82652 PROBLEM-DRIVEN GOVERNANCE AND POLITICAL ECONOMY ANALYSIS Good Practice Framework September 2009 Verena Fritz Kai Kaiser Brian Levy PROBLEM-DRIVEN GOVERNANCE AND POLITICAL ECONOMY ANALYSIS GOOD PRACTICE FRAMEWORK SEPTEMBER 2009 ©2009 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org E-mail: feedback@worldbank.org All rights reserved This volume reflects the view of the authors. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. 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All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: pubrights@worldbank.org. Cover photos, left to right: Picture 1 (protest): Panos Pictures Picture 2 (electricity): Jacob Silberberg/Panos Pictures Picture 3 (voting): Sanjit Das/Panos Pictures Contents EXECUTIVE SUMMARY VII ABBREVIATIONS XV INTRODUCTION: WHY GOVERNANCE AND POLITICAL ECONOMY ANALYSIS? 1 PART ONE: A PROBLEM-DRIVEN APPROACH TO GOVERNANCE AND POLITICAL ECONOMY 5 I.1. Three steps of problem-driven GPE analysis 7 I.2. Good enough governance and feasible approaches to reform 10 PART TWO: TRANSLATING ANALYSIS INTO ACTION: USING PROBLEM-DRIVEN GPE ANALYSIS TO ENHANCE BANK STRATEGIES AND OPERATIONS 15 II.1. Informing Bank teams and adjusting strategies and operations to an existing space for change 17 II.2. Enhancing and broadening policy dialogue and developing innovative approaches to operations 18 II.3. Using GPE analysis to develop campaigns for change proactively 19 PART THREE: CHOOSING THE LEVEL OF ANALYSIS: COUNTRY, SECTOR, PROJECT 23 PART FOUR: EVIDENCING PROBLEM-DRIVEN GPE ANALYSIS 27 PART FIVE: GETTING THE PROCESS RIGHT: ISSUES TO CONSIDER 31 V.1. Planning GPE work and linking it to operations or technical analysis 31 V.2. How to define and find the necessary skills 32 V.3. Implementing GPE diagnostic work and ensuring quality management 34 V.4. Sharing/disseminating outputs 36 V.5. Moving from analysis to follow-up 37 PART SIX: CONCLUSION AND LOOKING FORWARD 39 ANNEX 1: POLITICAL ECONOMY: KEY CONCEPTS AND APPROACHES 41 I.1. Three clusters of drivers: structures, institutions, actors 41 I.2. Capturing historical legacies 44 P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S iii CONTENTS I.3. Institutional and stakeholder mapping and analyzing informal institutions 45 I.4. Resources, rent distribution, political stability, and legitimacy 47 I.5. Patronage networks, clientelism, and neo-patrimonialism 50 I.6. Selected key concepts from institutional and political game theory 51 ANNEX 2: PGPE ANALYSIS AT THE COUNTRY, SECTOR/THEMATIC, AND PROJECT LEVELS 53 II.1. ‘Politics in action’ at the country level 53 II.2. Sector-focused and thematic problem-driven GPE analysis 60 II.3. Problem-driven GPE for specific projects or single policy decisions 69 II.4. Summary: Levels of analysis 70 REFERENCES 71 BOXES Box 1: Using governance indicators and governance surveys as inputs to GPE analysis 6 Box 2: Defining feasible solutions—Zambia and Mongolia 9 Box 3: GAC analysis shaping the CAS—Zambia and Uzbekistan 17 Box 4: Mongolia—developing an innovative approach to Mining Sector TA 19 Box 5: The Philippines—building a coalition for procurement reform 20 Box 6: Dissemination experiences of pilot teams 36 Box 7: Moldova Governance Assessment—migration and in-country stakeholder and institutional dynamics 43 Box 8: Formal and informal institutions 45 Box 9: Analyzing winners and losers of electricity sector reforms in India 46 Box 10: Expected utility stakeholder analysis 48 Box 11: South Sudan GAC for CAS background note 54 Box 12: Country-level analytical questions developed for the GAC for CAS pilots7 55 Box 13: Electoral incentives in Benin and the lack of growth-focused policies 58 Box 14: Analyzing policy-making processes in Latin America 59 Box 15: Governance and political economy analysis informing public sector reform operations—Moldova and Afghanistan 63 Box 16: Sample questions for sector-focused GPE analysis 65 Box 17: Examples of PGPE for service delivery sectors—transport in Bangladesh, electricity in Lebanon 66 iv P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S CONTENTS FIGURES Figure i: Three layers of problem-driven GPE analysis ix Figure 1: Three layers of problem-driven GPE analysis 7 Figure 2: Options for translating GPE analysis into action 16 Figure 3: Levels of analysis: country, sector, project 24 Figure 4: Three clusters of drivers 42 Figure 5: Macro and micro political economy interactions in core governance reforms 62 Figure 6: Using value chains as a tool to disaggregate sector components 64 Figure 7: Sector value chain for Natural Resource Management 68 Matrix 1: Levels of analysis and key skills needed 33 Matrix 2: Types of consultants for problem-driven GPE analysis 35 P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S v Acknowledgments The authors would like to thank Sanjay Pradhan Yasuhiko Matsuda (Senior Public Sector Specialist, (Vice President, WBI), Randi Ryterman (Director, EASPR). All remaining errors are solely the re- WBI) and Debbie Wetzel (Director, PREM), who sponsibility of the authors. provided overall guidance for this work. Comments Many thanks go to Madjiguene Seck (PRMVP) and helpful suggestions were received from Rosa and Alice Poole (PRMPS) who supported the fi- Alonso Terme (EASPR), Shahrooz Badkoubei nalization and publication of this report, as well as (PRMPS), Naaz Barma (EASPR), Sabine Beddies to Humaira Qureshi (PRMPS) for her excellent (MNSSO), Genevieve Boyreau (EASPR), Ruxandra administrative assistance. Burdescu (PRMPS), Alessane Diawara (AFMML), We gratefully acknowledge the support of the Chris Finch (EACCQ), Zahid Hasnain (EASPR), Bank-Netherlands Partnership Program (BNPP) Motoky Hayakawa (AFTPR), Joel Hellman under a PREM-Governance window award for (SASGP), Stefan Hochhuth (PRMPS), Kapil Kapoor ‘Developing Strategies for Addressing Governance (AFMZM), Phil Keefer (DECRG), Asmeen Khan Concerns In Challenging Country Contexts (EAPVP), Stuti Khemani (DECRG), Maks Kobon- (Breakthrough Facility)’ without which work for baev (PRMPS), Jana Kunicova (ECSP4), Tony supporting initial demonstration cases and devel- Lambino (EXTOC), Sumir Lal (EXTOC), Nick oping the framework would not have been possible. Manning (LCSPS), Andrew Norton (SDV), Bar- bara Nunberg (EASPR), Sina Odugbemi (EX- Authors’ contacts: TOC), Anand Rajaram (AFTPR), Francesca Reca- Verena Fritz natini (PRMPS), Cathy Revels (ETW), Arshad (Governance Specialist, PRMPS) Sayed (EACMF), Joel Turkewitz (EAPVP), Caby vfritz@worldbank.org Verzosa (WBIGV), and Alison Wescott (WBIGV), as well as Stefan Kossoff (DfID), Renate Kirsch Kai Kaiser (GTZ), and Doris Voorbraak (Dutch Ministry of (Senior Economist, PRMPS) Foreign Affairs/Development Cooperation). kkaiser@worldbank.org The authors are especially grateful to the three Brian Levy peer reviewers Ed Campos (Adviser, WBI), (Adviser, PRMPS) Stephen Ndegwa (Lead Specialist, AFTPR), and blevy@worldbank.org vi P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S Executive Summary Governance and political economy analysis has a plementing Bank strategies and operations. The crucial part to play in enhancing the effectiveness key intention of the framework is to propose of development. Across the World Bank, there is standards for such diagnostics and to synthesize a widely shared perception that we need to gain lessons learned. a better understanding of the environments in The framework is primarily intended for a which Bank operations are taking place and World Bank audience. It is important for World seek to promote progressive change (IEG 2006, Bank management and staff to devote greater at- 2008). This coincides with an increasing recog- tention to the governance and political economy nition that governance and political economy dimensions of development challenges. This can (GPE) factors play a powerful role not only in a best be facilitated by a discussion that is tailored country’s overall development path, but also for to the needs of such an audience. However, this shaping policies in various sectors and the way is also a public document, and many of the they are being implemented. Moreover, an an- ideas and issues set out here may be of interest alytic approach to governance and political to stakeholders in client countries (such as re- economy is essential to making progress in ad- searchers and civil society groups), and to other dressing governance to unlock development, as development agencies and multilateral devel- committed to in the 2007 GAC Strategy and opment banks (MDBs). subsequent Implementation Plan. This good practice framework is one key pil- The objective of this good practice frame- lar of an internal Sharepoint web resource work is to systematize approaches to governance (http://connect.worldbank.org/units/prem/PD- and political economy analysis and to provide GPEA/PGPE/default.aspx). The web site makes readily available orientation for World Bank the range of approaches and applications which task team leaders (TTLs) and teams. This frame- this framework synthesizes available in full. It work does not set out a particular product. It also provides a platform for sharing GPE ana- takes the general view that in order to improve lytic products with other Bank staff. The frame- development effectiveness, GPE diagnostics work and the site are intended to facilitate access should become integral to preparing and im- to a variety of approaches to governance and P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S vii E X E C U T I V E S U M M A RY political economy analysis, as well as to facilitate The intention of this framework is to present exchange and feedback around existing and a menu of options rather than to offer or pre- planned work. It is intended to support an scribe one particular way of doing things. It emerging community of practice (CoP) for GPE seeks to provide guidance that is practical and analysis that spans different units and regions specific but which can and should be tailored to across the Bank. particular circumstances and specific questions to be addressed. The emphasis of this paper is on good diag- WHY GOVERNANCE AND POLITICAL nostics. This is complemented by a brief dis- ECONOMY ANALYSIS? cussion in Part Two concerning how analysis can Politics and political economy influence be translated into action. This aspect will be whether and how reforms happen—in devel- explored more fully in an accompanying paper. oping as well as developed countries. For many A further paper is expected to address the im- years, World Bank teams have experimented portant issue of how country teams can monitor with various ways of analyzing and understand- the evolution of political trends more systemat- ing the political economy context of reforms and ically on a continuous basis in order to be able to with using such diagnostics for smarter engage- respond to continuously evolving situations. ment.1 The good practice framework described here is an attempt to summarize relevant analytic A PROBLEM-DRIVEN APPROACH TO tools and approaches and to make key lessons GOVERNANCE AND POLITICAL learned readily available. It also seeks to set out ECONOMY ANALYSIS how such tools can be used in a way that is prob- lem driven, that is, focused on specific issues and The emphasis of this framework is on ‘prob- challenges rather than on developing broad lem-driven’ analysis. It emphasizes GPE analy- overviews, in order to generate useful findings sis that focuses on particular challenges or op- and implications. portunities, such as analyzing why reforms in the GPE analysis will not lead to quick fixes, power or health sector or those aimed at im- but it can be practical and useful for enhanc- proving urban development might not have ing strategies and operations. GPE analysis gained traction and what could be done differ- should not be expected to deliver a new magic ently to move forward. ‘Problem-driven’ does bullet. At the same time, recent experience not mean focusing exclusively on areas of diffi- shows that it can be practically oriented and culty. For example, in a range of environments valuable, setting out options and solutions rather much can be learned from including an analy- than mainly pointing to obstacles. Across the sis of how islands of excellence emerged. In Bank, country and task teams can benefit sig- other cases, the key issue may be how to react to nificantly from a more systematic understanding a ‘window of opportunity’ that is opening up. of the context they are operating in and in which The use of various types of GPE analysis to they are seeking to foster change. assess risks and to help shape reforms is becom- 1. While the World Bank’s mandate explicitly precludes it from engaging in politics, it has become widely accepted that the in- stitution needs to understand the political economy context of reforms from a diagnostic perspective in order to be able to as- sist countries effectively in designing and implementing development strategies and policies. viii P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S E X E C U T I V E S U M M A RY Figure i: Three layers of problem-driven GPE analysis Evidence of poor E.g.: repeated failure to adopt sector reforms. What outcomes to Poor sector outcomes. Infrastructure identified Problem-driven which GPE as constraint to growth but not effectively vulnerabilities/ weaknesses addressed. Continuous food insecurity. challenges? appear to Corruption continues to undermine the business contribute climate even after anti-corruption law Institutional & What are the Mapping of relevant branches of goverment, governance associated ministries, agencies, and SOEs and their institutional interaction. Existing laws and regulations. Policy arrangements set-up and processes (formal rules and de facto). What & capacities governance mechanisms intended to ensure integrity and arrangements? accountability and to limit corruption exist? GPE analysis Political Why are things Analysis of stakeholders, incentives, rents/ economy this way? Why rent distribution, historical legacies, and prior are policies or experiences with reforms, social trends and drivers institutions forces (e.g., ethnic tensions), and how they arrangements not shape current stakeholder positions and actions being improved? ing increasingly widespread across the private Three layers of problem- and public sectors.2 The OECD is adopting a driven analysis program on ‘Making Reforms Happen’, in- tended to support member countries in better A problem-driven approach to GPE analysis analyzing the political economy factors in re- comprises working through three layers: (i) forms and to assist them in building successful identifying the problem, opportunity or vul- advocacy and coalitions for reform.3 Many nerability to be addressed, (ii) mapping out the donor agencies are seeking a better understand- institutional and governance arrangements and ing of GPE contexts. DfID, the Netherlands, weaknesses, and (iii) drilling down to the polit- Sweden, and the EU are especially investing in ical economy drivers, both to identify obstacles this area. Around the Bank, a number of Insti- to progressive change and to understand where tutional and Governance Reviews (IGRs) and a ‘drive’ for positive change could emerge from. Poverty and Social Impact Assessments (PSIAs), This basic approach can be applied to analysis at as well as analytical work carried out as part of country, sector, or project levels. country, sector, and project GAC processes, have As outlined in Figure i, the first layer requires included substantial political economy content. defining the challenge to be addressed (and to es- This framework builds on these existing ap- tablish that it appears to have a governance or proaches and pilots. political economy dimension).4 Often, this will 2. For example, see http://www.pwc.com/extweb/pwcpublications.nsf/docid/EAB01AC994713716852570FF006868B6. 3. See: http://www.oecd.org/document/15/0,3343, en_ 2649_34487_41399503_1_1_1_1,00.html. 4. In many cases, this is not about identifying governance as the main overall bottleneck to development. Rather, it means con- sidering whether other development challenges—such as improving infrastructure or getting traction on pension systems re- form or managing urban development—have governance and political economy dimensions to them that need to be addressed. P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S ix E X E C U T I V E S U M M A RY emerge from ongoing policy dialogue or existing or trigger unintended consequences during im- reports. The second layer aims at understanding plementation. At the same time, ‘feasible’ reform institutional and governance arrangements and options are clearly distinct from ‘default op- how these are related to poor outcomes. The tions’, that is, the reform path or non-reform third layer aims at drilling down to the under- path that would result from no intervention or lying political economy drivers. effort at change. Layers two and three clearly overlap. How- ever, they are differentiated in order to empha- TRANSLATING ANALYSIS INTO size that institutional and governance dimen- ACTION: USING PROBLEM-DRIVEN sions as well as stakeholders and their interests GPE ANALYSIS TO ENHANCE BANK need to be explicitly considered. Analysis at STRATEGIES AND OPERATIONS layer two is essential for identifying what reforms are feasible from an institutional perspective. Problem-driven GPE analysis can be trans- Drilling down to the political-economy layer is lated into action in several ways. This prob- important to understand why the identified lem-driven approach to analysis (hereafter re- problem has not been addressed successfully ferred to as PGPE analysis) can provide political and what the relative likelihood is of stakeholder intelligence for agreement on what is feasible support for various change options. within teams and with management. Moreover, it can provide advice on shaping strategies and operations in ways that range from adjusting ‘Good enough’ governance and them to the existing space for change to devel- feasible approaches to reform oping pro-active strategies for expanding the The approach to GPE analysis proposed here is space for change. Country situations matter for based on a diagnostic rather than a prescriptive calibrating what action to take. approach to governance (Rodrik 2008a and A basic way of using GPE analysis is to have 2008b). The ultimate goal is to achieve devel- it inform country strategies and operations. GPE opment and improved governance, but the fo- analysis helps to create a better understanding of cus is on how to move in this direction rather the environment in which operations take place than on the final goal. ‘Good enough gover- and in which strategic results are being pur- nance’ captures the notion of focusing on pri- sued, and helps spell out crucial governance and orities and improvements that are feasible (and political (economy) risks. If context permits, affordable) rather than trying to reform gover- GPE analysis can contribute to enhancing the nance wholesale—whether at the macro, core, or policy dialogue and to developing innovative sector level (Grindle 2007, Khan 2006). approaches to operations. In many cases, the implications resulting PGPE analysis can support innovative ap- from a GPE analysis will entail considering fea- proaches to operations. For example, teams sible options for reforms. While ‘first best solu- may recognize that it is important as well as fea- tions’ are technically superior in a textbook sible to promote a better informed public debate sense, their advantage can be lost or even re- on reform issues and policy options. Or it may versed under real-world conditions if they are become apparent that monitoring efforts by lo- only partially implemented, are stalled or re- cal stakeholders can be encouraged and sup- versed because they are politically unpalatable, ported in order to limit corruption and achieve x P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S E X E C U T I V E S U M M A RY results more effectively. To pursue such innova- Country-level analysis seeks to capture the tive approaches, it is vital that technical and overall governance situation and the main po- GPE-focused diagnostic work be well integrated litical economy drivers. Analysis at this level and that management attention be supportive. serves to capture important factors such as the PGPE analysis can also serve as a basis for geopolitical context, important social divisions developing support for proactive campaigns (including ethnic or religious ones where rele- for change, for example, for getting serious vant) and how they have evolved over time, and about on improving health services or improv- the evolution of the political management of ing infrastructure construction and mainte- economic rents. Sector and thematic PGPE nance. The main avenues for building traction analysis seeks to analyze institutional and gov- for change are coalition building, information ernance arrangements and political drivers in a and communication campaigns, and generally particular sector or subsector (covering an entire intensified work with stakeholders on both the sector ‘value chain’ [see Annex 2] or selected is- supply and the demand side. PGPE analysis, as sues within a sector or theme). Problem-driven such, can help decide whether it is possible to GPE analysis for specific projects and/or policy pursue a proactive strategy of building momen- decisions addresses specific questions regarding tum for reforms. Proactive strategies need to be project design and management, or may be fo- developed with respect for the preferences and cused around the political economy and insti- choices of local stakeholders and with the Bank tutional aspects of an intended policy change taking the role of an ‘honest broker’. Impor- and its likely impacts (including GPE analysis as tantly, such approaches require resources, dedi- part of PSIAs). cated staff, and management attention. EVIDENCING PROBLEM-DRIVEN POTENTIAL LEVELS OF ANALYSIS: GPE ANALYSIS COUNTRY, SECTOR, PROJECT Credible GPE analysis needs to be well evi- PGPE analysis can broadly be applied at three denced. It needs to pull together a compelling levels: the macro or country level, the sector and ‘analytic narrative’ consistent with experience thematic level, and the project and policy-spe- and systematically gathered data and informa- cific level. PGPE analysis can focus at one level tion—while avoiding the pitfall of essentially only or cover several levels, usually through a set providing technical analysis combined with of papers.5 Teams engaged in strategy planning, some broad statements about governance and for example preparing a country assistance strat- political economy. In particular, for sector and egy (CAS) or a major development policy loan project-focused diagnostics, PGPE work should (DPL) or re-engaging with a country, may seek to be closely integrated with technically focused cover the country level as well as one or several key analysis and teams, so that the two can be com- sectors. Task teams working on one particular plementary and so that important synergies can operation will be most interested in sector- and/or be achieved for operations. project-focused GPE analysis—which ideally The three-layer PGPE model provides a can draw on existing country-level analysis. broad guide for the evidencing process. The 5. For example, most CGAC pilots combined a background paper on country-level issues with specific papers on various sectors or themes. P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S xi E X E C U T I V E S U M M A RY first layer, that is, the problem to be analyzed, is cations, pricing information, asset declarations of usually what motivates the analysis. The analytic public officials, or the tracing of publicly acces- description of this layer would be drawn by sible sources that reflect positions taken by indi- teams, as a first step, from existing insights or ex- viduals on the issue at hand (such as electricity isting materials. At the heart of the analysis are tariffs, teacher training and wages, and gover- layers two and three: institutional structures and nance arrangements for the financial sector). governance arrangements, and stakeholders, their interests and incentives, and the way these GETTING THE PROCESS RIGHT: interact with formal and informal institutions. ISSUES TO CONSIDER For these layers, the analysis can draw on a range of sources. Generically speaking, the Getting the process right is essential for PGPE sources are as follows: analysis to be useful and effective. Effective PGPE analysis benefits from a clear vision of the • Pre-existing diagnostics (such as sector ESW, intention of the work—that is, whether it is PERs, CPARs, and PETS), meant only to inform Bank teams internally or • Laws and regulations, to inform wider debates, and from a clear vision • Organigrams and mapping of de jure and ac- of the focus and the type of output that is being tual process flows as important sources to sought. Furthermore, it is vital to consider the capture institutional structures, follow-up process concerning how the analysis • Sector-specific data (e.g. pricing informa- will feed into relevant programming, strategies, tion, bill collection), and operations. This paper discusses five process • Public opinion surveys (existing or commis- issues: sioned), and • Other written sources, such as media cover- (i) Planning and timing of PGPE work age of policy debates and minutes of parlia- (ii) Defining and finding the necessary skills mentary debates. (iii) Implementing the diagnostics (iv) Sharing and disseminating outputs Interviews with individuals and with focus (v) Bridging analysis and follow-up/action. groups, where appropriate, are also a key source of information. Interviewees may include All five of these issues are important for the knowledgeable local stakeholders—researchers, production of good PGPE diagnostics. More- journalists, civil society representatives, and pol- over, making the link between the diagnostic icy thinkers within government and political phase and the follow-up phase—including feed- parties—as well as in-depth discussions with ing into strategies and operations—deserves the Bank’s country or sector teams to capture great attention. their often considerable (tacit) knowledge about political economy issues. KEY CONCEPTS A core principle for evidencing GPE analy- sis is triangulation. It is helpful if more anec- Annex 1 discusses selected key concepts and ap- dotal or ‘soft’ information can be triangulated proaches that are considered useful for framing with ‘harder’ sources, such as actual budget allo- applied PGPE diagnostics. Several of these con- xii P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S E X E C U T I V E S U M M A RY cepts are widely used, by DfID’s Drivers of constellations. In particular, past conflicts and Change approaches and for the EU’s sector gov- tensions may be important to understand as ernance assessments. they can shape attitudes long beyond their orig- inal occurrence. Three clusters of drivers: structures, institutions, stakeholder (actors) Mapping formal and informal institutions Three key types of factors or variables are com- Mapping institutions is valuable in two ways: monly considered in PGPE analysis: structural, First, it creates a clearer picture about the setting institutional, and actors. Structural factors are be- in which stakeholders operate, and how this yond the direct control of (local) stakeholders, shapes their interests and incentives, and helps and many such factors change only slowly over in developing a more detailed understanding of time, although some, such as commodity prices, the client agencies with which Bank programs can be highly volatile. Institutional variables are interact. Second, institutional mapping is valu- those related to ‘the rules of the game’ (laws able to identify potential levers of change. In- and regulations, as well as informal rules such as stitutional mapping comprises an analysis of social obligations). Actors or stakeholders com- formal as well as informal rules, and the ways in prise individuals as well as organized groups or which they are related. In many client countries groups with shared interests, such as political this relationship is complex, formal rules being parties, the military (and in some cases, power- present but being observed only selectively while ful secret services), business associations, non- informal rules are influential. governmental organizations (NGOs), traditional associations, and traders in a particular region. Stakeholder analysis A crucial task of PGPE analysis is to capture how structural, institutional, and stakeholder vari- Stakeholders come in many guises. They can be ables interact and how they impact on the spe- individuals or they can be specific groups, such cific development challenges at hand. as the mid-level officials of a ministry, business or farmers’ associations, or political parties. Capturing historical legacies Three main ways of categorizing stakeholders have become widely used: ‘demand-side’ versus Historical legacies often have profound effects ‘supply-side’ actors/stakeholders; reform cham- on shaping current dynamics. Capturing such pions versus reform opponents; and ‘winners’, longer processes, and how societies continue to ‘neutrals/undecideds’ and ‘losers’. Such catego- deal with them, provides depth and perspective rizations can be useful as long as they do not lose to the issue of ‘how things have become the sight of ambiguity and dynamics. way they are today’. While some countries’ lega- ‘Reform champions’ are particularly impor- cies are well analyzed and understood, many tant for promoting change. However, individual World Bank teams work in countries that have champions often have multiple agendas and is- received limited attention from academic schol- sues that they need to take into account, such as ars, or where existing attention has never really maintaining their own position and/or power explored the link between legacies and present bases, possibly addressing a range of challenges P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S xiii E X E C U T I V E S U M M A RY that may require horse-trading and compro- policy level.6 One challenge is that there are mising with others, having important personal several different diagnostic as well as normative interests or obligations, and so on. Also, some re- perspectives on rents. While a more traditional form champions may be strong individual sup- perspective holds that rents and rent-seeking porters of reform but be poor at coalition build- should be minimized, Khan and Jomo (2000), ing, which can limit their effectiveness. Haber et al. (2003), and others caution (a) that some regulatory rents can be important for eco- Resources, rent distribution, political nomic development, and (b) that the distribu- stability, and legitimacy tion of rents is frequently an important pillar of political stability and that attempts to curtail or Understanding the political economy of rents, redistribute rents can result in political instabil- how it is linked to the distribution of power in ity. Overall, the nature and allocation of rents society, and how this interaction in turn affects can be harmful, stifling the economy and stok- growth, poverty reduction, and reform processes ing discontent, or it can be relatively benign, is a critical part of problem-driven analysis. The promoting development and based on an im- allocation of rents and how that evolves over plicit social contract. However, it can be chal- time are crucial for understanding underlying lenging to judge on an ongoing basis which political- economy drivers, especially at the equilibrium a country or a sector is in, given that country level, but often also at the sector and the boundaries can be fuzzy. 