behaviors can be expected. More capable and knowledgeable government also generates the capacity to enforce the law, mediate disputes, keep order, collect taxes, promote trade, maintain fiscal stability, attract investment, and so foster economic growth. In defending human rights and property rights, in promoting equal access to opportunity based on talent and effort rather than power, and in providing a fair means for the resolution of disputes, the rule of law generates an enabling environment for economic growth. In incorporating groups that historically have been confined to the margins of society, good governance mitigates social conflict and harnesses the full range of talent and resources in the society. In fostering the accumulation of social capital, good governance cultivates trust (in individuals and in government), cooperation, compliance with the law, and confidence in the future. Social and political confidence also breeds economic confidence, and a willingness to invest for the long run.
By contrast, bad governance, and most specifically rampant corruption, constitute the bane of development. Extensive corruption discourages private investment, distorts resource allocations, deforms policies, proliferates regulations, swells budget deficits, enervates institutions, diverts resources from productive (wealth-generating) activity, and squanders large amounts of resources.
These five dimensions of democratic quality have to do with deepening the control of rulers by the ruled, which really is the essence of democracy. A quality democracy ensures that the rulers are accountable to the people, or, in the words of a famous new Iraqi saying popularized by one new civil society organization in the post-Saddam era, that “the person sitting behind the desk is the servant of the person in front of him, and not the other way around.” But if democracy is to be effective in delivering development, this element of popular control, however deep and vigorous, is not enough. It must be wedded to other dimensions of good governance which together constitute a fuller architecture of democracy.
Good governance consists of several facets. One is the capacity of the state to function in the service of the public good. Effective functioning requires knowledge of the policies and rules that best serve the public good, and hence training of state officials in their various professional realms. It requires a professional civil service with a set of norms and structures that promote fidelity to public rules and duties, in part by rewarding those who perform well in their roles. This relates intimately to the second dimension of good governance, commitment to the public good. Where does this commitment come from? It may be generated by dedicated and charismatic leadership. Or it may derive from a cultural ethic that appreciates and a structure of institutional incentives that rewards disciplined service to the nation or the general community. In every modern society, however, it must (at a minimum) be reinforced by institutions that punish betrayals of the public trust, and so this normative element is strongly linked to the concrete institutional ones.
A third facet of good governance is transparency, the openness of state business and manner to the scrutiny of other state actors and of the public. Transparency necessitates freedom of information, including an act to ensure that citizens can acquire information about how government makes decisions, conducts business, and spends public money. Needless to say, it requires full openness and competitiveness in public procurement, but it also requires openness with regard to the personal finances of government officials. I will come back to this point in conclusion.
Transparency is intimately related to accountability, the fourth facet of good governance. Governing agents are more likely to be responsible and “good” when they are answerable for their conduct to the society in general and to other specific institutions that monitor their behavior and can impose sanctions upon them. Effective oversight requires open flows of information, and hence transparency, so that monitors can discover facts and mobilize evidence. This requires a system of government by which different institutions check and hold one another accountable, compelling them to justify their actions. Power is thus constrained, bound not only “by legal constraints but also by the logic of public reasoning.”
Transparency and accountability are thus intimately bound up with a fifth facet of good governance, the rule of law. Governance can only be good when it is restrained by the law: when the constitution and laws (including individual rights under them) are widely known, when the law is applied equally to the mighty and the meek, when everyone has reasonable access to justice, and when there are capable, independent authorities to adjudicate and enforce the law in a neutral, predictable, and efficient fashion. Both effective government and well-functioning markets require that there be clear rules about what constitutes acceptable conduct in all realms of economic, social and political life. All actors, public and private, must have confidence that those rules will be observed. Only under a rule of law can property rights be secure and contracts enforceable. Only through a rule of law can individuals be secure against arbitrary harm from the state or powerful private actors.
A fifth facet of good governance consists of mechanisms of conflict resolution. Participation is one means for doing so. Development is not only about choice at the individual level but also about making difficult choices at the collective level. Often there is no clear answer to the question of what is in the public interest. Only through a process of political participation and dialogue can conflicting interests be reconciled in a way that is deemed minimally fair by all (or most), and that generates broad commitment among the relevant constituencies or stakeholders in the policy arena. But participation in itself can also stimulate conflict. Conflict resolution requires as well fairness, justice, and transparency, and often more specific mechanisms to ensure that all groups are heard and included and that power and resources are decentralized and dispersed in a way that gives each community or region some real control over its own affairs.
When good governance functions in the above five ways, it also breeds social capital, in the form of networks and associations that draw people together in relations of trust, reciprocity, and voluntary cooperation for common ends. The deeper a country’s reservoirs of social capital, and the more these are based on horizontal relations of equality, the more vigorous is coordination for and commitment to the public good. Social capital thus not only fosters the expansion of investment and commerce, embedded in relations of trust and predictability, it also breeds the civic spirit, participation, and respect for law that are crucial foundations of political development and good governance. In other words, it generates a political culture of responsible citizenship. All of this in turn breeds political legitimacy and stability - further deepening the society’s appeal to investors who must risk capital in the effort to create new wealth. In many respects then, good governance constitutes a “virtuous cycle” in which the several elements reinforce one another in a dense interplay.