6. The standard definition of economic rents refers to the difference between what a factor of production is paid and how much it would need to be paid to remain in its current use. There are different types of rents, most importantly those linked to con- trol over natural resources, those derived from government regulation, and those related to illicit activities such as narcotics smuggling. xiv P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S Abbreviations AAA Analytic and Advisory Activities GAC Governance and Anti-Corruption AC Anti-Corruption GPE Governance and Political Economy CPAR Country Procurement Assessment IEG Independent Evaluation Group Report IGR Institutional and Governance Review CAS Country Assistance Strategy ISN Interim Strategy Note CD Country Director MDB Multilateral Development Bank CDD Community Driven Development PA Poverty Assessment CEM Country Economic Memorandum PER Public Expenditure Review CM Country Manager PETS Public Expenditure Tracking Survey CMU Country Management Unit PGPE Problem-Driven Governance and CPC Country Program Coordinator Political Economy CPS Country Partnership Strategy PSIA Poverty and Social Impact Analysis CSC Country Sector Coordinator SOE State Owned Enterprise DPL Development Policy Loan STC Short Term Consultant ESW Economic and Sector Work TA Technical Assistance FY Fiscal Year TTL Task Team Leader P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S xv Introduction: Why Governance and Political Economy Analysis? Politics and the political economy matter for proaches that are tailored to specific situations. whether and how reforms happen—in devel- A number of recent evaluations have under- oping as well as in developed countries. The lined the need for understanding the political World Bank as an institution and its individual economy context of reforms more systemati- country and task teams have been grappling cally and for taking this into account when de- with this issue for many years.1 A number of signing and implementing reforms (for example, teams have experimented with various ways of IEG 2006, 2008). One client survey in a major analyzing and understanding the political econ- country noted that ‘clients considered the Bank’s omy context of reforms using such diagnostics greatest weakness to be its lack of consideration for smarter engagement. The good practice for political realities on the ground and, broadly framework described here is an attempt to sum- speaking, conducting business in a bureaucratic marize relevant analytic tools and approaches, to way that is not attuned to country conditions’ indicate how they can be used (more) systemat- (World Bank 2008c: 15). GPE analysis can help ically, and to make key lessons readily available. to anticipate and manage risks—including risks It also seeks to set out how such tools can be of reform failure, of Bank-supported reforms used in a way that is problem driven, that is, fo- triggering unintended negative consequences, cused on specific issues and challenges rather as well as potential reputational risks. It can also than on developing broad overviews, in order to assist in transmitting important knowledge generate operationally relevant findings and im- about institutions and stakeholders more quickly plications. and effectively to staff newly joining a country Integrating governance and political econ- or other operational team. omy analysis more systematically into Bank GPE analysis will not lead to quick fixes, operational work is important to enhance de- but it can be practical and useful for enhanc- velopment effectiveness, to better address risks, ing strategies and operations. Understanding and to respond to client demands for ap- what motivates stakeholders, the sources and 1. While the World Bank’s mandate explicitly precludes it from engaging in politics, it has become widely accepted that the in- stitution needs to understand the political economy context of reforms from a diagnostic perspective, in order to be able to assist countries effectively in designing and implementing development strategies and policies. P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S 1 INTRODUCTION distribution of rents, or the interaction of formal some of the CGAC pilots, to background notes. and informal institutions cannot always be eas- It has included notes feeding into economic ily translated into building pro-reform coali- and sector work such as Public Expenditure Re- tions or finding quick fixes to re-aligning in- views (PERs), Poverty Assessments (PAs), or centive structures. Thus, GPE analysis should country economic memorandums (CEMs), and not be expected to deliver a new magic bullet. At just-in-time notes written directly for opera- the same time, recent experience shows that tional teams during project preparation or im- GPE analysis can be practically oriented and plementation. valuable and can set out options and solutions The framework is grounded in the belief that rather than mainly pointing to obstacles. There- across the Bank, teams can benefit significantly fore, if used wisely, high quality GPE analysis from applying GPE analysis more frequently can certainly add to the way the Bank does busi- and routinely. Furthermore, the framework is ness and ultimately make a crucial contribu- primarily based on a diagnostic rather than a tion to increasing development effectiveness. prescriptive (or normative) approach to gover- The objective of this framework is to sys- nance (see also Rodrik 2008a). While the ulti- tematize approaches to GPE analysis and to mate goal is to improve governance and devel- provide orientation for teams that are consider- opment outcomes, accomplishing that requires ing undertaking it. The framework especially carefully understanding the existing governance draws on the experience with a number of pilot arrangements and their political economy driv- studies undertaken in FY08 and FY09, as well as ers. Such understanding then allows the design on earlier studies. These have included country- of more feasible, as well as smarter, innovative level analysis as well as analysis focused on a va- pathways to reform, adapted to the specific en- riety of sectors—electricity, transport, telecom- vironment. munications, water, and public sector The emphasis of this note is on good diag- reforms—and on thematic challenges, especially nostics. This is complemented by a brief dis- the management of natural resource wealth. cussion of how analysis can be translated into More broadly, providing a synthesis of these ex- action, presented in Part Two. This aspect will periences and guidance is intended to support be explored more fully in an accompanying pa- GAC implementation; as well as ultimately to per. A further paper is expected to address the contribute to the wider goal of strengthening de- important issue of how country teams can con- velopment effectiveness. tinuously and more systematically monitor the The intention of this framework is to pres- evolution of political trends on the ground. ent a menu of options, rather than to offer or This framework has been developed to fa- prescribe one particular way of doing things. cilitate greater attention to and use of GPE Such an approach is hoped to be the best way to analysis among Bank management, teams, provide guidance that is practical and specific, and staff. The framework is therefore tailored to but which can and should be tailored to partic- the context of Bank operations and strategy de- ular country circumstances and to specific ques- velopment (such as country assistance strate- tions to be addressed. The framework does not gies) designed to show how GPE analysis can be set out a particular product. GPE analysis can used to inform and shape them to support more take a variety of forms, from major free-stand- effective development. The focus on Bank strate- ing analytic work, such as has been done for gies and operations is not meant to imply that 2 P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S W H Y G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S ? these are the most crucial processes at the coun- reforms to a proactive approach that seeks to ex- try or sector level. Rather, such a focus is essen- pand this space. tial because the purpose of this framework is to Part Three sets out the various levels of analy- encourage and facilitate thinking about contex- sis that may be undertaken, from an overall tual factors among Bank Group teams. At the country focus, to a sector or thematic focus, to same time, a number of the ideas and discus- a GPE analysis that is undertaken to inform sions in this document may also be of interest to specific projects or policy decisions. PGPE others, such as policy researchers and CSOs in analysis is valuable at each of these levels. Ideally, client countries, other development agencies, teams should ensure that some analysis of coun- and MDBs. try-level drivers and dynamics is available before Although only some Bank staff will directly drilling down into more specific areas of con- carry out GPE analysis, many teams and cern. In turn, such drilling down is essential to managers, across all sectors and levels, can maximize operational usefulness. Part Four ad- benefit from understanding the potential use dresses the issue of evidencing a GPE analysis, a of such work, when and how it can be applied, key challenge in producing high-quality work. and lessons learned. Managers, in particular, Part Five addresses process issues that arise when may want to make sure that teams pay attention undertaking GPE-type analysis. GPE analysis is to GPE aspects when developing strategies and still a relatively new diagnostic approach at the operations. For TTLs and staff, a general un- World Bank, which raises challenges in defining derstanding is important in order to assess when the work to be done, finding the right skill set, an exploration of GPE factors would be neces- and managing dissemination. GPE analysis will sary or beneficial and when staff or consultants often raise sensitive issues, so some up-front with relevant skills need to be included on teams guidance, drawing on the experience of pilot and to be able to judge and act on the implica- teams, may be useful. tions from such diagnostics. Annex 1 covers key political economy con- The framework is divided here into five parts: cepts and approaches. It provides a brief sum- Part One discusses the overall rationale of this mary of the concepts underlying the questions framework and sets out the key foundations. It that PGPE analysis can address. Annex 2 pro- proposes that a ‘problem-driven’ approach to vides a more detailed discussion of analysis at GPE analysis (that is, PGPE) is most likely to country, sector/thematic, and project levels. It yield operationally useful insights, and ulti- provides an overview of how the general princi- mately to help enhance development effective- ples, approaches, and options can be applied ness. Part Two discusses how PGPE analysis can across the levels of analysis, and points to some be used to inform and shape Bank strategies of the specifics concerning various levels (such as and operations, and offers options for translat- the varying challenges in evidencing the analy- ing the analysis into action more broadly. These sis). Annex 3 reflects the specific questions for range from a reactive approach of adjusting country-level analysis that were originally de- strategies or operations to the existing space for veloped in FY07-8 for the CGAC pilot studies. P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S 3 Part One: A Problem-Driven Approach to Governance and Political Economy The emphasis of this framework is on prob- analysis that provides broad overviews, either lem-driven analysis to address development generally or against certain benchmarks.1 constraints. The framework emphasizes GPE The use of various types of GPE analysis to analysis that focuses on particular problems, assess risks and to help shape reforms is be- challenges, or opportunities—such as addressing coming increasingly widespread across the a failure of existing policies to yield tangible re- private and public sectors. The private sector sults in poverty reduction, managing a resource is using progressively more sophisticated politi- boom-and-bust, or, at the sector level, analyzing cal risk assessments.2 The OECD is adopting a why power or health sector reforms have re- program on ‘Making Reform Happen’, intended peatedly stalled or have failed and what could be to support member countries in better analyzing done differently to move forward. Importantly, political economy factors in reforms and to as- ‘problem-driven’ does not mean focusing exclu- sist them in building successful advocacy and sively on areas of difficulty. For example, in a coalitions for reform.3 range of environments much can be learned More and more international and aid agen- from an analysis of how islands of excellence cies regard having a good understanding of the have emerged. In other cases, the key issue to an- context of their operations as an essential part of alyze may be how to react to a window of op- their business. The most well-known approach portunity that appears to be opening up. ’Prob- is DfID’s Drivers of Change, followed by the lem-driven’ therefore means focusing on specific publication in 2009 of a ‘How to Note’ on po- questions and challenges, in contrast to other litical economy analysis.4 The EU, the Nether- 1. These are useful for mapping where countries stand relative to others—and in fact PGPE analysis may draw on such assess- ments. However, broad overviews often do not provide clear guidance or implications for specific strategic or operational questions. 2. See e.g. Pricewaterhouse Coopers: http://www.pwc.com/extweb/pwcpublications.nsf/docid/EAB01AC994713716852570 FF006868B6. 3. See OECD http://www.oecd.org/document/15/0,3343,en_2649_34487_41399503_1_1_1_1,00.html. 4. DfID: http://www.dfid.gov.uk/aboutDFID/organisation/driversofchange.asp; http://www. gsdrc.org/go/topic-guides/ political-economy-analysis/tools-for-political-economy-analysis. P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S 5 PA R T O N E Box 1 Using governance indicators and governance surveys as inputs to GPE analysis A related but distinct area of work is that aimed at producing governance indicators, ‘governance at a glance’ summaries and comparative charts of indicators, and governance diagnostic surveys. Governance indicators can be very useful to provide a broad assessment of where governance stands in a country, especially in comparison to regional or income-level peer groups. However, they do not provide the detail and depth of analysis needed to define operational implications. Efforts to develop more actionable governance indicators (AGIs) for various areas are under way.a Governance indicators can be very useful as an input to GPE-type analysis. Importantly, there are still methodological problems about many governance indicators—so some caution in their interpretation is required. Furthermore, most such indicators do not provide information on underlying political economy drivers. Source: Authors. a. See: http://go.worldbank.org/16E7O0VXW0 (World Bank intranet only). lands, SIDA, and CIDA are also experimenting more systematic good practices. Existing ex- with various assessment frameworks.5 These amples of governance and/or political economy frameworks used by other donors to date have analyses include: (i) institutional and gover- largely been focused on the country level only nance reviews (IGRs6) (ii) governance diagnos- (rather than focusing also on specific sectors or tic surveys, focused on understanding corrup- issues) and have generally not been problem- tion overall and on the specific interactions driven but rather provided general overviews. between government and citizens and/or the There is currently a growing interest among private sector,7 (iii) work focused on the distri- several of these agencies to develop more sector- butional dimensions of policy reforms and on focused approaches to governance and political political economy factors related to these as part economy analysis, since this is seen as the way of poverty and social impact analyses (PSIAs)8, forward. and (iv) a wide variety of GPE analysis done as Around the World Bank, GPE-type diag- background notes for country assistance strate- nostics have been carried out by various teams gies (CAS) and/or as part of CGAC processes, for a number of years. Two of the key aims of feeding into major economic and sector work this framework are to make the ideas and ap- (ESW) (such as country economic memoranda proaches explored by those teams more read- or PAs), and notes on GPE issues in resource ily available and to promote the emergence of rich environments and regarding food security, 5. Netherlands: http://www.clingendael.nl/publications/2007/20071000_cru_occ_unsworth.pdf. In early 2008, the OECD organized a Conference on Governance Assessments, the documentation for which includes use- ful material and links to governance assessment tools. 6. http://intranet.worldbank.org/WBSITE/INTRANET/UNITS/INTPREMNET/0,,contentMDK:20407733~pagePK: 64156298~piPK:64152276~theSitePK:489837,00.html. 7. See http://go.worldbank.org/KK9UICJUQ0 (World Bank intranet only). Another website brings together all the questions that have been used in different surveys related to a range of sectors and governance issues (e.g. corruption, nepotism, re- sponsiveness: http://go.worldbank.org/KS54ICJMM0 (World Bank intranet only). 8. See: http://go.worldbank.org/39I9SFVEJ0. The Social Development (SDV) anchor within the Sustainable Development Net- work (SDN) has recently provided a framework that summarizes the experience with political economy analysis as part of Poverty and Social Impact Analysis (see World Bank 2008b and 2007c). 6 P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S A P R O B L E M - D R I V E N A P P R OAC H TO G OV E R N A N C E A N D P O L I T I C A L E C O N O M Y Figure 1: Three layers of problem-driven GPE analysis Evidence of poor E.g.: repeated failure to adopt sector reforms. What outcomes to Poor sector outcomes. Infrastructure identified Problem-driven which GPE as constraint to growth but not effectively vulnerabilities/ weaknesses addressed. Continuous food insecurity. challenges? appear to Corruption continues to undermine the business contribute climate even after anti-corruption law Institutional & What are the Mapping of relevant branches of goverment, governance associated ministries, agencies, and SOEs and their institutional interaction. Existing laws and regulations. Policy arrangements set-up and processes (formal rules and de facto). What & capacities governance mechanisms intended to ensure integrity and arrangements? accountability and to limit corruption exist? GPE analysis Political Why are things Analysis of stakeholders, incentives, rents/ economy this way? Why rent distribution, historical legacies, and prior are policies or experiences with reforms, social trends and drivers institutions forces (e.g., ethnic tensions), and how they arrangements not shape current stakeholder positions and actions being improved? as well as GPE notes done to inform specific I.1. THREE STEPS OF PROBLEM- projects.9 This framework draws in particular on DRIVEN GPE ANALYSIS the experiences generated by these various GPE background notes. Such notes have often not A helpful way to think about a problem-dri- been shared across teams, which has hampered ven approach to governance and political the building up of good practices. economy analysis is to distinguish three layers: This framework builds on these existing (i) identifying the problem, issue, or vulnera- approaches and pilots. Drawing on the lessons bility to be addressed, (ii) mapping out the in- learned, it emphasizes a focus on specific stitutional and governance arrangements and problems or vulnerabilities, as well as the weaknesses, and (iii) drilling down to the polit- need to understand political economy drivers ical economy drivers, both in identifying obsta- by examining them in a systematic way. These cles to progressive change, and in understanding elements contribute to making GPE analyses where potentially a ‘drive’ for positive change operationally useable, so that they can con- could be emerging from (see Figure 1). This ba- tribute to development effectiveness. The frame- sic approach can be applied to analysis at the work also proposes some clearer standards and country, sector, or project levels—with appro- expectations, while keeping in mind that the priate adaptation and tailoring as discussed in standards have to be realistic regarding what Part Three (and further elaborated in Annex II). can be done under real-world conditions and As reflected in Figure 1, as a first step it is with finite resources. important to define the challenge or problem 9. Most of these types of analysis have been carried out on a pilot basis, with a few cases studied for each type. P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S 7 PA R T O N E and establish that it appears to have a gover- are related to poor outcomes, and then at nance or political economy dimension.10 The drilling down to the underlying political econ- initial identification of challenges or problems omy factors and drivers. The aim is to explain may emerge from core Bank work, such as eco- why policies and/or institutional and gover- nomic and sector work and country assistance nance arrangements are not sufficiently sup- strategy completion and progress reports, or portive of the development issue of concern. The from the ongoing policy dialogue with the gov- explanation will involve an analysis of stake- ernment or other stakeholders. In a forward- holders and their interests and incentives, how looking way, the team may want to assess how these interact with the institutional environ- challenging the reforms they are planning to ment (both formal and informal), and how these support are likely to be, given the institutional have been shaped by country or sector dynam- and stakeholder environments. They may also ics over time. Figure 4 in Annex 1 maps out the want to anticipate governance and political interactions between stakeholders, institutions, economy risks in operations such as major pol- and structural factors. Part Four provides some icy or investment lending. basic principles regarding how such analyses can In many cases, this is not about identifying be evidenced to be credible. governance as the main overall bottleneck to Layers two and three, as presented here, development. Rather, it means considering clearly overlap. That is, an analysis of insti- whether other development challenges—such tutions is widely considered part and parcel of as improving infrastructure or getting traction any political economy analysis. The two lay- on pension systems reform or managing urban ers are nonetheless differentiated for two rea- development—have governance and political sons. On the one hand, many types of existing economy dimensions to them that need to be governance analysis include layer two, but ex- addressed. Typical challenges are reforms that clude layer three; they identify governance weak- fail or are only partially implemented, as well as nesses, but do not analyze why they exist. On reforms that are undertaken but have significant the other hand, some political economy analy- negative and unexpected results. More macro- sis is predominantly focused on an analysis of level problems may include a consistent failure stakeholders. However, understanding the in- to achieve significant poverty reduction, possi- stitutional status quo in sufficient detail is cru- bly despite substantial growth. Such challenges cial not only for GPE analysis as such, but also have been experienced across client countries in order to be able to map a feasible reform and areas of Bank operations. They have oc- path. Thorough institutional analysis strength- curred in agriculture, health, and public ad- ens the operational usefulness of GPE analysis ministration reforms, as well as in fundamental by identifying what reforms are feasible from a policy commitments inscribed in national de- political economy as well as an explicitly insti- velopment strategies. tutional perspective (the degree of detail in The second and third layer of PGPE analy- which analysis is carried out of course varies, de- sis aim at understanding the institutional pending on a team’s needs and the time avail- and governance arrangements and how these able). 10. This is essential for establishing that governance creates a problem/hinders development, and the nature of the problem. This creates a clear focus and makes the analysis problem-driven, rather than jumping directly to a discussion of governance weak- nesses and problems, of which there are many in most contexts. 8 P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S A P R O B L E M - D R I V E N A P P R OAC H TO G OV E R N A N C E A N D P O L I T I C A L E C O N O M Y The important goal of drilling down to the omy layer can assess the relative likelihood of political economy layer of analysis is to under- stakeholder opposition or of failure to mitigate stand why the problem that has been identified policy or governance risks successfully. Political is not being addressed successfully, whether the economy analysis asks about underlying drivers, effort has been to change governance and insti- such as the relationship between stakeholders, tutional arrangements or to adopt better poli- available rents and how they are distributed, in- cies. For a planned operation, the political econ- terests, collective action dilemmas, and incen- Box 2: Defining feasible solutions—Zambia and Mongolia In Mongolia, domestic funding for public investments increased more than fivefold between the early 2000s and 2008; but public investment planning remained rather ad hoc and subject to political jockeying—during budget preparation as well as at parliamentary approval stages—with limited regard for social and economic priorities. One feature of the situation has been that the senior civil servants and politicians who express the greatest frustration with the existing situation favor the (re-)creation of a ministry or agency of planning. This is not considered to be good international practice, as there is a perceived risk of creating unproductive rivalries between the Ministry of Finance and such an agency or ministry. However, a planning agency is appealing to local stakeholders, since a similar institution existed in the past, which is seen as having delivered better results than the current system. Thinking about feasible options suggests, first, that the emphasis should be on working with those interested in improvements—rather than insisting on particular institutional models. Second, it may not be realistic to de-politicize public investments overall, but rather it may be realistic to focus on some ‘bright lines’—such as simple, clear rules restricting the ad hoc adding of projects to public investment plan (PIP) lists, and promoting the vetting of major projects, which could help to limit the space for politicization and ensure a better targeting of funds on agreed priorities. The Zambia ‘GAC for CAS’a pilot took a close look at governance and political economy issues concerning the power sector. The experience over the past decade has been one of ambitious efforts at policy reforms (unbundling, tariff restructuring and increases, creation of public-private partnerships, creation of an impartial regulator), followed by reversals when the government pulled back from unbundling and privatization plans. At the same time, the need for expansion and better maintenance in the electricity sector has intensified in the context of a growing economy and a booming mining sector. The diagnostic analyzes the important role that the state-owned electricity company ZESCO plays in the context of Zambia’s patronage networks. Furthermore, mines and (better off) urban consumers have been the main beneficiaries of low electricity tariffs, while most of the poor have remained unconnected. A potential feasible solution involves making ZESCO a full participant in planning reforms (rather than seeking its dismantling). Furthermore, an approach focused on feasibility could involve prioritizing to add new-generation capacity on the basis of full-cost pricing for the increment. Stakeholders with the greatest interest in better supply—mining companies and other potential business users—would pay full-cost tariffs for the added electricity, while investments would not be held back by waiting for overall tariff reform to materialize. For the medium term, the proposal is to engage private business associations and consumer associations in electricity- sector expansion and reform, in order to increase demand and to break out of the low-level equilibrium of unwillingness to pay higher tariffs and shoddy utilities. Sources: Mongolia: The Political Economy of the Resource Paradox (2009); Zambia: Governance, Political Econ- omy and Development Strategy (2007). a. ‘GAC for CAS’ was the term adopted for the country-level governance and political economy analyses un- dertaken in FY08 to inform upcoming country assistance strategies and as part of the overall governance and anti-corruption (GAC) implementation. P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S 9 PA R T O N E tives. Understanding such underlying factors litical economy factors appear to prevent better is important in efforts to improve policies progress that is otherwise considered possible and governance arrangements and ultimately in from a technical perspective (‘developmental achieving development results. risk’). Secondly, country-level GPE analysis can In summary, a key lesson from experience be particularly relevant also in situations where is that GPE analysis is most useful when it is significant reputational risks for the World Bank motivated to understand specific issues or exist. Thirdly, where fiduciary risks are high, challenges and hence is ‘problem-driven’. Fur- GPE can be valuable for understanding the driv- thermore, it is important to combine gover- ers of a poor fiduciary environment and to de- nance and institutional analysis with an analy- fine adequate responses.11 sis of underlying political economy drivers. In As Part Three below sets out, GPE analysis this way, GPE analysis goes beyond most types can be targeted at (i) the country, (ii) the sector of governance assessments, which focus on iden- or thematic or (iii) the particular policy or proj- tifying governance weaknesses but provide little ect level. Seeking to understand country-level exploration of why these exist or of the dynam- dynamics is especially relevant during ics that could lead to change. At the same time, CAS/CPS/ISN preparation periods. This is par- it emphasizes an explicit coverage of institu- ticularly important when there is a sense that the tions rather than of stakeholders only. overall country program or significant parts of The next section briefly sets out in what the policy dialogue have not borne fruit in the types of situations governance and political past (e.g. as documented in the CAS Progress economy analysis as laid out here is most crucial Report) or there have been a number of surprises and valuable. Section 1.3 discusses the crucial in terms of policy action or inaction, or ex- aim of PGPE analysis, namely to help teams pected development progress that failed to ma- identify feasible approaches to reforms. Part terialize. It can also be important in situations Two then turns to the practical questions of when significant change has taken place in a how GPE analysis can be translated into action country—such as a change in government, the or ‘doing things differently’. Parts Three and emergence of natural resource exploitation, etc. Four deepen the discussion about the analysis as Furthermore, country-level analysis is crucial in such, the range of issues it may focus on, and situations where major governance-related risks how it can be evidenced. exist that could cause a halt to the Bank’s over- all country program (e.g. risks of state fragility, a coup d’état, etc.), or where other types of rep- I.2. WHEN IS GOVERNANCE AND utational risks for the Bank are present. Finally, POLITICAL ECONOMY ANALYSIS country-level GPE analysis provides an impor- MOST CRUCIAL AND VALUABLE? tant ‘public good’ that benefits all the various Governance and political economy analysis can teams working on a country—by facilitating a be valuable in a variety of different contexts and quicker, better understanding of country context situations. First and foremost, GPE analysis is when team members rotate, as well as by pro- important where and when governance and po- viding important background material if and 11. On these three types of risks see World Bank (2007a) (‘GAC Strategy’). 10 P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S A P R O B L E M - D R I V E N A P P R OAC H TO G OV E R N A N C E A N D P O L I T I C A L E C O N O M Y when the need for a more detailed understand- e.g. CDD-type projects or projects that aim to ing of political economy drivers emerges in a sec- achieve positive distributional impacts for poorer tor or related to particular projects. groups, some understanding of local political Sector-level GPE analysis is especially relevant economy drivers and risks of capture are essen- when envisaged reforms in a sector are signifi- tial for designing effective interventions and cant and are likely to be difficult because of monitoring frameworks. Generally, many of the their distributional impact, their institutional reforms that project teams seek to achieve—a complexity, and/or the structure of incentives more meritocratic civil service, better financial and constraints. It is also important where sector regulation, more effective management of changes in a sector or policy area have been on natural resources, or better access to social serv- the agenda for a long time without ever materi- ices for the poor—involve changes to power re- alizing; or when earlier improvements in sector lations, rent-seeking opportunities, or to in- policies or outcomes were reversed. A related grained incentive structures. Consequently, consideration is the ability of governments to paying attention to GPE related risks and to pos- ‘make reforms happen’, i.e. to manage institu- sible mitigation and management strategies is tional change as well as different stakeholder important. interests productively. Especially where experi- The scope and depth of PGPE-type analysis ence suggests that this ability is limited and can be adjusted to fit what is needed in a par- where consequently reforms may be left unad- ticular case. Often, there are opportunities to dressed, blocked or mismanaged, it can be cru- draw on existing analysis—for example through cial for a Bank team to invest in GPE-type a workshop with relevant local or international analysis in order to gain a better understanding researchers. However, if the need is for more tar- of the drivers and dynamics at play and how the geted information and answers to specific ques- team might best structure its own interventions tions—such as seeking a GPE perspective on the and support. Ideally, sector-level analysis can design of CAS pillars, or to understand why build and draw on existing country-level work, power sector reforms have not materialized de- which will signal overarching constraints and dy- spite substantial policy dialogue and investment namics that can affect most or all sectors. Fur- lending—and for advice on implications for thermore, often it can be helpful to use a value- Bank interventions, undertaking or commis- chain approach for structuring sector as well as sioning dedicated analytic work is essential; project focused analysis (see Campos and Prad- while there are a range of options for fitting han 2007) and as a way to identify key points of this within available resource and time con- risk or weakness in a sector. straints (see also Part Five). For specific projects or policy questions (such A logical and coherent way for developing as triggers to be used for policy lending), GPE GPE analysis for sectors and projects/specific analysis is most crucial if significant governance- policies is by building on prior analysis of coun- related problems—including but not only cor- try-level dynamics (see also Annex 2 for a more ruption risks—are anticipated. In some con- in-depth discussion of the three levels). For an texts, a brief GPE diagnostic will be valuable in increasing number of countries, such analysis is order to develop meaningful risk matrices, in- now available, either undertaken by World Bank cluding a better understanding of the GPE driv- teams or other development partners. If the ers underlying fiduciary risks. In other cases, need for project/policy focused GPE diagnostics P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S 11 PA R T O N E emerges where no prior analysis of country and developing economies requires a second-best sector level dynamics is available, it may often be mindset. In such settings, a focus on best-prac- necessary to include at least a brief sketch of tice institutions not only creates blind spots, country-level dynamics as well as of the overall leading us to overlook reforms that might value-chain of the sector. Some project-related achieve the desired ends at lower cost, it can also problems are likely to be rooted in the wider backfire.” While ‘first best solutions’ are techni- country context (e.g. bribes and kick-backs cally superior in a textbook sense, this advantage linked to country-level problems with illicit fi- can be lost or even reversed under real-world nancing of political election campaigns), others conditions if the solutions are only partially im- can be linked to other ‘break’ points in the sec- plemented, are stalled or reversed because they tor value chain—further upstream or down- are politically unpalatable, or trigger unintended stream—while yet others are highly specific to consequences during implementation (such as the particular project intervention or locality. privatization creating monopolies or reforms Therefore, in order to generate sensible solutions leading to institutional breakdowns rather than it is important that more micro-level GPE analy- improvements). sis is able to link up to wider sector or country- At the same time, ‘feasible’ reform options level issues to the degree that this is feasible are also clearly distinct from ‘default options’, given existing work, as well as time and resource that is, the reform path or non-reform path constraints. that would result from no intervention or ef- The sensitivity of GPE analysis varies signif- fort at change. Because ‘feasible solutions’ are icantly across countries and issues. Crucially, sensitive to the political economy context, they and as set out repeatedly in this framework, the should in principle also be more compatible World Bank undertakes such analysis with the with country ownership, a key principle of the aim of enhancing development effectiveness— development effectiveness agenda. It can be including the definition of feasible reforms as challenging to identify a ‘good enough’ solution discussed in the next section. The analytic work that is feasible, has a relevant development pay- may be done to inform Bank staff and manage- off, and offers the potential of preparing the ment only or it may be shared and discussed ground for further improvements later on. How- with country stakeholders—in whatever form is ever, experience from pilot cases shows that sensible and appropriate to the specific context searching for such solutions is a worthwhile ex- and to the overall goal of furthering develop- ercise. It helps teams to think through their as- ment effectiveness (see Part Five for a more de- sumptions and to consider in much greater de- tailed discussion). tail the range of short- to medium-term reform options. It also helps teams think about the steps that would be involved in moving from an I.2. GOOD ENOUGH GOVERNANCE existing situation to a better one, such as im- AND FEASIBLE APPROACHES TO proved regulation or a better distribution of re- REFORM sponsibilities or incrementally improved sys- In many cases, the implications resulting from tems. GPE analysis will entail considering feasible Finding feasible approaches to reform may options for reforms. As Rodrik (2008b) argues: include prioritizing what vulnerabilities/con- “…dealing with the institutional landscape in cerns can be addressed with a reasonable chance 12 P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S A P R O B L E M - D R I V E N A P P R OAC H TO G OV E R N A N C E A N D P O L I T I C A L E C O N O M Y of success and proposing how governance sector level (see Grindle 2007, Khan 2006). Im- arrangements can be improved in a way that (a) portantly, the concept of ‘good enough’ does is feasible, (b) is not likely to be subverted by po- not imply giving up on ‘good governance’ as a litical economy drivers, and (c) would channel principle. Rather, it acknowledges the practical political economy drivers more productively in challenge that under real-world conditions, not achieving development and poverty reduction. all desirable governance improvements are af- This includes interventions, based on a careful fordable or feasible in the short to medium term, assessment, that might proactively seek to ease and that feasible, gradual improvements may political economy constraints, for example by have tangible payoffs for development goals. supporting coalitions for change, promoting a PGPE analysis can incorporate the notions of better-informed public debate, and so on. ‘good enough governance’ and feasible options ‘Good enough governance’ captures the idea into the process of defining implications and of considering the change process as moving proposals regarding how best to move forward from worse to better governance environments, with reforms. As discussed in Part Five, this will and of focusing on priorities and gradual im- be most useful and operationally relevant if done provements rather than trying to reform gover- in close interaction with the country or task nance wholesale—whether at the macro, core, or teams working on the reform area concerned. P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S 13 Part Two: Translating Analysis into Action: Using Problem- Driven GPE Analysis to Enhance Bank Strategies and Operations In the past, political economy analysis has some- erations in ways that range from adjusting them times been seen as an approach that is more to the existing space for change/reforms, to the likely to point to obstacles than to find solutions. development of proactive strategies for expand- This good practice framework seeks to lay out ing the space for change/reforms (see Figure 2). how problem-driven GPE diagnostics can ex- The different ways of using GPE analysis are plain why reforms may be difficult as well as not mutually exclusive. For example, country- providing options for solutions. At the opposite level analysis may mainly be used to inform a extreme is a perception that, once we under- country strategy, while specific notes may be stand the interests and incentives of stakehold- used to shape a proactive strategy for a particu- ers better, we can manage reforms much more lar reform issue, such as a campaign to ensure effectively, work with champions and coalitions that medicines and vaccines are reliably supplied for change, foster better leaders, and achieve en- to rural areas, or to build support for public pro- hanced results rather quickly. Such expectations curement reform. Crucially, in order to provide can also be misleading, not least given the fact actionable implications, GPE analysis needs to that the World Bank is only one among a mul- be sufficiently specific, and several GPE notes titude of stakeholders in any given country. may be needed if the intent is to inform a range Nonetheless, GPE analysis can yield tangible in- of issues and questions. (Note that various op- cremental benefits for country programs and tions for focusing GPE analysis are discussed in operations, and ultimately, therefore, also for Part Three.) The following paragraphs describe aid effectiveness and for a country’s develop- the various uses in greater detail, including ex- ment outcomes. amples from recent experience. Problem-driven GPE analysis can be trans- Country situations matter for deciding what lated into action in various ways. It can provide action is right. Countries might be in steady- political intelligence for agreement on what is state situations, in which reforms are quite fea- feasible within teams and with management; sible but stakeholders feel only limited urgency. moreover, it can help to shape strategies and op- They might be in situations of hidden or obvi- P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S 15 PA R T T W O Figure 2: Options for translating GPE analysis into action Making reforms happen: translating GPE analysis into action Selecting operations given Seeking to expand space existing space for change for change proactively Zambia Telecoms: focus on local Mongolia Mining: Technical The Philippines Public winners assistance (TA) with local procurement reform—proactive think tank for public debate coalition building to combat Ethiopia Protection of Basic entrenched corruption networks Services (PBS) to mitigate Paraguay & Bangladesh reputational risk: support Roads: external monitoring subnational service delivery with by stakeholders participation ⇒ See section 2.1 ⇒ See section 2.2 ⇒ See section 2.3 ous fragility, which often means that many tives, capacity constraints, or the wider institu- stakeholders are disinclined to take risks. Or tional environment vitiate real implementation, they might be in transformative moments, of- and this in turn can undermine longer-term in- fering wider windows of opportunity as well as stitutional strengthening as well as the actual re- risks and uncertainty (for example over whether sults for the sector or issue of concern. Another major shifts in who governs will result in real frequent risk is that of relying strongly on se- momentum for policy improvements). Fiscal lected ‘champions’ of reforms, as well as inter- windfalls and, in the reverse, negative fiscal acting exclusively with the current government shocks each can create different constraints and rather than policy stakeholders more broadly. opportunities to pursue change. The findings Such strategies have repeatedly backfired when from GPE analysis, especially if it includes the changes in personnel or in the overall govern- country level, as well as the country team’s sense ment occur. GPE analysis can indicate options of the situation, can guide the choice of actions. for managing such risks better. One important implication of GPE analysis One general lesson on how to translate analy- can be greater awareness of risks and of options sis into ‘doing things differently’ is the need for for managing risk. This includes a better aware- team and management attention. This includes ness of the potential unintended (negative) con- attention to managing the diagnostic well (as sequences that first-best solutions may entail. described in detail in Part Five), for example, by One frequently encountered risk is that of ambi- integrating technical and GPE teams when tious policy reform efforts contributing to signif- major operations are being prepared. It may re- icant implementation gaps. In such situations, quire attention to organizing country or sector formal legal provisions are reformed, but incen- team workshops to discuss findings from GPE 16 P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S Tr a n s l a t i n g A n a l y s i s i n t o A c t i o n Box 3 GAC analysis shaping the CAS—Zambia and Uzbekistan The Zambia GAC for CAS analysis was carried out from June 2007 to December 2007, in parallel with the preparation of the 2008–11 CAS, which was adopted in March 2008. The GAC for analy- sis (i) informed the analysis of country conditions alongside other key components, economic con- ditions, and social conditions and poverty reduction, and (ii) informed the World Bank country program focusing on four priority areas: (a) macroeconomic and expenditure management; (b) infrastructure development; (c) institutional capacity enhancement; and (d) social sector develop- ment. Evaluations of earlier CAS periods (1996 to 2003) had shown that progress in Zambia had been unsatisfactory. The new CAS proposes a filter for any new project proposals, which would, among other con- siderations, clearly focus on feasibility given the governance and political economy context; and would also promote projects that pursue less far-reaching goals but are more likely to be fully im- plemented (WB 2008: 19–24). The Uzbek Country Team Learning Event on Governance in CPS (2008) brought together CMU management (CD, CM, CPC), CSCs, TTLs, and the local operational staff to listen to each other and to brainstorm in a structured way about entry points for incorporating governance into the CPS under challenging political economy conditions. The two-day event was extremely productive: not only were all those involved required to think about governance as it pertains to their everyday work, but also as it applies to the Uzbek context. The event culminated in a structured brainstor- ming in small groups that collectively came up with several feasible entry points for governance engagement in Uzbekistan, which were incorporated into the CPS. Country examples: Zambia: Brian Levy, PRMPS; Uzbekistan: Jana Kunicova, ECA.\ Source: Authors. analyses and to distill what they imply for strate- left-hand side of the spectrum in figure 2). GPE gies and/or operations; or to call on GPE ex- analysis helps to create a better understanding pertise in the course of implementing an of the environment in which operations take operation. As described below, if teams decide place and in which strategic results are being that a proactive approach is needed to move re- pursued, and helps to spell out crucial gover- forms forward, this also requires attention and nance and political (economy) risks. This can management. The benefit for teams and man- be valuable for creating a shared understanding agement is that ‘GPE-smart’ strategizing may of the environment across a team as well as for have real payoffs for programs and operations. agreeing with management and reviewers on country programs and/or specific operations that are realistic and feasible. GPE analysis also II.1. INFORMING BANK TEAMS AND helps to preserve and transmit such an under- ADJUSTING STRATEGIES AND standing when staff changes.1 OPERATIONS TO AN EXISTING Beyond a more limited use of informing SPACE FOR CHANGE teams, GPE analysis should provide and be used A basic way of using GPE analysis is to have it to draw implications for the design of strategies inform country strategies and operations (see the and operations. In many instances, these impli- 1. Often, new staff will need several months to understand the political economy intricacies of their area. Even a brief analysis can substantially accelerate this understanding, and it can also help to set the political economy problems perceived in a par- ticular area into the wider country context. P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S 17 PA R T T W O cations are ‘reactive’, that is, they are aimed at mal institutional landscape within which they adjusting strategies and/or operations to an ex- operate (the middle of the spectrum in figure isting space for change: 2). As set out below (Annex 1), a pure ‘common sense’ approach to political economy can some- i. Influencing the country strategy in terms times result in perceiving stakeholders as clearly of priorities, and in terms of defining feasi- divided into ‘opponents’ and ‘reform champi- ble reforms and entry points, as well as pos- ons’, as well as to a rather narrow focus on cer- sibly proposing new monitoring tain stakeholders. GPE analysis can foster a components that are particularly relevant more granular understanding of the incentives from a political economy perspective. and constraints that influence the behavior of PGPE analysis can be useful at any point different stakeholders and the implications for in the country assistance strategy (CAS) pursuing reforms, and can also pro-actively cycle, but there is added value if it is done broaden the circle of stakeholders the Bank upstream of the CAS/ISN. At this point, it seeks to bring together in support of develop- can be vital to clarify what the potential for ment policies. progress is across the various areas/pillars of When GPE analysis can be done in an open the CAS, as well as how this envelope may manner, it will often involve stakeholders that be stretched. If specific governance-related many task teams do not routinely engage with. monitoring indicators are included in the As a result, it helps establish expanded relation- CAS, this helps to keep a focus on these is- ships and networks for dialogue and for pro- sues, even if teams change—in a way that is moting change. A broader set of stakeholders very specific and pertinent to the problems may include policy-focused think tanks, policy and issues faced by country teams. thinkers within political parties (who are not ii. Enhancing the design of operations, in necessarily members of the executive), and terms of the what and the how; helping to NGO representatives. Moreover, a deepened anticipate problems that are likely to understanding based on GPE analysis can be an emerge during project implementation and important boon to working effectively with re- to think ahead about how to manage them. form-oriented individuals and groups/coalitions. Problem-driven GPE can support innovative approaches to operations. For example, teams II.2. ENHANCING AND BROADENING may recognize that it is important as well as fea- POLICY DIALOGUE AND sible to promote a better informed public de- DEVELOPING INNOVATIVE bate on reform issues and policy options. Or it APPROACHES TO OPERATIONS may become apparent that monitoring efforts If context permits, GPE analysis can contribute by local stakeholders can be encouraged and to enhancing the policy dialogue, and to devel- supported in order to limit corruption and oping innovative approaches to operations. achieve results more effectively. To pursue such Problem-driven GPE analysis can make impor- innovative approaches, a good integration of tant contributions to enriching the policy dia- technical and GPE-focused diagnostic work is logue in-country because it can create a much vital. Management attention and follow-up is better understanding of the interests and incen- also very important. The mining sector TA in tives of stakeholders and the formal and infor- Mongolia, described in Box 4, and support for 18 P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S Tr a n s l a t i n g A n a l y s i s i n t o A c t i o n Box 4: Mongolia—developing an innovative approach to Mining Sector TA Dealing with a mining boom has been a major policy and political challenge in Mongolia—a coun- try that has rich deposits of copper, gold, coal, uranium, and other minerals. A large number of de- posits have been explored in recent years, while existing mines have become far more profitable. At the same time, there have been numerous public protests over mining sector issues. A key focus is how contracts and agreements are being negotiated with foreign investors. Many Mongolian citizens broadly favor public ownership of mining; while at the same time also demanding trans- parency from state officials regarding mining sector decisions. This was corroborated by a public opinion poll undertaken as part of the GPE assessment. The government is keen to benefit from access to international experience and advice on how to tackle the difficult policy challenges. At the same time, there has been an element of distrust, as the World Bank is perceived as having been a key supporter of a very liberal mining law that was adopted in 1997 during a period of low prices. The law has since been revised. The GPE analysis squarely focused on mining sector issues, covering many of the elements of the value chain (see section 3.2), from mining licensing to how the windfall public funds are being used to foster long-term development. The analysis helped the country team and the task team that were preparing a major new Mining Sector TA think through and understand the complexity of the existing institutions and stakeholder interests and incentives, in a way that an exclusively technical analysis would not have been able to. A crucial finding was that there is an urgent need to support a more informed public debate about options for regulating and managing the mining sector and its associated opportunities and risks, and to do so by working with a broad set of sta- keholders, reaching out beyond the executive in multiple ways. In particular, the project will sup- port a local think tank dedicated to mining sector issues in this commodity dependent country. Source: Authors. the Paraguay roads project both provide good change are coalition-building, information and examples of innovative approaches, focusing on communication campaigns, and generally in- (i) promoting a better informed public debate tensified work with stakeholders, in particular on important issues, and (ii) generating greater stakeholders who can exercise demand for pro- transparency and accountability. gressive change. i. Information and communications strategies: II.3. USING GPE ANALYSIS TO such strategies are intended to inform citi- DEVELOP CAMPAIGNS FOR zens at large about the potential benefits of CHANGE PROACTIVELY change compared to the status quo. Strate- In a number of instances, the ultimate aim is to gies would use media and other outlets that widen the space for change (the right-hand side can reach relevant citizens (such as radio of the spectrum in figure 2). Various elements stations broadcasting in rural areas or bill- of GPE analysis can help decide whether it is boards in specific urban neighborhoods). worthwhile to pursue a proactive strategy of Information campaigns can help govern- building momentum for reforms. Such a deci- ments to move forward with reforms if they sion is necessarily context- and issue-specific. are concerned that the reforms may be un- The main avenues for building traction for popular; in other situations, such cam- P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S 19 PA R T T W O paigns may also be intended to increase de- change, including seeking to convince un- mand for change, or to focus demand on decided/hesitant stakeholders to join a specific policy actions. pro-change platform (see the example of ii. Intensified work with key stakeholders: for the Philippines’ procurement reform certain issues of change, it may be crucial to process, Box 5). Potential pro-reform intensify the dialogue with key stakehold- stakeholders can be brought together in ers, including stakeholders that the Bank various forums to develop concrete pro- traditionally has limited interaction with, posals for reform, to agree on positions, such as MPs. Such intensified dialogue can and to coordinate actions. The key aim serve to deepen the understanding of re- should be to support progressive coalitions, form issues and/or to win support for cer- while accepting that these define the scope tain reform options. and precise direction of change they want iii. Coalition-building: working pro-actively to pursue (that is, they have ownership of with a range of stakeholders interested in reform agendas). Box 5: Philippines—building a coalition for procurement reform Public procurement in the Philippines was perceived to be a major governance challenge. A pro- cess of procurement reform was triggered in 1998 by a detailed technical report commissioned by USAID. Initially, however, the report developed little traction and was shelved. However, a series of workshops involving government and nongovernment stakeholders revived demand for pro- curement reform. In early 2001, Procurement Watch (PWI) was established as an advocacy NGO, founded by academics, reputable retired government officials, lawyers, and concerned private sec- tor executives. PWI was funded through an EC-WB grant/trust fund (TF). The grant covered most of the costs of organizing people and groups in order to advocate for the passage of a new pro- curement bill. PWI raised the awareness for this issue by mobilizing public support and imple- menting a broad media campaign. In early 2003, a new Government Procurement Reform Act (GPRA) was adopted, a first major success of the campaign. The challenge since 2003 has been to ensure implementation. Initially, the focus was on capacity building for government officials at various layers of government. While this was important, after some years there was a sense that advocacy had to be revived in order to have greater impact. Since then, activities have focused successively on different sectors. The procurement of regular goods, for example, became fully transparent and monitorable online [Philippine Government Electronic Procurement System]. The Philippines Boy Scouts became in- volved in monitoring the procurement of school textbooks. Currently, there are plans for senior citizens associations to start monitoring drug procurement. The overarching lessons of this project concerned the importance of getting the right people engaged and forming a broad and focused coalition of stakeholders. Proactive and professional civil society engagement, the formation of a tightly knit group of reform-minded government of- ficials, the support of progressive legislators who knew how to traverse the complex legislative maze, the conduct of in-depth technical studies, and the implementation of a well-thought-out communication strategy all contributed to effectively mobilizing public action that led to the ad- option of the new procurement legislation and supported its subsequent implementation. The biggest challenge remaining is in infrastructure procurement, where only limited but nonetheless noticeable progress has been made to date. Source: Ed Campos, Caby Verzosa. 20 P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S Tr a n s l a t i n g A n a l y s i s i n t o A c t i o n Especially when teams want to use GPE agement time. Management attention is partic- analysis to pursue a proactive approach to ularly important where political sensitivities change, there are several important concerns to may need to be addressed at various stages. That take into account. Most crucially, the Bank has said, the potential rewards for intermediate and to be an honest broker, and such efforts need to proactive strategies can be substantial, and in be in line with the general principle of Bank op- certain difficult areas this may be the only way erations to respect the preferences and choices of to achieve progress. local stakeholders, who will in any case be deci- Furthermore, teams need to decide carefully sive in most instances, especially when it comes whether a more reactive or pro-active approach to the actual implementation of change.2 There- is most appropriate and feasible. A proactive ap- fore, there is a need for real and substantive di- proach is not necessarily always superior. In alogue with a range of local stakeholders. fragile contexts or where political stability is at Furthermore, the more an approach is proac- risk, special care needs to be taken. A variety of tive, the more it will require resources—includ- local voices should be heard regarding whether ing staff and management time and attention, or not a more proactive strategy is advisable. At financial resources to organize meetings, sup- a minimum, using GPE analysis to inform and port for local think tanks and NGOs, and fund- shape strategies and operations is likely to lead ing for communications strategies. At least in to more appropriate Bank programs than has part, the financial resources may be borne by been the case where programs have been in- others (such as government, bilateral donor formed exclusively by technical analysis and agencies, and foundations), but at a minimum, have tended to disregard country and reform Bank teams will need to dedicate staff and man- contexts. 2. Note that local stakeholders are often not unified in their preferences (i.e. there is a greater variety to local preferences than the current official government declaration/policy). Various types of surveys can be used to tease out local preferences as well as gauge how well preferences are informed by evidence/available information. P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S 21 Part Three: Choosing the Level of Analysis: Country, Sector, Project One can distinguish three broad levels of PGPE divisions, including ethnic or religious ones analysis: the macro or country- level, the sector where relevant, how these have evolved and thematic level, and the project- and policy- over time (including the impact of past specific level. GPE analysis can focus at one level legacies on the current political and eco- only, or cover several levels, usually through a nomic landscape), and the evolution of the set of notes.1 This allows tailoring the analysis to political management of economic rents. the specific needs of a team, as well as to the ex- Such analysis is crucial for reaching a com- isting context, including the fact that the den- mon understanding of the country context sity of prior analytic work varies significantly in which the Bank Group operates. Its most across countries. Teams engaged in strategy direct uses are to inform country assistance planning—for example, preparing a country as- strategies (or other strategies) and to serve sistance strategy (CAS) or a major DPL or re- as a background for a more specific GPE engaging with a country—may want to cover analysis.2 the country level as well as one or several key ii. Sector and thematic PGPE analysis focuses on sectors. Task teams working on one particular specific areas and may cover an entire sector operation will be most interested in project- and ‘value chain’ (see Annex 2) or selected issues possibly sector-focused GPE analysis—which within a sector or (broad) theme. GPE analy- ideally can benefit from and draw on existing sis of sectors complements technical analy- country-level analysis. sis, such as technical studies of infrastructure needs or of capacity-building needs in the i. Country-level analysis seeks to capture the civil service. The analysis can inform CAS overall governance situation and the main po- pillars, sector or thematic economic and litical economy drivers. Analysis at this level sector work (such as CEMs for growth as a serves to capture important factors, such as theme), as well as DPLs, investment lend- the geopolitical context, important social ing operations, or TA. 1. For example, most CGAC pilots combined a background paper on country-level issues with specific pieces on various sectors or themes. 2. As set out above, most existing tools developed by other development agencies address this level. P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S 23 PA R T T H R E E Figure 3: Levels of analysis: country, sector, project Sets the stage, provides detailed qualitative view of governance Macro-level country and political economy drivers for Level 1 governance and political the country overall. Often as economy assessment background note to more specific GPE analysis. Focus of CGAC pilot GPEAs Thematic analysis For Thematic GPE assessments—e.g. example: PGPE analysis of of managing natural resources, NRM, of governance and linking governance and growth growth, etc. analysis, political commitment to poverty reduction. Level 2 Sector GPE analysis inform CAS PGPE analysis of PGPE analysis of pillars, sector strategies, sector core governance other sectors (e.g. DPLs, complementing technical issues and reforms HD, transport) sector analysis Detailed, focused problem-driven PGPE to inform a Political economy GPE analysis can inform specific Level 3 specific project or analysis focused on a operations or components, component single policy decision specific policy issues (e.g. regarding Prior Actions). iii. The third level is problem-driven GPE analy- in Figure 3). Similarly, sector task teams may sis focused on specific projects and/or policy de- ask for an analysis that sets out the sector-wide cisions. Such analysis is focused directly on GPE context (and how it is linked to adjacent generating advice to a single operation or sectors and/or country dynamics), as well as ad- to aid in dialogue on a specific policy issue. dressing one or two questions around specific policy reforms—such as those to be defined as Importantly, the different levels can be and Prior Actions or benchmarks for a DPL. Each of often are combined. For example, country teams the three levels is described in greater detail in preparing a CAS or major DPL may commis- Annex 2. sion an analysis that combines a summary of Ideally, PGPE analysis at any level should country-level GPE dynamics as well as two or incorporate comparative thinking, even if the three notes focused on specific sectors or main interest is in one country or sector at a themes. Such a combination was used in the time. Comparative case studies are one of the CGAC GPE pilots in Mongolia, Zambia, Mali, fundamental methods used in the social sciences and Lebanon (see the right-hand information to test causation.3 Comparisons help assure that 3. Originally based on the methods of inductive logic developed by John Stuart Mill. For recent discussions see King, Keohane, and Verba (1994); Ragin (1987). 24 P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S C h o o s i n g t h e l e v e l o f a n a l y s i s : c o u n t r y, s e c t o r, p r o j e c t analysis does not reach erroneous conclusions whether similar issues are being experienced in about causality. For example, a sector analysis equivalent sectors in similar countries and/or may conclude that the lack of strong demand with similar types of project interventions. from citizens is a major cause for the lack of re- For a number of issues, it may be worth ex- forms in this area. However, in another sector ploring whether countries with similar endow- in the same country, reforms may have occurred ments and conditions have taken similar or despite similarly weak demand. Consequently, rather diverging trajectories. This can help to the lack of citizen demand should perhaps not capture what factors are making a difference and be considered the central cause or driver in the would merit attention through interventions. first sector. For example, two countries with comparable For Bank teams, real comparative studies are levels of income may have started from similar often not a priority, given that they are inter- levels of literacy, but one country may clearly be ested in one particular country or sector at a moving ahead of the other. Some comparative time. However, within-country comparisons exploration can help to tease out institutional may be possible and of interest, for example and sociopolitical factors that account for dif- when considering whether reforms have worked ferent levels of commitment, effort, and results in other sectors in the same country, and what in expanding education, and this in turn can accounts for such differences in reform success. help to define what could be targeted in lagging Furthermore, it may be fruitful to explore countries. P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S 25 Part Four: Evidencing Problem-Driven GPE Analysis Credible GPE analysis needs to be well evi- and for getting a more precise grasp of the mech- denced. It needs to pull together a compelling anisms by which GPE factors contribute to the ‘analytic narrative’ consistent with experience poor outcome to be explained. For this, the and systematically gathered data and informa- GPE analysis is often able to draw on existing tion, while avoiding the pitfall of essentially materials such as technical reports, investment providing technical analysis combined with some climate assessments (ICAs), PERs, CEMs, or broad statements about governance and politi- PAs, as well as on discussions with country, sec- cal economy. This balance needs to be struck on tor, or task teams. At times the GPE analysis a case-by-case basis, as part of the process of may bring out that further technical information defining the focus of the analysis, and based on on vulnerabilities or challenges is needed. the needs and intentions of the country or task At the heart of the analysis are institutional team. As discussed further in Part Five, problem- structures and governance arrangements, as well driven GPE work should whenever possible be as stakeholders and their interests and incentives, closely integrated with technically focused analy- and how all of these interact. sis and teams so that the two can be comple- mentary and so that important synergies for i. To the extent that they are available, GPE operational implications can be reaped. Useful analysis should draw on any relevant pre- ways to structure the analysis and existing tools existing diagnostics, such as PETS, corrup- and experiences can also be found in the 2007 tion assessments, and Public Expenditure TIPS handbook (World Bank 2007c). and Financial Accountability (PEFA) as- The three-layer model set out in Part One sessments. provides a broad guide for the evidencing ii. Important sources for capturing institu- process. The first layer, the problem to be ana- tional structures are laws and regulations, lyzed, is usually what motivates the analysis, as well as organigrams and mappings of de and hence would be reflected in the concept jure and actual process flows (the latter is note or terms of reference (TOR). In many essential to capture informal rules and ac- cases, it may be relevant to gather additional in- tual behaviors). For example, the analysis formation for describing the problem in detail, may map the formal as well as the actual P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S 27 PA R T F O U R processes for setting electricity tariffs, or for which little information is available either pub- approving public investment plans. licly or as the result of operational work. The iii. The analysis may be able to utilize interest- most valuable interlocutors are individuals who ing sector-specific data (such as data about have an overview of a situation and who are in- the size and relative importance of SOEs, terested in discussing this information, for ex- data on hospital usage, absenteeism, infor- ample because they share a conviction that re- mation on pricing, and so on), as well as forms are needed. information about government policies, implementation status, public sector ca- i. Interviews with knowledgeable local stake- pacity in various areas, and so on. holders—not only researchers, journalists, iv. To the extent possible, the analysis should civil society representatives, but also policy include coverage of informal institutions. thinkers within government and political This is essential for understanding whether parties—are essential for building an un- formal rules are actually functioning as in- derstanding of the issues and political econ- tended or not—which in turn has impor- omy drivers. They should also yield tant implications for the kinds of policy information about social norms and de and institutional changes that Bank opera- facto (as compared to de jure) rules of the tions and policy dialogue may seek. game. Interviews can be done individually v. Surveys of public opinion or of specific or as focus groups, with the former being groups (such as business people) or house- preferable for more sensitive topics. Prepar- hold surveys that include governance- ing precise questions is essential to gather- related questions may also be available and ing a rich and pertinent set of information can provide evidence about whether gover- through interviews. nance arrangements are perceived to be de- ii. One-on-one discussions or workshops with livering or not, the prevalence of integrity Bank country or sector team members and problems, and so on. Sometimes, commis- local staff are a good way to capture their sioning a specific survey can also be useful, often considerable (tacit) knowledge about for example to understand what preferences political economy issues. different groups in society have regarding a iii. It is often good to snow-ball interviews: specific issue or policy. moving from a few initial interlocutors suc- vi. Other written sources that may be useful to cessively to a wider set. It is generally best to analyze include media coverage and records interview key individuals once initial infor- of parliamentary debates. mation has been gathered, to be sure that the most pertinent questions can be asked. Apart from written sources, interviews with iv. For detailed stakeholder analysis, interviews individuals and focus groups (where appropri- need to focus on stakeholder interests, what ate) are a crucial source of information. It is im- level of change they support or oppose, portant to approach interviews systematically how much they care about an issue, and in order to extract key information. Interviews how much leverage they have over other and discussions with well-informed individuals stakeholders. Detailed information of this are essential for developing an understanding of nature is especially essential when formal- political economy drivers, especially for issues on ized stakeholder analysis tools are being 28 P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S Evidencing Problem-Driven GPE Analysis used (see Annex 1, Box 10), but it can be and well informed people (especially if there is valuable also for less formalized analysis. an existing operation and/or ongoing policy di- alogue). A general core principle for evidencing GPE Working with good local consultants is highly analysis is triangulation. For interviews, this valuable to ensure well evidenced GPE analysis. means posing a similar set of questions to mul- Local consultants can be important to identify tiple respondents in order to corroborate claims.1 and access useful sources of evidence, for ac- It is also helpful if more anecdotal or ‘soft’ infor- cessing such data and for providing a first analy- mation can be triangulated with ‘harder’ sis. They can also give advice on potential in- sources—such as actual budget and public in- terviewees, on process issues, and on the vestment allocations, information on differential interpretation of the information gathered. pricing, asset declarations of public officials, a Countries vary considerably with regard to how process-tracing of a certain chain of events, or accepted it is to discuss governance problems tracing published or publicly accessible sources with outsiders. Again, local consultants can be that reflect positions taken by individuals on the very important and helpful for understanding issue at hand (for example, on electricity tariffs, and interpreting nuances. They may also play a teacher training and wages, or governance role in the follow-up and dissemination (see arrangements for the financial sector). Part Five for a discussion of these issues). Iden- It is important to recognize that detailed ev- tifying good local consultants for such work idencing of problem-driven GPE diagnostics can should therefore receive high priority. be challenging. Pertinent data or information is Inevitably, there is a trade-off between the not routinely collected by sources such as a depth of evidencing and resources allocated. An country’s national statistical office or ministry of in-depth, richly evidenced PGPE analysis will finance, nor by World Bank teams/country of- require more time and resources than a quick fices. In addition, there may be issues with the piece that is more conceptual, drawing on a few accessibility of relevant data. Evidencing can be key interviews only. Teams commissioning prob- particularly challenging for sector-focused and lem-driven GPE analysis should be realistic in thematic analysis. For country-level analysis, a what they expect relative to the time and re- greater amount of relevant information is often sources allocated. On the other hand, teams un- available through the national press or previously dertaking the analysis will often need to be cre- published analysis. For project or policy specific ative in thinking about what could be useful PGPE analysis, evidencing is made easier by the sources of evidence, seeking to be systematic in narrower focus of such work, which can often collecting information and bringing it to bear on benefit from easier access to specific data sources their story line in a convincing way. 1. Attempts at triangulation can sometimes be challenging, since different interlocutors may contradict each other. In such cases, it is important to consider whether an interlocutor has an interest in raising a problem, exaggerating it, or denying/diminish- ing it. P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S 29 Part Five: Getting the Process Right: Issues to Consider Getting the process right is essential for PGPE This section is primarily focused on how to analysis to be useful and effective. Quality GPE produce a PGPE analysis that can effectively in- analysis benefits from a clear vision of the in- form Bank strategies and operations. In situa- tention of the work. It should be clarified tions where teams consider that PGPE analysis whether it is meant to inform Bank teams in- jointly with governments is feasible and desir- ternally only, or whether it is also intended as able, additional process considerations apply. an input for debates among country stakehold- Here, interaction with country stakeholders is ers. Likewise, the focus and the type of output primarily raised with regard to follow-up being sought should be clear. Also necessary is a processes, that is, the sharing and dissemination good understanding of the process and issues of PGPE diagnostics and the implications that that are likely to appear along the way. Further- may emerge for engaging differently with coun- more, it is vital to consider the follow-up try stakeholders. process, how the analysis will feed into relevant programming, strategies, and operations, as de- V.1. PLANNING GPE WORK AND scribed in Part Two above. LINKING IT TO OPERATIONS OR This section addresses the following five TECHNICAL ANALYSIS process issues1: As for other diagnostic work, good planning is V.1 Planning problem-driven GPE work important. Answering the question of why this V.2 Defining and finding the necessary skills work is being done and reaching clarity on the V.3 Issues to consider regarding implementa- objective of the analysis and the questions to be tion of the diagnostics investigated are crucial.2 As the problem-driven V.4 Sharing and disseminating outputs thrust of this framework emphasizes, the focus V.5 Bridging analysis and follow-up/action. of PGPE work can be grounded in experienc- 1. Further advice on these issues is available ‘on-demand’ from the teams located in PRMPS and the GAC secretariat. 2. Agreeing on an inception report as a first output can be one way to achieve greater clarity as part of the process. P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S 31 PA R T F I V E ing difficulties with prior operations, in seeking reaping its potential strategic benefits to country to respond to new development challenges programs and sector operations. Country direc- (such as major shifts in property rights or deal- tors or managers in many cases are the crucial ing with regional inequality), or in diagnosing hinge between undertaking the analysis and tak- the governance and political economy dimen- ing decisions on the follow-up (as set out in Part sions of other major questions addressed Two). Ideally, therefore, they should be involved through ESW. It is helpful if the concept note from the start. and TOR for the PGPE analysis clearly sets out Moreover, linking GPE analysis well to other the scope and focus of the work to be under- (ongoing) analytic and advisory activities taken For example, for sector work this can en- (AAA) and to Bank operations is likely to in- tail specifying which part of the sector value crease its ultimate usefulness. At a very practi- chain (as discussed in Annex 2, section II.2.1.2) cal level this means involving sector/task teams is to be analyzed. in the design of problem-driven GPE, estab- As a general rule, problem-driven GPE lishing links between the teams, and ensuring analysis will be particularly valuable if initiated that GPE teams are fully aware of existing and upstream of a strategy (CAS/ISN) or an opera- ongoing technical analysis (including relevant tion (DPL, investment lending, or major TA). drafts). Often, CMUs can play an important Nevertheless, GPE analysis may also become a role in this regard.4 matter of urgency due to an economic crisis or PGPE analysis involves thinking through the a reform impasse or reversal, requiring real-time, kinds of data and information that will be rapid assessment, or when a window of oppor- needed for meaningful work. As discussed in tunity opens up, for example due to changes in Part Four, PGPE analysis may use a wide range government, when Bank teams may be called of information and data, some of which may on to support major new reform drives.3 Fur- not routinely be collected by country offices, in- thermore, in the case of multiyear strategies or cluding opinion and other governance-related operations, changes in events may trigger a need surveys, a mapping of sector processes, pricing to update the analysis in order to provide an information, and so on. Some up-front work by input into how the strategy or operation may the local office or local consultants can be very best be adapted to the evolving situation. There- helpful in ensuring that PGPE analysis is well fore, at upstream stages, there is the greatest evidenced. value in investing in substantial analysis. During implementation, when the issue is whether and V.2. HOW TO DEFINE AND FIND THE how to adjust an operation or strategy, a brief note NECESSARY SKILLS combined with hands-on advice to teams/TTLs is often most appropriate. Getting the right skill set is essential to good Country management’s commitment to and problem-driven GPE analysis. The required engagement with GPE analysis is important for skill set varies with the level and focus of analy- 3. Of course, rapid assessments are easier to turn around quickly and effectively if there is prior work to build on. 4. It is especially important to pay attention to proper linkages and integration if PGPE studies are funded through TF rather than being part of the overall AAA planning of country teams; as well as when PGPE analysis is being undertaken by exter- nal consultants. 32 P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S Getting the Process Right: Issues to Consider Matrix 1: Levels of analysis and key skills needed Level of analysis Key skills Country-level analysis Country and/or regional knowledge and the ability to summarize key issues coherently and compellingly A good grasp of key concepts—such as stakeholders, institutions, rents—and experience in applying them in focused analysis to developing-country dynamics Thematic and sector-level analysis A good grasp of key concepts—such as stakeholders, institutions, rents—and experience in applying them to concrete development challenges, such as sector reforms Problem-solving, practical orientation; including an understanding of Bank operations and an appreciation of development effectiveness concerns Experience in analyzing public sector issues, institutions, and processes (e.g., public investment, public sector employment issues) with cross-sectoral relevance Knowledge about typical governance problems related to the theme or (sub-)sector to be analyzed and how they are linked to political economy drivers (Team lead) An ability to structure a task in terms of the analytic/investigative process and to produce a well- structured output Project-focused analysis Problem solving, practical orientation, including familiarity with Bank operations Ability to apply key GPE concepts to project-level issues and challenges Depending on the nature of the project and issue: familiarity with focus groups/participatory approaches sis. Especially for upstream substantial analytic country or task team staff also be engaged (as work, it is best to have a small team, bringing hands-on TTLs), in order to ensure that the re- together a set of skills. Matrix 1 summarizes key sulting work is relevant to the Bank as well as skills by level of analysis (the concrete skill re- the subsequent uptake of the analysis. Further- quirements of each specific case may vary). more, as a general rule, good local consultants In most cases, meeting this skill set requires a should be included in PGPE teams whenever combination of at least two people. The team possible. Apart from their contribution to un- may be composed of one person with strong po- dertaking the actual analysis, local consultants litical economy skills and another with detailed can help navigate the process of disseminating sector knowledge. Where part of the analysis is the analysis and the follow-up process where it carried out by consultants, it is important that concerns local stakeholders. P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S 33 PA R T F I V E Experience with recent studies suggests that are similar to those for other AAA (such as in- PGPE analysis benefits from a well-placed TTL. suring timeliness and collaboration with local The TTL should be in a position to link the di- consultants/researchers to foster local capacity). agnostic work to the operational challenge it is However, there are at least four specific chal- meant to inform (a CAS, DPL, TA, etc.). An- lenges worth considering: other important consideration is whether the TTL can commit sufficient time to ensure good • First, team involvement and openness are cru- planning, quality management, finalization, cial. The PGPE analysis will be more truly and dissemination. Ideally, the person leading ‘problem driven’ and more focused if teams the analysis would also be engaged in the actual are willing to discuss what challenges have follow-up of shaping operations and strategies, arisen with relevant country or sector pro- although this may not always be feasible. Ulti- grams in the past. Also, it is important that mately, what works has to be decided on a case- teams and local staff take the time to discuss by-case basis. their own perceptions of relevant political Once the required skill set has been defined, economy issues—of which they often have finding the right team is the next challenge. considerable tacit knowledge. Problem-driven GPE-type analysis is still a rel- • Second, PGPE analysis requires a decision atively new area, so the number of staff and con- whether to inform government explicitly of the sultants with the desirable combination of skills work being undertaken. As a general rule, and experience is still limited. However, the teams have found it helpful to be open and to pool of people with the requisite experience is explain the motivation of such work, but the expanding continuously. The PREM anchor, re- ultimate decision is on a case-by-case basis. gional PREM units, and other network anchors • Third, it is essential to ensure good feedback to are often able to provide advice and recom- country/sector/task teams. This is essential to mendations. Some broad categories of potential validate the findings and to engage in the consultants for problem-driven political econ- process of translating findings into opera- omy work are summarized in Matrix 2. tional implications and follow-up (see also PRMPS is currently working on building a Part Two). roster of relevant consultants and the specific • Fourth, it is important to consider (especially) skills which they can bring to a team (with a the downstream quality management for GPE focus on core political economy and core gover- analysis. The basic components of quality nance skills). This roster will complement rosters management are upstream concept note being created by Bank regional and sector teams preparation and reviews of draft outputs. with a governance and political economy focus. Planning the downstream quality manage- ment process is essential for finalizing the outputs and for ensuring that there is a V.3 IMPLEMENTING GPE process for review and approval for such a DIAGNOSTIC WORK AND ENSURING (relatively) new type of work. It is also im- QUALITY MANAGEMENT portant to facilitate the production of out- Many of the challenges associated with imple- puts that can be shared within teams or more menting problem-driven GPE diagnostic work widely. 34 P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S Getting the Process Right: Issues to Consider Matrix 2: Types of consultants for problem-driven GPE analysis Type of consultant/affiliation Typical strengths/weaknesses* University-based political scientists Strengths: can bring excellent country knowledge, or strong conceptual skills, and in some cases both; usually good writing skills. Weaknesses: experience with consultancy work varies; and (detailed) knowledge of development policy issues and operational approaches is often limited. Researchers/consultants based at Strengths: increasing pool of specific experience with think tanks and consultants based similar type of work also for other agencies; good at firms knowledge of development issues and operational approaches/aid issues in general; quality management within the firm/institute can reduce the need to micro- manage the product (once a contract is established); professional approach to handling the task and producing an output. Weaknesses: specific country knowledge may be more limited than among specialized academics; firm-based consultants, especially, have some incentive to apply cookie-cutter approaches; tend to be more costly than individual STCs. Individual STCs with different Strengths: vary; often know very well how the Bank backgrounds (including Bank operates (especially retirees and long-term STCs). retirees) Weaknesses: vary. Regional consultants with varying Strengths: can have a greater intuitive understanding of backgrounds (e.g., in auditing and issues; familiarity with typical problems in the region, e.g. accounting vs. think thanks) in sectors; language skills. Weaknesses: report structuring/writing skills vary; possibly some reluctance to tackle difficult political economy questions. Local consultants (with various Strengths: detailed country knowledge (although affiliations) attention needs to be paid to familiarity with the actual issue at hand); can have good contacts in country and familiarity with how to access various data and information Weaknesses: report structuring/writing skills vary; risks related to interpreting TOR can be greater—so discussing TOR is important; sometimes serious problems with over- commitment of good local consultants resulting in delays in delivery; may have their own political biases which need to be taken into account. * Note: these are very much generalized and may differ greatly depending on the individual consultant. P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S 35 PA R T F I V E Box 6: Dissemination experiences of pilot teams In most countries where PGPE-type analysis has been undertaken in recent months, teams have either disseminated synthesis notes to government and other stakeholders, or are planning to do so; and they also have informed governments of the intent to undertake such analysis up front. In contrast to individual earlier experiences, no country team involved in these recent processes has experienced major difficulties as the result of undertaking GPE analysis; and the goals of improving development effectiveness and understanding country context better are appreciated by most local stakeholders. Nonetheless, many CGAC/GAC for CAS pilots have grappled with challenges in dissemination. The first steps have been intensive interaction and feedback to country and task teams through one-on-one discussions, circulation of the diagnostic notes to task team leaders, and workshops. In Uzbekistan, key points of the governance diagnostic were disseminated to a wide range of stakeholders as part of the CAS consultations. Outputs from the Indonesia, Mongolia, and Zambia analytic work have begun to be disseminated especially through PowerPoint presentations to a variety of internal Bank audiences, as well as to other development partners. Source: Authors. V.4 SHARING/DISSEMINATING generally be considered only if the document is OUTPUTS extremely sensitive for some reason. The question whether and how to share and dis- PRMPS is currently developing an internal seminate PGPE analysis is often a crucial and SharePoint site, which will allow invited World sensitive one. At one extreme, PGPE work is un- Bank users to access PGPE-related materials and dertaken, but its outputs are only shared with reports.6 The intention is to provide a space two or three key members of the country team, where the confidentiality of such documents because of the perceived sensitive nature of such can be protected, but that at the same time al- reports. Other work has been published as lows an effective community of practice to working papers or as chapters of ESW or other emerge across the institution. formats (see for example: Campos and Syquia Following are further considerations and op- 2006; Lal 2006; World Bank 2008a). DfID has tions for sharing/dissemination: made many of its Drivers of Change studies pub- licly available through an outsourced knowledge • Country context and the relationship between repository website that it sponsors.5 the Bank and country stakeholders vary greatly, As set out below, there is a wide range of op- and dissemination choices are dependent on tions between keeping circulation limited to a these specific contexts. The default option few people only and fully publishing a docu- should be to seek wide(r) dissemination, but ment. Very limited circulation has a consider- this may not always be possible (see also able cost in terms of reducing the usefulness and DAC principles on Donor Approaches to effectiveness of any PGPE work, and should Governance Assessments 2009).7 5. See: http://www.gsdrc.org/go/topic-guides/drivers-of-change#cam. 6. See: http://connect.worldbank.org/units/prem/ PD-GPEA/pdgpe/default.aspx (accessible via World Bank intranet only). 7. Principle 5: “Making results public unless there are compelling reasons not to do so.” DAC/GOVNET (2008) Donor Ap- proaches to Governance Assessments, Guiding Principles for Enhanced Impact, Usage, and Harmonization, Final Draft. 36 P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S Getting the Process Right: Issues to Consider • A central aim should be to ensure that GPE di- sues, or the effectiveness of accountability— agnostics reach their primary audience—oper- these can be shared as a more ‘neutral’ form ations staff and managers in country, sector, or of evidence as well as a way to corroborate task teams responsible for shaping relevant judgments. strategies or operations. As discussed above, ideally members of relevant staff teams will V.5. MOVING FROM ANALYSIS have been involved in generating the GPE TO FOLLOW-UP analysis, but it is important to disseminate the results among teams as well as manage- Creating an effective link between analysis and ment in order to promote reflection on im- follow-up requires attention and the timely ini- plications and discussions about follow-up. tiation of a subsequent process. As set out in Part Furthermore, in-depth country or sector level Two, there are a number of ways in which prob- analysis should not only reach current staff lem-driven GPE analysis can be used to inform but also be helpful for transferring GPE in- and shape strategies and operations. The process sights when staff changes— which frequently of moving from analysis to follow-up usually happens while earlier designed strategies or starts once initial complete drafts of the analysis operations are still under implementation. are available; it should not wait until the written • Generally, it is desirable to share at least a syn- reports are fully finalized. A workshop with the thesis output (that is not overly bland) with a country/sector/task team will often be useful at range of stakeholders, including the country this stage to review and debate the findings and government and nongovernment stakehold- to discuss what implications these findings have ers. This helps to reap the full benefits from for strategies or operations. undertaking the analysis, and helps prevent There is therefore a dual review process for any misleading assumptions. Shareable ver- PGPE analysis: one review focused on the qual- sions are also useful for interacting with ity of the product itself and the other focused on other development partners in-country.8 In- whether and how to take the analysis on board. country workshops can offer an opportunity Especially if GPE analysis is used to inform a to engage with a range of stakeholders in dis- sector where reforms have been stalled or re- cussing and validating findings and in draw- versed, defining implications may require an in- ing out implications. tense, detailed, and in-depth discussion between • More sensitive information can always be made the GPE analysis and the sector team. available as a background note or exclusively A discussion about the implications and fol- during workshops. In general, the role of GPE low-up can focus on the range of options be- analysis is to analyze how governance arrange- tween a more reactive and a more proactive ments and political economy drivers affect Bank approach, as described in Part Two. In particular, operations, rather than arguing ad personam or if there is an intention to pursue an intermediate providing any kind of ‘forensic’ diagnosis. or more proactive approach, there is then a need • Certain types of data are by nature less contro- to reflect on how this can be realized. To date, versial. Public opinion surveys on governance such follow-up work has often drawn on trust arrangements, diagnosis of certain policy is- funds and other kinds of non-core resources. 8. See also an interesting summary of the experience with a multi-donor governance assessment based on the EU’s governance profile (i.e. country-level diagnostic) in Cameroon http://www.oecd.org/ dataoecd/24/27/40094521.pdf. P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S 37 Part Six: Conclusion and Looking Forward This good practice framework has sought to set • There is an emerging community of practice out some key points regarding concepts and ap- both inside and outside the Bank, which proaches for problem-driven governance and teams pursuing such work can tap into (and PGPE diagnostics, and some issues and experi- become part of ). ences regarding how to implement and use such diagnostics. Given the rapidly expanding interest in such Three points are especially worth reiterating work and the scaling up that has been enabled, and emphasizing: not least by the Governance Partnership Facility, it is expected that a much richer set of experi- • The ultimate objective and motivation for ences will become available in the course of such analytic work is to develop more feasi- FY2009–10. The intention is to update this ble approaches to reforms in order to en- framework based in due course as new experi- hance development effectiveness. ence accumulates and new needs emerge. • The work can be most successful if teams are Feedback from task teams regarding this open to and actively engage in this diagnos- framework is therefore strongly encouraged and tic work, articulating needs and a clear focus may periodically be actively sought by the and pursuing the synergies between technical GAC/Public Sector Governance team. and GPE-type diagnostic work, as well as en- gaging in frank discussions of tacit knowledge, past experience, and upcoming challenges. P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S 39 Annex 1: Political Economy: Key Concepts and Approaches A wide-ranging and fast-growing academic so- I.1. THREE CLUSTERS OF DRIVERS: cial science and policy literature provides in- STRUCTURES, INSTITUTIONS, ACTORS sights and applied investigative methodologies into the political economy of developing coun- Three key types of factors or variable are com- tries.1 This annex highlights some essential con- monly considered in PGPE analysis: structures, cepts and approaches relevant for PGPE analy- institutions, and actors (see Figure 4). These sis.2 The annex is not meant as a comprehensive factors are relevant for the second and the third literature review; rather, it flags key issues and layers of the analysis. Analyzing institutional approaches to operationalizing political econ- variables most directly informs the second layer omy analysis to help support engagement by in- (governance arrangements), while the dynamics ternational development partners such as the between the three types of variables and the in- World Bank. The aim is to provide a succinct centives and interests they generate for ac- overview of key approaches and concepts, which tors/stakeholders are crucial for analyzing un- in turn can be complemented over time with rel- derlying political economy drivers. evant case practice from applied analysis in this Structural factors can be understood as area. The approaches discussed here are partic- deeper features that affect the political econ- ularly relevant for targeting the second and third omy of the respective country. These tend to diagnostic layers: governance arrangements and change only slowly over time and are beyond the underlying political economy drivers. direct control of (local) stakeholders. One such 1. Selected background readings include Weingast and Wittman (2006), Rhodes et al. (2006) and Goodin and Tilly (2006). 2. The section covers more approaches developed in political science than in economics. Many political economy models that have recently emerged in economics are more focused on (highly) developed countries—which are marked by strong formal institutions/clear rules of the game, highly developed markets, and established democratic and electoral systems. There are in- creasingly overlaps—driven inter alia by economists focused on developing countries and development issues such as Dani Ro- drik and Mushtaq Khan. P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S 41 ANNEX 1 Figure 4: Three clusters of drivers Structural variables Institutional variables Actors/Stakeholders Examples: Examples: Examples: Economic base and level of Macro: constitutional set-up, Detailed: political leaders/ development electoral rules, major laws leaders in a bureaucracy/ heads of SOEs; mid-level Climate and geography Detailed: rules governing bureaucrats; (including effects of climate policy and budget processes, change), and geopolitical ‘organizational’ institutions: Macro: political parties, situation set-up of government; (organized) interest groups— ministries and their roles business associations, Nature of interaction with and mandates; accountability trade unions, religious the global economy institutions (parliaments, groups, farmers associations, (trade, migration, etc.) SAIs, etc.) and interaction CSOs, etc. between these Population dynamics; urban- External stakeholders—other rural relations; types of Informal: social norms and governments, international urban centers expectations; nature and networks, development strength of patronage partners, etc. Status of poverty and of networks equity/inequality Influence political and public sector action and policies and their implementation Outcomes Growth, poverty reduction, human development, dealing with development challenges (pollution, social conflict, etc.) feature is geographic and resource endowments. development and institutional trajectory of For example, high dependence on natural re- countries. The analysis may therefore wish to re- source exports can subject countries to the fer to relevant comparative literature discussing volatility associated with commodity prices, and the potential relevance of particular structural as highlighted in the literature, the nature of re- factors for shaping and interacting with pre- source endowments can significantly shape the vailing institutional/governance arrangements.3 3. For example, the recent ‘resource curse’ literature has highlighted the impact of the specific nature of a resource endowment (e.g., point versus diffuse nature resource). The specific type of diamonds endowment in Botswana has been associated with that country’s relative success. 42 P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S Po l i t i c a l E c o n o m y : Ke y C o n c e p t s a n d A p p ro a c h e s Box 7: Moldova Governance Assessment—migration and in-country stakeholder and institutional dynamics The Moldova GAC assessment looks at the interaction of structural factors, institutions, and stakeholders with a view to informing the new Country Partnership Strategy (CPS). Moldova is among the poorest post-communist transition countries, but growth has been relatively strong in recent years. In terms of structural factors, the analysis emphasizes the ambivalent role played by labor migration. On the one hand, migration and remittances have contributed to growth as well as to poverty reduction. On the other hand, the fact that very large numbers of dynamic, working-age citizens have left the country combined with the fact that they provide an informal social safety net for those staying behind significantly reduces the demand on the government to perform and to be accountable. This has facilitated a situation in which key actors in the executive shape core institutions in ways, which promotes their hold on power, while risking making these institutions less effective in delivering public services. The whole situation could come under pressure to change if a global downturn reduces opportunities for migration and/or opportunities to allow informal safety nets through remittances. Similarly, a global downturn and decline in commodity prices could have major impacts on institutional and stakeholder dynamics in other CGAC pilots such as Mongolia and Zambia, which are both major exporters of copper and other minerals. Source: Jana Kunicova, ECA; authors Other structural factors may be a high level of weakness/absence) can be highly relevant for international migration and reliance on remit- the degree to which private interests can influ- tances (see the case of Moldova in Box 7). ence the content of laws. Institutional variables are those related to Actors or stakeholders comprise individuals as ‘the rules of the game’ (laws and regulations, as well as organized groups such as political parties, well as informal rules, such as social obliga- the military (and, in some cases, powerful secret tions). Institutional variables may be of overar- services), business associations, NGOs, tradi- ching importance in the political economy of a tional associations, etc. Importantly, external setting. In a wider sense, these variables also stakeholders, such as donors, foreign policy ac- comprise the ways in which a public sector is or- tors, or foreign investors, often also play im- ganized. Depending on the focus and level of portant roles, for example, in negotiations over analysis (country or sector or operation), the in- policies, rules for foreign investment and foreign vestigation may focus on institutions of rele- trade, or in cross-border water and transport vance to a particular ‘problem-area’—such as management. the regulatory arrangements in the electricity As Figure 4 reflects, the three types of vari- sector. At the country level, the constitutional ables can interact in numerous ways. For exam- set-up and regime type are key institutional vari- ple, shifts in international commodity prices ables. Also, electoral rules can be of considerable can have major repercussions for the nature of interest (see Annex 2 below), as they create in- rents and rent distribution among actors in a centives for the kinds of policies and budgetary given country. A key tenet of institutional eco- resource allocations that politicians seek. Simi- nomics is that (formal) institutions constrain or larly, rules governing the policy process (or their channel the ways in which stakeholders behave. P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S 43 ANNEX 1 However, because formal institutions tend to be lenge of this type of work lies in summarizing weaker in developing than in developed coun- the key lines of evolution, and the interplay of tries, stakeholders more frequently seek to structures, institutions, and actors (including change formal rules (trying to reform them, or external ones) in shaping these lines. It means trying to shape them more to their own advan- asking for a summary of key trends, events, tage); and it is also more frequent that formal processes, and policies which give shape to the rules become largely unobserved (such as the re- current situation—while it is not a detailed his- quirement to produce annual audit reports), torical analysis that would trace the many twist and hence the exercise of private interests by and turns of a country’s history over the past those in power is less constrained. couple of decades. The framework in Figure 4 presents a stylized The relevance of historical legacies for current way of thinking about governance and political development challenges may often not be suffi- economy and the interaction between the three ciently explored. World Bank teams frequently sets of variables. Thinking in terms of variables work in countries which have received limited and how they interrelate can be helpful for struc- attention from academic scholars, or where ex- turing information and data, and for distilling a isting attention has never really explored the ‘story line’. Such a framework can be used for link between legacies and present constellations. framing the concrete, problem-focused analysis Especially in settings where analysis of country and for structuring the inquiry process (while it context is missing or scarce, it can be valuable to may not always be suitable as an outline of the include such a perspective into GPE analysis as resulting report or output). part of understanding the broader context of A crucial task of PGPE analysis is to capture Bank strategies, operations, and engagement how the interactions between these variables problems. impact on the problem or vulnerability at hand, In particular, past conflicts and tensions may including dynamics and trends. Box 7 gives a be important to understand, as they can shape brief summary of how the interactions between attitudes long beyond their original occurrence. these variables were captured in the Moldova Examples are the legacies of war and tensions in CGAC analysis. the Congo, the Balkans, or the Middle East. In- ternal conflicts between minorities and majori- ties can also cast long shadows. In many coun- I.2. CAPTURING HISTORICAL tries, colonial histories and the decolonization LEGACIES experience have shaped institutions as well as ex- Historical legacies often have profound effects ternal relations in ways which still exert an in- on shaping current dynamics in countries where fluence on political stability or a state’s institu- development partners are engaging. Capturing tional features today. In formerly communist such longer processes, and how societies con- countries, it is often important to have a grasp tinue to deal with them, provides depth and per- of how privatization proceeded—which for spective to the issue of ‘how things have become most countries involved massive re-distributions the way they are today’. Such analysis capturing of wealth, as well as sharp departures in terms of the longer run will typically mean reaching back social security versus opportunities—and how several decades, and possibly even to pre-colonial this was linked to the process of political trans- periods where applicable. The analytical chal- formations. More generally, historical patterns of 44 P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S Po l i t i c a l E c o n o m y : Ke y C o n c e p t s a n d A p p ro a c h e s how economic and political power have been al- institutions are weak/volatile) and, vice versa, in- located are important, as are the ways in which stitutions influence the incentives and con- past equilibria were challenged or changed. straints that stakeholders face. I.3. INSTITUTIONAL AND I.3.1. Mapping institutions STAKEHOLDER MAPPING AND Mapping institutions is valuable in three ways: ANALYZING INFORMAL firstly, it creates a clearer understanding about INSTITUTIONS the setting in which stakeholders operate, and In the short to medium term, the main dynam- how this shapes their interests and incentives. ics are those between institutions and stake- Secondly, especially in areas of new or expand- holders. As set out above, the two are linked as ing operations in a sector, institutional map- actors shape institutions (especially where formal ping enables a clear understanding of the coun- Box 8: Formal and informal institutions “Informal institutions—family and kinship structures, traditions, and social norms—not only matter for development, but they are often decisive factors in shaping policy outcomes in environments of weak states and poor governance structures.” (OECD, 2007) Formal institutions are codified—e.g. as laws and regulations—and usually have formal sanctioning mechanisms to make them effective. Informal institutions are norms and social practices rooted in history and culture; but they can also emerge as the result of the weakness, erosion or collapse of formal institutions. The enforcement mechanisms for informal institutions range from an adherence to internalized norms and expectations of reciprocity, to social shunning and ostracism, to threats and the use of violence. Informal institutions exist in any society, as not all rules can or should be codified. However, the relationship between formal and informal institutions is very important, because their interaction often shapes outcomes such as policy decisions or the implementation of policies. There are four relationships: i. Complementary—i.e. informal institutions support the effectiveness of formal institutions ii. Accommodating—there is an acceptance of formal institutions, but informal institutions circumvent these to some degree. iii. Substituting—informal institutions fill a void that is left by missing or incomplete formal institutions. Informal credit markets and informal ways of contract enforcement are examples. iv. Competing or subverting—informal institutions diverge from, contradict, or contravene formal institutions. Budget adjustments based on phone calls from the president or other powerful politicians that contravene formal budgeting rules are one of many examples. A general benefit of institutions for growth and development is that they lower transaction costs, ensure that collective action dilemmas are solved and public goods are supplied. This works best when formal and informal institutions are complementary and worst when formal and informal institutions are competing and mutually subversive. Inefficient institutions (and interactions of formal and informal institutions) can persist because they are linked to power structures and to distributional benefits. For example, preserving (wide) informal powers can yield high immediate benefits to a country’s president. Also, a poor institutional environment can create economic profits for some activities that would be lost if institutions are changed. Sources and further reading: OECD (2007), chapter 2; Helmke and Levitsky (2004), Rodrik (2008b), Ostrom (2005), Fukuyama (2007). P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S 45 ANNEX 1 Box 9: Analyzing winners and losers of electricity sector reforms in India Power sector reforms have been on the agenda for a long time in India; yet they have suffered from persistent gaps between political rhetoric in favor of reform and sector expansion, actual policies adopted, and implementation. The 2006 study by Sumir Lal seeks to understand this situation from a political economy perspective, paying particular attention to the issue of ‘winners’ and ‘losers’ from such reforms. Reducing subsidies to farmers for using energy to pump water is one of the key sticking point of these reforms. As the analysis points out, the (numerous) poor as well as the (fewer) wealthy farmers could be potential winners of reforms. The poor would gain if access to electricity would be expanded (as currently few of them have access), while wealthier farmers could benefit from more reliable power supply. However, as the study points out, all farmers face a great deal of uncertainty: the poor, that higher tariffs would actually result in the reallocation of funds to allow better access, or to fund other services better, and the wealthy farmers are uncertain about whether more reliable supply would materialize. Furthermore, farmers face uncertainty across multiple issues and policy areas, including other inputs such as fertilizer and seeds. Finally, the study finds that reforms in India have worked best if they have been gradual, and have involved some ambiguity, which allows politicians to devise early gains for some, use opportunities arising out of the fluidity of interest groups, engage in compromises while incrementally shifting the agenda, and so on. Thus, the pace and path of reforms had to respond to the more amorphous and complex situation, rather than being able to interact with clear-cut winners/reform supporters and losers/reform opponents. Source: Lal (2006). terpart (e.g. a ministry of agriculture, or the na- cial norms and practices (see Box 8).4 In many tional and sub-national health sector bureau- client countries, formal laws and regulations cracy, or a national audit office). Thirdly, insti- play a very ambiguous role. On the one hand, tutional mapping is valuable to identify laws can be significant, and may be frequently potential levers of change. Institutional mapping invoked. On the other hand, not all laws are en- involves a look at rules (especially formal rules forced equally, or a particular law may be en- as a first cut) and at organizations relevant to a forced partially or selectively only (e.g. tax laws). particular issue, such as a sector, a policy and/or Frequently, the implementing regulations for a a broader development challenge (e.g. poverty law to be actually effective are incomplete, or ex- reduction, dealing with environmental degra- isting regulations may be little known—even dation, etc.). For institutional and stakeholder within government agencies; or they are difficult mapping, it is important to consider not only to access, even if they are very important for cit- the relevant organizations and stakeholders (such izens (such as regulations on how to register as ministries, agencies, individual leaders, lobby property). groups, CSOs, etc.), but also the rules that gov- Sector, policy, and project focused PGPE ern their interactions. analysis can help to systematically analyze the Such rules include formal laws and regula- web of rules and how they are actually applied tions, established processes, and the like; as well in the current situation. It is important to un- as informal rules that are more derived from so- derstand the current governance arrangements 4. The former are often referred to as the de jure rules; while the combination of formal and informal rules governs de facto the way in which things are done. 46 P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S Po l i t i c a l E c o n o m y : Ke y C o n c e p t s a n d A p p ro a c h e s and what drives them, prior to mapping out standing reform champions, their needs, incen- what ‘better practice’ a country should adopt, tives, and constraints can be very important for and prescribing a potential change process. establishing a relationship that really can bear fruit over time. A specific sub-type of stakeholder analysis is I.3.2. Stakeholder analysis the ‘Expected Utility Stakeholder Analysis’, Stakeholders come in many guises—stakehold- which uses a special software program ‘Sentu- ers can be individuals or they can be specific rion’ to analyze data about stakeholders and groups (such as mid-level officials of a ministry, their positions. Several World Bank teams have or business or farmers’ associations, political used it on a pilot basis in recent years (see Box parties, etc.). Three main ways of categorizing 10). This is an interesting tool that can be pow- stakeholders have become widely used—‘de- erful in certain situations—especially in order to mand-side’ versus ‘supply-side’ actors/stakehold- drill down into how stakeholders will relate to a ers, reform champions versus reform opponents, very specific policy issue or proposal, or where and ‘winners’, ‘neutrals/undecided’ and ‘losers’. compromise may be found in the negotiations Such categorizations can be useful as long as they about a reform bill. Generally, the tool builds on do not lose sight of ambiguity and dynamics. pre-existing systematic qualitative analysis. If For example, MPs can be categorized as ‘de- extensive information about stakeholders and mand side’ actors in some situations, but they their positions on an issue is available, it can be can also be part of the supply side of policies and deployed for drilling down into specific ques- the supply of (good or bad) governance in gen- tions and for illustrating likely processes and eral. Similarly, the categorization of certain points of agreement relatively rapidly. A key is- stakeholders as ‘reform champions’ or ‘reform sue to consider is the relatively high cost of us- opponents’ often needs to be nuanced. For ex- ing this tool due to the program license and spe- ample, some stakeholders may favor a change of cific training required for using the tool the status quo—but may nonetheless seek pol- effectively. Especially for countries with larger icy reforms that diverge from the preferred pol- programs it can be a worthwhile investment if icy options proposed by WB task teams. the tool is then used to inform teams on a num- Furthermore, ‘reform champions’ often have ber of issues. multiple agendas and issues which they need to take into account—maintaining their own po- I.4. RESOURCES, RENT sition and/or power bases, possibly addressing a DISTRIBUTION, POLITICAL range of development challenges (which may re- STABILITY AND LEGITIMACY quire horse-trading and compromising with oth- ers), having important personal interests or ob- Understanding the political economy of rents, ligations, and so on. Also, some reform and how it affects growth, poverty reduction and champions may be strong individual supporters reform processes in general, represents a critical of reform, but are poor at coalition-building part of problem-driven analysis. Economic rents (e.g. politicians heading small pro-reform par- emerge in a number of ways, and in turn sig- ties) which can limit their effectiveness. Under- nificantly shape the incentive for actors.5 The 5. The standard definition of economic rents refers to the difference between what a factor of production is paid and how much it would need to be paid to remain in its current use. P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S 47 ANNEX 1 B o x 1 0 : Expected utility stakeholder analysis Using a thorough data collection and recording process, the model translates the qualitative political economy knowledge of country and technical experts into a dynamic quantitative analysis. This approach can be very helpful in deepening PGPE analysis around specific issues in a rigorous way. Using sophisticated modeling techniques, the approach simulates the complex bargaining dynamics among a large number of stakeholders. Visual aids embedded in the modeling software transform raw data into easily understood patterns that are not readily apparent from the data alone; and can help to visualize whether reform coalitions are likely to exist or emerge, and what changes in strategy a task or country team might adopt in promoting the emergence of a coalition around a viable degree of reform. The agent-based stakeholder model has been developed into a user-friendly IT application, known as Senturion. Agent-based stakeholder analysis is carried out in five steps: 1. Framing the Question: The framing step involves articulating the overall objective of the political analysis problem and breaking it down into its component parts for detailed analysis. 2. Specifying the Issue: An issue, for the purposes of Senturion, is the continuum of options that stakeholders may support on a specific policy matter. This is specified in a linear manner from 0 to 100, either from the least politically difficult reform (0) to the most politically difficult (100), or in terms of two alternative poles of reform, with intermediate reform steps identified along the spectrum in either case. Issue specification is probably the most challenging aspect of applying the agent-based model, and will often draw on prior qualitative analysis. Taking time to specify the issue properly is also one of the model’s benefits, as it helps the team achieve clarity on the reform issue, desired outcomes, and key stakeholders. 3. Collecting Data: The data collection process involves interviewing individuals with a strong grasp of the country context, the stakeholder landscape, and/or the policy issue being analyzed. Interviews can be highly structured or broadly contextual, depending on the expert and the situation. 4. Analyzing the Basecase: The data described above are entered into the model, which then generates—using an algorithm that simulates bargaining dynamics—a picture of expected stakeholder interactions over time. This is the model’s “basecase” outcome, resulting in a graphical display of initial results which can be used to analyze whether stakeholders are expected to converge in support of a particular reform position, to what degree, and how quickly; and therefore what level of reform could be expected under the current dialogue and with what level of support. 5. Defining and Interpreting Alternative Scenarios: Based on the above analysis, the team runs simulations of strategies the Bank might be able to use to improve reform outcomes from its own point of view. This analytical exercise allows the team to test whether an altered Bank position could help achieve greater consensus in support of reform, or if the Bank could realistically exert leverage on a particular stakeholder to garner support for more extensive policy change. The model can thus provide a detailed illustration of the micro-politics surrounding the implementation of reforms, and the costs and rewards of alternative Bank strategies. Source: Naazneen Barma, Public Sector Specialist, East Asia Pacific. sources and allocation of rents and how these those linked to control over natural resources evolve and shift over time are crucial for under- and those derived from government regulation. standing underlying political economy drivers, The latter type of rents are those that Anne especially at the country level, and in particular Krueger has drawn attention to in her famous ways at the sector and policy level. Economic 1974 article, “The Political Economy of the rents can be derived from two main sources: Rent-Seeking Society.” The latter type of rents 48 P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S Po l i t i c a l E c o n o m y : Ke y C o n c e p t s a n d A p p ro a c h e s can be adjusted through changing regulation, made by Khan and others (e.g., Haber et al. and in principle can be minimized—although 2003)—holds that the distribution of rents is an there may be arguments for the deliberate cre- important pillar of political stability. External at- ation of certain regulation-based rents, e.g. to tempts to curtail or redistribute rents, or inter- provide incentives for innovation.6 A further nal contest over the distribution of rents can re- form of rents are those associated with illicit sult in political instability, and in the worst case activities—such as narcotics production and can lead to violent conflict. By implication, at- smuggling or human trafficking, which govern- tempts to change rents should be approached ments seek to limit. with caution especially in potentially or actually Rents related to natural resources—such as fragile states. On the flip-side stands the argu- minerals and oil, but also land and water—can ment that major rents from bad regulation or a be very important, and in contrast to purely highly unfair distribution of rents from natural regulatory rents, they cannot be eliminated. Fur- resources can lead to economic stagnation as thermore, the size of these rents often lies to a well as to popular discontent—which ultimately considerable extent outside the control of local can also pose threats to political stability. stakeholders, as with regard to fluctuating com- Figuring out the nature and implication of modity prices. Good regulation is important to rents and their dynamics over time can be very govern the allocation and management of these important for defining country and sector strate- rents, but achieving this can be extremely chal- gies. PGPE analysis can focus on diagnosing lenging. In principle, globalization and increas- existing sources as well as mechanisms for allo- ing global populations mean that natural re- cating rents and the distribution’s relative sta- sources become increasingly scarce and valuable. bility. The mechanisms for deciding on alloca- Both growing scarcity and volatility of the value tions and the actual distribution of similar types of natural resource endowments and associated of rents can vary widely across countries. For ex- rents can have a profound impact on the polit- ample, in some countries, rents from natural re- ical economy and power relations within and sources are mainly shared between external across countries.7 stakeholders and a few key power holders in There are two competing arguments regard- country. In other countries, rents are distributed ing rents: a more normative ‘good governance’ more widely to balance the political support of perspective generally advocates that regulatory various groups and regions. rents should be reduced (or used for specific In terms of evidencing PGPE analysis, it is purposes only), while rents resulting from nat- important to note that while it is crucial and ural resources should be regulated in a way usually possible to characterize rents and their which maximizes (long-term) growth and distribution and dynamics in broad terms, it can poverty reduction.8 A different argument— be quite challenging to quantify the size of rents 6. In some cases, stakeholders may deliberately create regulatory rents as part of a development policy (e.g. when pursuing in- fant industry protection). A more pernicious form of regulatory rents are those specifically created to enrich well-connected individuals or cliques, without any intention at promoting wider development goals. Regulatory rents created for development purposes can degenerate into the latter form if not effectively managed. See Chibber 2003. 7. Another type of quasi-rents is foreign aid, in the sense that aid is a transfer which did not require a prior effort of local stake- holders (Auty 2007). Using aid as a source of rent-seeking is particularly pernicious when it takes the form of loans which have to be repaid ex post by all taxpayers. 8. This may involve some important trade-offs as such whether/to what degree to use revenues from natural resources for social protection/welfare state spending—which cannot be further addressed here. P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S 49 ANNEX 1 or their distribution in detail. For example, works and their impact may depend significantly property rights over natural resources can be on wider sets of incentives. For example, in nat- murky or difficult to trace, or there may be lit- ural resource rich environments, patronage net- tle public/verifiable information on who bene- works may have greater incentives to focus on fits how from regulatory rents. It can be useful predation, while in countries with few such re- to reflect up front what level of detail about sources and entrepreneurial opportunities, sim- rents and rent distribution needs to be known ilar networks may behave rather differently. given the operational question that the PGPE In many settings, political parties as well as analysis is seeking to address. ethnic and/or regional groups form the organi- zational bases for patronage networks. If pa- Further reading: Khan and Jomo (2000), Haber, tronage networks are dominant at the society- Razo and Maurer (2003), Basedau and Lacher wide level, access to public goods and services, (2006), North (2007). as well as to economic opportunities depends on being part of such networks. Receiving a civil service job, timely access to a good doctor, the I.5. PATRONAGE NETWORKS, processing of applications for a business license, CLIENTELISM, AND NEO- or being connected to the electricity grid can all PATRIMONIALISM be determined whether or not a person is part of The terms neo-patrimonialism, patronage or a relevant network. At the same time, politicians patronage networks, and clientelism have gained and bureaucrats in highly patronage driven so- increasing currency in the analysis of the polit- cieties can be inundated with requests for direct, ical economy of developing countries. In a nut- personal favors. shell, these terms are used to describe situations In other countries, patronage networks are in which formal and informal institutions most important for distributing rents—e.g. al- (strongly) diverge, and informal rules of the locating lucrative plots of land in down-town lo- game are subversive of formal ones (see also Box cations or allocating major public procurement 8 above on formal and informal institutions). contracts. In such ‘intermediate’ situations, pa- Patronage networks and clientelism are tronage networks are focused on rents, while for- widely found in many countries with varying mal institutions play a more effective role, and impacts on formal institutions. Neo-patrimoni- significant parts of service provision and other alism is the most extreme form of divergence be- day-to-day interactions between citizens and tween formal and informal institutions, in which the state are broadly governed by formal rules. formal institutions are largely reduced to ‘fa- In neopatrimonial situations, patronage net- cades’ (see e.g. Rakner et al. 2004). Many coun- works and the informal rules which they create tries with extensive patronage networks and and perpetuate largely undermine and hollow clientelism, especially in Asia, have performed out existing formal institutions. The challenge is well with regard to growth and even poverty re- that neo-patrimonialism has a tendency to per- duction; while the problem of such networks sist because formal institutions are weak and stunting development has been most evident in frequently fail to deliver public goods to citizen; Africa. Thus, the actual behavior of such net- i.e. it can constitute a ‘bad equilibrium’.9 9. A key problem of the concept is that its boundaries have remained somewhat poorly defined, i.e. there are no hard and fast criteria for categorizing a country as ‘neo-patrimonial’. 50 P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S Po l i t i c a l E c o n o m y : Ke y C o n c e p t s a n d A p p ro a c h e s The concepts of neo-patrimonialism and pa- have lasting effects on subsequent situations tron-client networks can be useful to capture the and the range of choices. For example, fact that many forms of poor governance are sys- changing or creating agencies now can cre- tematic, rather than limited to specific stake- ate path dependency in terms of the subse- holders or issues. This includes problems of per- quent range of choices about the public vasive corruption. However, governance and administration’s structure. The nature of political economy analyses should focus on teas- colonial legacies (e.g. Francophone versus ing out some of the specifics of these structures Anglophone) created important ‘macro-level’ and their impacts—rather than just offering a path dependencies in many countries. Im- very broad and perhaps superficial diagnostic portantly, however, as mentioned above, for- that a country is ‘neo-patrimonial’ (see also Erd- mal institutions tend to be weaker in mann and Engle 2006). developing countries than in developed ones, Furthermore, even full-blown neo-patrimo- which inter alia makes sudden changes, i.e. nial situations are not static, and change and pol- ruptures in path dependency, more likely icy reforms are possible even in such situations. compared to more stable developed coun- Structural changes of society such as urbaniza- tries. tion and the spread of education are forces that • Principal-agent relationships and accountabil- gradually change social expectations and inter- ity. The ‘principal-agent problem’ is the actions. However, in countries where informal problem of motivating one party to act on institutions and practices are deeply subversive behalf of another. At country level, the chal- of formal rules, efforts at reform are likely to re- lenge is for citizens (as principals) to moti- quire particularly careful attention regarding vate politicians (as agents) to act in the unintended consequences, potential perversions public interest, rather than their own self-in- of reform, the real incentives affecting the be- terest or the interest of a narrow group. havior of stakeholders, and so on. Within the public administration, elected of- ficials are principals, who need to motivate Further reading: O’Neil (2007); Erdmann and public servants to actually implement Engle (2006); Chabal and Daloz (1999). adopted policies and to provide services. The question is therefore, what tools principals have at their disposal to hold the respective I.6. SELECTED KEY CONCEPTS FROM agents to account. For such accountability to INSTITUTIONAL AND POLITICAL work, ensuring good information on the side GAME THEORY of the principal is assumed to be important; Game theory has evolved in many guises across while another important dimension is the the social sciences since the 1940s. A few key power to act and to enforce accountability ideas and concepts are briefly surveyed here, as (on principal-agent relationships in service they may be particularly useful for structuring delivery see World Bank 2004: chapter 3— the thinking about the political economy situa- “The Framework for Service Provision”). tions in client countries. • Collective action challenges/dilemmas (and tragedies of the commons). The notion of col- • Path dependency. Path dependency refers to lective action problems is based on the ob- the idea that what has happened earlier can servation that large groups—such as the P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S 51 ANNEX 1 poor, consumers, or owners of small busi- role can be very important—e.g. whether it nesses—are often surprisingly powerless, de- selects spending proposals based on its merits spite their large numbers. The concept of for fostering development, or rather based on collective action challenges suggests that political patronage and power considerations. large groups often do not organize effectively • Selectorate theory. The selectorate theory fo- to act in their shared interests. Smaller cuses on the size of ‘selectorates’ (people in a groups with high stakes have a higher likeli- polity with a voice in selecting leaders) and hood of organizing effectively, potentially to ‘winning coalitions’ (the portion of the se- the detriment of larger groups. A tragedy of lectorate sufficient to choose and sustain a the commons arises when a shared resource leader in office) and the effects of these on (such as open access grazing grounds or the provision of public goods versus private water sources) are overused, because each in- benefits. Democratic systems are assumed to dividual faces an incentive for overuse, un- have the largest selectorates and winning less those sharing the commons can coalitions, one-party autocracies may have effectively organize to manage it. large selectorates but have smaller winning • Veto players and gatekeepers. The issue of veto coalitions, and in military juntas, selectorates players and veto points as well as of gate- and winning coalitions are the smallest. All keepers can be relevant for understanding polities are assumed to provide both public policy processes. Legislative processes—and goods and private benefits, but the larger the the ways in which they are formally defined winning coalition is, the more there is an in- as well as actually used—determine who can centive to provide public goods. block policy initiatives and at what stages. When supporting policy reforms, it can be These are just five concepts out of a much important to think ahead about potential wider range, which have been selected because veto players and veto points. Gatekeepers in they may be useful for framing particular prob- turn are those who channel and select among lems or challenges encountered in client coun- multiple options. For example, ministries of tries. finance are often important gatekeepers with regard to spending requests from line min- Further reading: Pierson (2004), Besley (2006), istries. At the same time, how a ministry of Olson (1965), Ostrom (1990), Tsebelis (2002); finance actually performs this gatekeeping de Mesquita et al. (2003). 52 P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S Annex 2: PGPE Analysis at the Country, Sector/Thematic, and Project Levels This annex provides further detail on how GPE Across the whole range of clients, country- analysis can be approached at different levels— level analysis is valuable especially in the context country, sector or theme, and project—as set out of strategic planning, and where there is little in Part Three of the main text. prior GPE analysis. It is particularly crucial in settings where political stability is a concern, since this will often have profound effects across II.1. ‘POLITICS IN ACTION’ AT THE policy areas and sectors. Country analysis is also COUNTRY LEVEL needed when major challenges arise, such as The main value of country-level analysis is to post-election violence and/or clamp-downs, ‘cover the ground’—i.e. summarize the country which may require a review of the Bank’s port- panorama. Country analysis is often done as a folio and assistance modalities. background paper (e.g. for the CGAC pilots) A vital role of country-level analysis is to de- that accompanies analysis of more specific issues. fine cross-cutting drivers and dynamics. Broadly, Importantly, country-level GPE analysis should country-level analysis covers the following: seek to bring out key political economy dy- namics, rather than providing a static picture i. Foundational dimensions such as the role only. Exploring such dynamics includes a retro- of religion, relationships between different spective of country legacies and how they are (ethnic) groups, but also the role of exter- shaping the current political and economic sit- nal forces and the nature of the political uation. While providing a broad overview, coun- regime which form an important backdrop try-level analysis can be focused on specific ques- against which development policies have to tions or issues, including a first cut at how be understood. country-level dynamics affect sectors of partic- ii. Historical factors, capturing in a focused ular interest. Some options for problem-driven way how these influence the current politi- analysis at the country level are set out below. cal and economic landscape of the country.1 1. Countries may differ substantially in the degree of ‘path-dependency’, i.e. the degree to which the past has a clear imprint on the present. Many developing countries have experienced sharp departures, such as transitions to democracy and/or from so- cialism to market economies. However, understanding how the current situation has evolved over time, is an important ele- ment of grasping governance and political economy dynamics. P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S 53 ANNEX 2 B o x 1 1 : South Sudan GAC for CAS background note A central strategic objective of the World Bank in Southern Sudan has been to help strengthen core public sector governance, including in areas such as PFM, civil service management, decentralization, and anti-corruption. Given the need to build these systems from the previous absence of an effective state, in the context of a continued politically complex environment, the country team engaged in a analysis of the deeper dynamics around the establishment of a public sector. The process also included an enhanced process of dialogue with government counterparts at the South Sudan and state level as to potential practical reform options. The South Sudan Background Note (2008) addresses the key issue that the SPLM/A (Sudan Peoples Liberation Movement/Army) has not really yet transformed itself from a fighting force into a political movement with a capacity to assume government functions. Continued security risks—due to the fact that many groups in South Sudan remain armed—add to this challenge, and distract from development-focused policy making. Roughly half of South Sudan’s budget is devoted to security and defense expenditures. On the positive side, there is no imminent risk of a collapse of the Government of South Sudan, as stakeholders fear the consequences of a break- down of SPLM unity, as for the time being people appear to accept the prioritizing of security over development, and as the international community fills some of the ‘development gaps’. The challenge for the World Bank and other development partners is to provide the urgently needed support for impoverished and under-developed South Sudan, while managing the risk of contributing to uneven development among factions and tribes, and avoiding the emergence of excessive dependency. While challenging, the GAC for CAS analysis is considered important by the country team as it develops its strategic approach to South Sudan. It also highlighted the need for Bank staff to consider the prevalence of security concerns during transitional and post-conflict phases, such as currently existing in South Sudan. Source: Authors and Motoky Hayakawa. While legacies are not determining, a sense programming (such as whether and how to of how a governance and political economy operate in certain regions). situation has evolved is important as past iv. A map of key institutional structures— events shape current relationships between including the constitutional system and ac- stakeholders as well as the current institu- tual functioning of checks and balances, as tional set up. Understanding legacies is es- well as key features of the public sector and sential to understanding country dynamics, the state’s sources of revenue; including a and can highlight the roots of current is- macro-level discussion of the formal as well sues, such as variation in terms of the will- as the actual ‘rules of the game’ (e.g. the de- ingness of reform across different sectors or gree to which clientism pervades public the degree to which past instability or civil life).2 war informs citizens’ attitudes and expec- v. The main stakeholders relevant for coun- tations today. try-level analysis: key political and eco- iii. In countries that are affected by conflict or nomic power-holders; as well as crucial serious inter-ethnic/inter-regional tensions, groups such as political parties, business as- it is essential to gain an understanding how sociations, unions, or religious groups (de- the tensions have evolved over time, and to pending on country context and the focus tease out key implications for World Bank of the analysis). 2. The Dutch SGACA framework can be a useful input to guide country-level analysis. http://www. clingendael.nl/publications/ 2007/20071000_cru_occ_unsworth.pdf. 54 P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S P G P E A n a l y s i s a t t h e C o u n t r y, S e c t o r / T h e m a t i c , a n d P r o j e c t L e v e l s vi. An analysis of rents and how rents have The analytic lenses outlined in Annex 1 are evolved and shifted over time can be highly all pertinent for country-level analysis. Box 12 informative about the systemic nature of provides a detailed set of questions for country- stakeholder interests, how they evolved, level analysis which were developed for the GAC and how they are linked to wider structural for CAS pilots in FY2008, providing useful forces (e.g. volatility in export markets, guidance as to which issues specifically to ex- population trends, etc.). plore. Beyond such a mapping of macro-politi- B o x 1 2 : Country-level analytical questions developed for the GAC for CAS pilots Taking the three priorities proposed by the country team as a starting point, the analysis should respond to the following seven questions. (Indicative page limits in parentheses.) i. How does the country compare with others with respect to the provision of “good policies” generally and in the priority areas identified? Summarize the overall governance profile through the ‘Governance at a Glance’ tool. (3 pages) ii. The credibility and legitimacy of government (vis-à-vis both elites and the broader society) is an integral aspect of governance: lack of credibility and legitimacy reduces the ability of either public or private actors to plan with a long-term horizon, and makes it more difficult to construct a durable coalition that favors the CAS priorities. Both credibility and legitimacy are underpinned by the allocation of resources and rents. Are agreements regarding rent extraction and distribution accepted by a critical mass of elite interests, stable and credible? That is, do beneficiaries of rent seeking arrangements (whether private investors or key political actors or social groups) have confidence that these arrangements will persist into the future? Is there similar confidence in the credibility of property rights? What is the basis of this confidence? (15 pages) iii. One key aspect of governance relates to the incentives of politicians to pursue policies in the broad public interest. What aspects of the political environment augment or diminish the political incentives to pursue such policies (e.g., those described by the three CAS priorities?) (15 pages) iv. Another key aspect of governance is the ability of the public administration to carry out policies in the broad public interest predictably and sustainably. What limitations does bureaucratic capacity impose on the ability of politicians to promise and to deliver on their promises regarding policies such as the three CAS priorities? Alternatively, what is the potential of the bureaucracy to implement CAS priorities “technocratically” and sustainably? (5 pages) v. The pursuit of better governance generally and the three CAS priorities specifically could be extremely risky in countries in which social peace and state institutions are fragile and prone to dissolution from violence. What are the sources of such fragility in the country? What arrangements—economic and non-economic mechanisms—seem to be essential to assuring stability—for example, in mediating among deeply divided social groups in the society? What impact would the proposed priorities have on these mechanisms or social equilibria? (10 pages) vi. The foregoing identified the governance and political economy obstacles and opportunities that affect policies like the three CAS priorities. What is their likely specific applicability to the CAS priorities? How might one address the three development priorities selected for the CAS in light of these obstacles and opportunities? (5 pages) vii. Given the foregoing, are the specific development priorities identified by the country team the right ones? Are they the right set of things to pursue given the context? What additional ones are important to consider? (5 pages) Note: The full set of detailed sub-questions can be found at: http://connect.worldbank.org/units/prem/ PD-GPEA/PGPE/default.aspx. P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S 55 ANNEX 2 cal features, country-level analysis may include countries most sectors may be performing a look at two aspects which often have cross-cut- poorly across the board, while in other coun- ting relevance: electoral incentives, and the way tries, there is much more variation, some of in which policy processes operate (see below). which may originate in how country-level Especially if done as a self-standing piece, it drivers come to bear on different sectors. can be useful if country-level analysis combines iii. Setting out key development challenges fac- an overall picture with a focus around particu- ing a country (e.g. improving the manage- lar problem(s) or issues. There are various op- ment of HIV/AIDS; managing rapid ur- tions of bringing a problem-driven perspective banization) and providing a broad diagnosis to country-level analysis and of giving such whether country-level political economy analysis a clear focus: conditions and drivers are conducive to ad- dressing such challenges. A brief summary i. Summarizing available governance indica- of key development challenges and country- tors and comparing them to regional and/or wide conditions for addressing them can income-group averages. Such a mapping of help to focus subsequent PGPE analysis of indicators is useful to stake out up front specific issues. how a country’s overall governance com- pares to peer group(s).3 It can also map the Note that self-standing country-level analysis quality of governance against the growth necessarily has limits. Where in-depth analysis of and poverty reduction performance.4 a theme or sector is being sought to inform a Again, such an up-front assessment helps to CAS or a DPL, it is essential to complement focus the subsequent analysis of governance country-level work with GPE analysis at sector arrangements and of political economy and/or project level. Only in selected cases— drivers of these. such as country-level analysis done in reaction to ii. Providing a first cut of sectors that are of key crisis and with the purpose of informing re- interest; and exploring what country-level programming—will country-level GPE analysis dynamics imply for those sectors—for ex- be directly operationally relevant. That said, it ample, strong rural-urban divisions may often has major effects on how teams think have important implications for agricul- about country context, and hence it can have tural policies, or ethnic divisions may have significant indirect relevance. Also, it is highly crucial implications for social protection. valuable in establishing a context for more issue This can help to guide subsequent analysis, specific GPE analysis. and to explore how country-level dynamics For an increasing number of countries, some appear to affect the more specific political form of country-level analysis has already been economy dynamics of sectors. E.g., in some conducted.5 Where ample material is available, 3. Note that there are (still) issues with the precision and comparability of governance indicators; but they can provide a useful ‘frame’. 4. E.g. Benin would be a country with relatively poor governance on several dimensions and relatively low growth and poverty reduction performance; while Cambodia combines poor governance performance with high growth and significant poverty reduction in recent years. Mapping this can help to frame the subsequent analysis. 5. In particular by DfID and the Netherlands, as discussed in section 1. However, it is worth noting that there is not yet an es- tablished practice of sharing governance assessments across donors. E.g. the Netherlands has not yet shared any of its SGACA assessments. 56 P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S P G P E A n a l y s i s a t t h e C o u n t r y, S e c t o r / T h e m a t i c , a n d P r o j e c t L e v e l s it may suffice to do country-level analysis as a or section of country-level analysis. Under- brief summary combined with an update on standing these incentives from a diagnostic per- most recent events (e.g. new election, major spective can be of considerable benefit to Bank new policy initiatives; corruption scandals, teams working on policy and public sector re- etc.) and their implications. In many cases it forms.7 is still highly valuable to organize, analyze, There are four key dimensions: (i) electoral and summarize existing material in a way that rules and the incentives they create, (ii) the way makes it accessible and pertinent for country in which electoral promises are made, (iii) the de- teams and their understanding of the political gree of information available to voters, and (iv) economy context of the country. Where no rel- the crucial factors shaping voter preferences.8 evant country-level analysis has been done, country-level analysis will require more ex- i. The first dimension directly affects how tensive work.6 candidates and MPs behave. For example, Country-level analysis is the only one of the majoritarian electoral systems—in which three levels which can potentially be done purely candidates are elected from one particular as a desk-based exercise, especially if ample ma- locality—often create incentives for local- terial exists. However, for a more intense inter- ized public spending. Electoral rules can action with country teams to define the issues to also affect the degree of concentration ver- be addressed, and also to get a high-quality up- sus diffusion of power. While some elec- date of current events, experience shows that a toral rules are clearly flawed, no set of rules mission adds significant value (see Part Five, is automatically superior to another (see Cox sections 5.1 and 5.2). and McCubbins 2001; Fukuyama 2007).9 ii. In some settings, a discussion of policies is almost absent from election campaigns, II.1.1. Special module 1: Analyzing which become almost entirely focused on electoral incentives and their personalities and on clientelistic promises, potential importance for policy and including promises of ‘bringing’ roads or public investment choices school buildings, or the like.10 Alterna- While the World Bank has no involvement in re- tively, some parties and politicians make forming electoral rules, electoral incentives often highly populist policy promises—especially exert considerable influence on how policies are if they need to make a nation-wide rather shaped as well as on public investment choices, than local appeal in order to win elections. and hence this has become a specific theme Generally, few developing countries have which is beginning to be explored as a module political parties that have a well-defined 6. If affordable, country visits are almost always valuable as they establish a closer interaction between the PGPE analyst and the country team; and because they are invaluable for capturing most recent trends. 7. Such analysis can only usefully be applied in countries with at least reasonably free and competitive elections. 8. Analysis can focus on presidential or parliamentary elections or both, depending on country circumstances. 9. Frequently, problems rest with secondary rules, such as the fact that in a majoritarian, localized system, politicians are not re- quired to actually reside in the district they are being elected from, undermining the localized accountability which the sys- tem as such implies. 10. Also, in countries in which identity politics are highly important (i.e. where people tend to vote along ethnic, religious or lin- guistic lines), voters may be more distracted from voting about policy issues, than in places that are more homogenous in terms of people’s identities. P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S 57 ANNEX 2 B o x 1 3 : Electoral incentives in Benin and the lack of growth-focused policies Over the past two decades, many low income countries have begun to establish democratic systems, and have been holding more or less free elections. The puzzle is, however, that even though democratization in principle gives citizens the ability to choose their government, in many cases this has not translated into governments delivering policies aimed at growth, poverty reduction, and overall development—which would benefit citizens at large (see also Keefer and Khemani 2005). The Benin CEM analyzed electoral incentives in order to understand why this link has been weak. The analysis highlights that in a poor, young democracy such as Benin, citizens often have limited knowledge and information on what government policy can do, how it affects economic growth, and how economic growth affects their own welfare. In turn, politicians who perceive low political payoffs to pursuing growth-accelerating reforms are less likely to undertake them. The competition for votes is focused around clientelism rather than policy promises. Political competitors are unable to make credible pre-electoral promises regarding growth-related policies, as they lack the ability to implement such policies even if elected. The electoral system in Benin is proportional (i.e. based on party lists), divided into a number of election districts (rather than one nation-wide list). The system encourages a proliferation of parties; while the fractionalization of parliament means that individual or small groups of MPs have little chance of promoting any larger-scale policies. The focus is therefore on personal popularity and trying to provide some direct benefit to election districts. In public opinion surveys, 95 percent of respondents said that politicians rarely or never keep their election promises (compared to an average of 82 percent for all African countries). Elected MPs are expected to deliver individualized benefits, and usually receive a slew of requests to contribute to marriages, naming ceremonies, burials, education fees and health bills, while voters do not expect them necessarily to provide public goods. Furthermore, even though the press is relatively free, it is difficult for Beninois to obtain relevant information on government policies regarding growth and government service delivery; as few are able to afford newspapers, and as radio stations often provide little information on policy issues. Educational levels in Benin continue to be low. Consequently, better education and information could be a key to building greater demand around development-promoting policies. Source: World Bank 2008a, Chapter 2. programmatic base (see Randall 2007). loyalties. In many settings, voters prefer This implies that their policy agendas are well-known individuals, which may in- often highly opportunistic and changeable. clude sportsmen or film stars. iii. The amount and quality of information that voters have available are driven by gen- Overall, understanding electoral incentives eral country characteristics, such as the level can be highly valuable in understanding what of education and urbanization, the political kinds of policies are politically attractive (or un- regime, as well as by more specific condi- attractive), the politics of allocating public in- tions such as budget transparency, the exis- vestments, as well as the overall nature of ac- tence of M&E systems, and media freedom countability between society and political elites and (investigative) capacity. and the effectiveness of demands for good gov- iv. Regarding the fourth dimension, voters ernance and development-oriented policies. In may be motivated by different prefer- decentralized settings, and analysis of electoral ences—not only their own economic self- incentives can also contribute to understanding interests, but also regional or group more local accountability relationships. 58 P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S P G P E A n a l y s i s a t t h e C o u n t r y, S e c t o r / T h e m a t i c , a n d P r o j e c t L e v e l s II.1.2. Special module 2: rules determining the role of key players in the Analyzing policy processes executive and legislature and the structure of veto-points, as well as the nature of political Analyzing policy processes can be fruitful for parties and the political culture more broadly. country-level as well as for thematic or sector- Last but not least, aid dependency and the role focused GPE. Some key generic qualities of of donors and international agencies in shaping policies and policy processes are: public-regard- policies can also be an important factor. edness (the degree to which policy making is in Analyzing policy-making processes can clar- the general public interest, rather than the in- ify the formal and de facto mechanisms for terest of specific individuals or groups), policy drafting and adopting policies. This can be done stability and adaptability, policy coherence and in a more generic form (e.g. teasing out general coordination across policy areas, and the quality mechanisms and patterns), or through process of implementation and enforcement (see IADB tracing of one or several specific policies that are 2006: 17). In general, policy stability and pre- of particular interest (see also World Bank dictability is important, and policies should not 2007c). In a number of instances, World Bank be changed randomly, e.g. driven by changes in teams have been surprised by policy decisions; or the ‘political weather’. At the same time, coun- conversely by failures of policies to be adopted try systems need to be able to produce or adapt even though they had been agreed and appar- policies when needed—because policy gaps be- ently supported by governments. Lack of im- come apparent, existing policies fail, or because plementation subsequently to adopting policies external circumstances change. Among the driv- is also a frequent problem in many countries. ers that are decisive for the quality of policies are Analyzing policy processes and what drives them electoral incentives (discussed above), the formal can help to reduce surprises. Such analysis may constitutional set-up as well as more specific enable teams to tailor their policy dialogue and B o x 1 4 : Analyzing policy-making processes in Latin America The IADB has undertaken a major research effort to understand public policy making and its drivers across the region. Key findings are published in IADB (2006) and in Stein and Tommasi (2008). One example is an analysis of the policy making process in Paraguay. In Paraguay, most policies are initiated by the executive, and some by the legislature. There appears to be also a division in policy content: the executive tends to dominate policy proposals with nation-wide scope, while the legislature initiates more bills targeted at particular localities, but also at the private sector. The share of bills passed compared to bills introduced declined from the early 1990s to the early 2000s. The analysis also explores whether bills are ‘particularistic’ i.e. benefiting certain groups (‘pork- barrel’) or non-particularistic. Particularistic bills have generally been adopted more easily, and have also faced fewer problems during implementation, while non-particularistic policies have stalled more frequently during adoption or implementation. Parliament has become relatively fragmented over time, and as a consequence has often acted as a veto-player, blocking important (non-particularistic) policies such as reforms in the telecommunications sector, social security, the health system, the civil service, and financial sector regulation. The fact that particularistic policies are less controversial and more easily passed means that the public-regardedness of policy making has suffered. Source: José Molinas et al. in Stein and Tommasi 2008, pp. 329–369. P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S 59 ANNEX 2 advice more effectively, in terms of timing, in- II.2 SECTOR-FOCUSED AND terlocutors, as well as the type of arguments and THEMATIC PROBLEM-DRIVEN approaches (e.g. moving beyond a predomi- GPE ANALYSIS nantly technical approach which can only reach certain audiences). Importantly, in each country This section discusses sector-focused and the- there are general characteristics of policy matic GPE analysis. This level is highly perti- processes (such as the predominance of the pres- nent for Bank policy and lending operations. ident in initiating policies), as well as features First, the section considers sector-focused GPE which are specific to various policy areas due to analysis, and addresses specifically GPE analysis the fact that different configurations of stake- for public sector (or ‘core governance’) reforms, holders and interests are concerned, depending and analysis for service delivery sectors more on the policy area (IADB 2006: 21). broadly. Section II.2.2 then turns to thematic There are different elements of analyzing pol- GPE analysis. For example, at this level, GPE icy processes: one is to map the existing formal analysis may focus on thematic questions of mechanisms and how they are used de facto— poverty reduction, growth issues, natural re- e.g. which individuals or group can submit pol- source management, or pollution and climate icy proposals, what are the prescribed stages for change adaptation. discussing policies (in cabinet, in parliament), and to what degree and how does the public or II.2.1 Sector-focused PGPE analysis interested groups such as the business commu- nity need to be consulted. Regarding imple- Sector operations are at the heart of the World mentation, it may be possible to track whether Bank’s work. However, sector policy dialogue key policies—such as taxation, trade policies, and sector operations have repeatedly run into etc.—tend to be universally implemented and difficulties because of a lack of thorough un- enforced, including whether implementing reg- derstanding of the political economy environ- ulations tend to be in place, whether policies are ment. Problem-driven GPE analysis upstream of actually budgeted for (including funding for sector operations and/or during their imple- implementing institutions) and so on. For spe- mentation can make important contributions to cific policies it can be useful to establish how better design and implementation management. they were proposed, discussed, adopted, and This section aims to provide some general subsequently implemented. Minutes of parlia- principles of how to approach sector-focused mentary discussions, as well as interviews with GPE analysis. Some tools for assessing gover- stakeholders who participated in the process, nance and corruption at sector level are already can bring to light how support for a policy available (e.g. PETS for expenditure tracking in emerged, or even why certain provisions were in- health and education, and PEFA for PFM).11 cluded or omitted. However, most of these tools do not drill down 11. See for example: http://go.worldbank.org/HSQUS 4IS20 (PETS—WB intranet only), www.pefa.org (PEFA), http://go.world- bank.org/VZ476DL7P0 (Improving governance in the electricity sector). Existing governance surveys and other sector-focused governance diagnostics are a valuable input to GPE analysis, as they should provide key information for diagnostic layer 2 (‘ex- isting governance arrangements’). To date, detailed governance sector diagnostics have only been carried out for a small num- ber of pilots, but the rolling out of GAC activities should increase such applications. 60 P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S P G P E A n a l y s i s a t t h e C o u n t r y, S e c t o r / T h e m a t i c , a n d P r o j e c t L e v e l s to the political economy drivers. Where such as- (IEG 2008). The evaluation concludes that sessments are available, they can be very helpful while there are many areas of success, a signifi- in providing a good understanding of the first cant number of interventions have not brought and especially the second diagnostic layer (gov- expected results. Furthermore, the report argues ernance arrangements) as set out in part 1, while that largely leaving political economy factors problem-driven GPE analysis as described here unaddressed is one of the key reasons why de- can then be used to delve more directly into ad- velopment impact has not been more consistent dressing underlying political economy drivers. (IEG 2008: 73–74). This section first discusses sector reforms fo- Crucially, the political economy of public cused on ‘core governance’—i.e. public sector re- sector reforms tends to be especially closely con- forms—that are at the heart of overall gover- nected to macro- or country-level political econ- nance in a country. It then briefly sets out some omy issues. At the same time, public sector re- key issues for GPE analysis for other types of sec- forms also have ‘internal’ political economy tors. It is expected that more specific guidance dynamics (which are sometimes referred to as will emerge over the course of FY09–10 tai- the ‘micro-political economy’ of public sector re- lored to the diverse range of sectors. forms) (see Figure 5). In order to get a good grasp of possible entry II.2.1.1. Problem-driven GPE diagnostics points, strategies and opportunities for reform, it for core governance reforms is important understand with some precision how macro-level political economy factors in- As is the case for other areas, public sector re- teract with those at the micro level. For example, forms have predominantly been pursued through civil service reforms are closely linked to how the (exclusively) technical approaches. For the World political layer of the state operates, such as the Bank’s mission, the most important core gover- balance between patronage and clientelism ver- nance areas are public financial management, sus a performance orientation, or the ability of the civil/public service, anti-corruption, and the citizens to voice demand for better services. At judicial system.12 Decentralization can be part the ‘micro-political’ level, there are often specific of core governance reforms depending on coun- political economy dynamics, for example try circumstances. While many operational staff around the roles of civil service commissions, or implementing and supervising public sector concerning the functional re-ordering of de- projects are broadly aware of political economy partments. An important ‘connecting point’ is issues, this mostly remains ‘tacit knowledge’. the organizations, institutions, and incentives While still valuable, it means that there is little linking the country-level political economy with explicit discussion of political economy factors the different areas of public sector reforms. For and usually little effort to define how these af- PFM, for example, ministries of finance are im- fect operations and how they might be ad- portant organizational stakeholders. In contrast, dressed. there is no equivalent stakeholder in most coun- IEG recently evaluated the effectiveness of tries for civil service reforms. The relative polit- World Bank support for public sector reforms ical clout of ministries of finance can allow min- 12. Other development partners include democratization and human rights as part of their core governance agenda, but these are not areas that the Bank actively engages or has a comparative advantage in. P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S 61 ANNEX 2 Figure 5: Macro and micro political economy interactions in core governance reforms Macro- / country-level governance and political economy PFM reforms CS reforms Anti-corruption Judicial reform Reform specific political Interactions between different economy dynamics public sector reforms istry officials to pursue certain technical reforms, to achieving poverty reduction and growth. Sim- even if these reduce rent-seeking opportunities ilar as for public sector reforms, evaluations of for other stakeholders. At the same time, even World Bank operations have pointed to the ministries of finance may often not have the need to take the political economy context of re- clout to overhaul procurement, or to entirely re- forms into account more explicitly in order to design budget processes. improve development effectiveness (see IEG Some teams have started to pilot GPE-type 2006). Through the PSIA approach, pilot work analysis for public sector reform projects, and has been done, especially on the political econ- further work is being planned by PRMPS as well omy of reform in agriculture and in water sup- as PREM regional units to fill this gap.13 Box 15 ply and sanitation (World Bank 2008b). Prob- reflects some of the early examples. lem-driven GPE analysis of sectors has also been piloted in the context of CGAC and sector II.2.1.2. Problem-driven GPE analysis for GAC processes, e.g. in Mali, Zambia, and service delivery sectors Lebanon, with a focus on infrastructure sectors, and especially energy. Sector reforms—from social sectors, to agricul- sector-focused GPE analysis may be done as ture, to electricity, roads, and water—are crucial part of a CAS process, motivated by an experi- 13. E.g. PRMPS has commenced a series of pilots on the capabilities of Ministries of Finance, including an assessment of how this is impacted by political economy factors. 62 P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S P G P E A n a l y s i s a t t h e C o u n t r y, S e c t o r / T h e m a t i c , a n d P r o j e c t L e v e l s B o x 1 5 : Governance and political economy analysis informing public sector reform operations—Moldova and Afghanistan Moldova initiated an ambitious Public Administration reform in 2005. Key motivations were the need to improve government policy making and administrative capacity more broadly and to facilitate closer integration with the EU. The four explicit goals were: (i) a significant reduction of ‘redundant’ personnel at the central level, (ii) subsequent raise in salaries to competitive levels, (iii) elimination of redundant institutions that perform overlapping and outdated functions, and (iv) improvement of capacity to implement government strategic objectives. The program has been supported through a donor trust fund. Milestones of the reform were mapped out in an overall action plan, complemented by annual action plans. However, actual reform progress was limited. A governance and political economy analysis helped to explain the key reasons for this. One, the mix of trying to achieve qualitative reforms and of pursuing a significant downsizing of the civil service prevented the emergence of buy-in among ministries and agencies. The president ultimately also blocked important components of the reform, because these would have reduced his direct influence over personnel decisions. Country-level analysis also pointed to the fact that those social groups which would most likely demand greater state effectiveness and accountability are weakened due to very high rates of labor migration of the working-age population. Demand from NGOs on this issue has been rather weak. Some partial reform has been possible nonetheless, including the adoption of a new Civil Service Law. The EU continues to be a driver of reform, as closer approximation is a political goal, and since at the practical level the EU is promising significantly increased budget support if the public financial management aspects of the public administration can be improved. Afghanistan. A brief note on the Political Context of Public Administration Reform in Afghanistan was produced in 2006 by a prominent political scientist. The note reaches back into the historical evolution of a public service in Afghanistan, including the history of earlier external interventions. Crucially, the note shows that the international community (led by the UN) attempted to create a small, meritocratic core civil service at the outset of state (re-)building in 2001. However, these ideas were not accepted by the various factions—all of which were keen to ensure that they could appoint loyal members of their factions; as well as to maintain full discretion in appointing civil servants (rather than giving a prominent role in such decisions to a civil service commission). Limited employment opportunities outside the civil service, and the fact that former public servants—a number of cohorts of which had been created by the changing regimes—in principle all received the right to return to their positions compounded the problems. However, compared to some other post-conflict countries, the size of the civil service has still remained limited, due to a crucial gate-keeping role on the wage bill exerted by the MOF. In 2003, an Independent Administrative Reform and Civil Service Commission (IARCSC) was created, and a civil service commission was set up under its guidance. Initially, the IARCSC focused on a program to establish centers of excellence within ministries, with the idea that most valuable officials would be transferred to Priority Reform and Restructuring (PRR) units and receive additional salaries; and that over time ministries would be slimmed down. Success of this approach has been mixed. Some ministries have begun to pursue greater results orientation through contracting with NGOs (e.g. in the health sector). The PRR was subsequently phased out, and attention shifted to the reform of ministries overall. The World Bank has been engaged in Public Administration Reform both on the PFM and the Civil Service side in Afghanistan since 2002. The projects have continuously been informed by a substantial body of AAA. The governance and political economy analysis in particular has made important contributions to striking the balance between seeking to re-build a modern public administration and being realistic about the country context. This has included defining the overall strategic approach, and focusing on specific entry points. Source: Authors and Jana Kunicova (Moldova) and Ranjana Mukherjee (Afghanistan). P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S 63 ANNEX 2 Figure 6: Using value chains as a tool to disaggregate sector components Tendering Service Expansion, Policy and Planning, Construction/ and delivery, quality enabling Budgeting installation/ procurement operations and improvements environment and finance supply maintenance Cross-cutting: accountability & effective government regulation (setting standards, tariffs, etc.) ence of only partially successful or unsuccessful regulation on the one hand and the ability of cit- sector reforms in the past, and/or as part of the izens to hold service providers to account either process of preparing sector operations. As men- via long routes or short routes of accountability tioned above, sector-focused GPE analysis can on the other hand cut across all these links of a be done as a package together with country-level sector value chain.15 analysis (e.g. as was done in FY08/09 for Zam- In many cases, the problem which GPE bia and Lebanon). In the same vein as for the analysis is being asked to address is already set other levels discussed here, problem-driven GPE out in ongoing sector analysis. However, it may analysis for sectors should seek to map out chal- also be the case that the problem (such as poorly lenges or vulnerabilities, governance and insti- progressing sector reforms) is not clearly set out tutional arrangements, and based on these drill in any written document. Also, GPE analysis it- down into the political economy drivers. self may bring some ‘neglected’ vulnerabilities to A sectoral value chain approach (SVCA) can the fore, such as weak accountability mecha- be helpful for disaggregating a sector and defin- nisms or specific rent-seeking activities, which ing what aspects are most important to analyze may have knock-on effects, for example, on (see Figure 6).14 For example, the power sector poor grid maintenance or creating incentive comprises the overall policy and enabling envi- problems in the management of schools. A first ronment, planning, budgeting and financing of step is therefore to set out and describe the chal- particular projects, followed by their tendering lenge that is being addressed. and procurement and subsequent construction, For the governance and political economy system-wide service delivery, operations and layers of the analysis, the task is to tease out the maintenance, and the ability to achieve expan- governance arrangements and underlying po- sion and quality improvements. The education litical economy drivers in the sector and, respec- sector is composed of the different levels of ed- tively, the selected aspects of it. Firstly, this in- ucation (primary, secondary, tertiary), the fi- volves mapping out the institutional and nancing of the sector, staffing and teacher train- governance arrangements relevant for the se- ing, actual delivery of teaching on the ground lected aspects and the formal rules and de facto (often involving local governments), text-book behavior that shape sector policies and sector provision, the regulation and supervision of ex- management.16 Importantly, problem-driven ams, and so on. The capacity and commitment GPE analysis at this level should consider weak- of governments to develop and enforce effective nesses of ‘commission’ as well as of ‘omission’. A 14. The idea of such sectoral chains draws on Campos and Pradhan (eds.) (2007). 15. The long route refers to the ability of citizens to demand accountability via voicing demands to politicians and policy makers. The short route refers to citizens’ ability to hold frontline service providers directly to account. See World Bank (2004): chapter 3. 16. Some governance diagnostic work may already exist that can be utilized. 64 P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S P G P E A n a l y s i s a t t h e C o u n t r y, S e c t o r / T h e m a t i c , a n d P r o j e c t L e v e l s B o x 1 6 : Sample questions for sector-focused GPE analysis • What is the ownership structure in the sector? (public & private) • How are responsibilities distributed between the national and sub-national levels and is this distribution clear? Does it generate significant distortions? • How is the sector regulated (what are the rules and institutional structures)? Does existing regulation—including the informal/de facto rules—provide integrity? Does existing regulation allow the sector to maintain or expand services in line with demand (and commitments to poverty alleviation)? What interests drive/maintain the current regulatory system (including its weaknesses or gaps)? • How are the sector and its components being funded? (e.g. user fees, taxes/general budget, earmarked taxes (such as gasoline excise taxes), informal revenue generation, petty corruption from consumers, etc.) • What is the pricing structure for consumers? Which groups benefit (e.g. from subsidies)? Are benefiting groups politically salient/powerful? Which consumer groups have a voice? • Is there significant petty corruption and/or grand corruption in the sector—and if so, why does corruption persist and what are the main impacts? • What opportunities for rent-seeking and patronage are related to the sector? Who appears to benefit from these rents and how is the patronage being used? • What are the legacies of the sector? What reforms have been attempted and/or undertaken in the past? What were the results—and how does this experience appear to shape current expectations of stakeholders? • What are the relevant policy processes linked to past or proposed reforms? • Are there particular social or ethnic factors that are relevant for sector dynamics? • What is public opinion on sector performance and/or proposed sector reforms (including issues of trust/expectations that a reform would bring improvements)? • What stakeholders are (officially and unofficially) involved in discussions over sector reforms and what are their interests? What veto points exist in the decision-making and the implementation process? • What stake does the government/top executive/key political factions have in the reform if any? • How would proposed reforms affect the existing set of interests and incentives? • What risks exist in terms of reform failure and/or of negative unintended consequences of proposed reforms? • What would a politically and institutionally feasible reform look like? Source: Authors. sector may be affected by corruption (a ‘com- Secondly, identifying stakeholders and their mission’ weakness, which many governance di- interests is crucial (see Annex 1). However, cat- agnostics focus on), but it may also suffer from egorizations of ‘winners’ and ‘losers’, or ‘reform a failure of the public sector to take action (an champions’, ‘undecided’, and ‘opponents’ need ‘omission’ weaknesses). For example, health care to be done with care and conscious of the fact may be poor not only because existing govern- that positions can shift, and that stakeholders of- ment programs are affected by corruption, but ten have interests that cut across several sectors also because the government is unable to muster or issue areas. For example, business associa- a more concerted effort, and/or is failing to pro- tions may have stakes in tax policy as well as fuel vide better infrastructure which would facili- subsidies; while farmers may worry about wa- tate better access to health care.17 ter/irrigation policies, as well as health-care and 17. This does not imply that governments would be expected to be the sole or main provider of all these services; however, even if private or public-private provision is an option, this often requires some effective government action in order to materialize. P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S 65 ANNEX 2 B o x 1 7 : Examples of PGPE for service delivery sectors—transport in Bangladesh, electricity in Lebanon Bangladesh The transport sector is a major sector of the Bangladesh country program. However, there are major concerns that the sector is affected by corruption and rent-seeking interests, especially related to road construction. An Operational Risk Assessment of Roads and Highways Investments was carried out in FY2007. Beyond diagnosing the significant extent of corruption in the sector, the assessment drilled down into key political economy drivers—which included a political monopoly of road expenditure decisions, and an established market for public office in areas that are lucrative for rent-seeking. The sector analysis could also draw on an IGR, which had been undertaken a few years earlier, that set out broad country-level governance and political economy issues. The operational risk assessment recommended that simply putting more controls into place would be insufficient, as they would either be broken/circumvented, or just be used to shift rents from one group to another. The recommendation was therefore to combine support to relevant government departments with a strengthening of public participation in road-sector decision making, and a public information campaign to raise awareness about proposed reforms and issues at stake, and strengthening the capacity and visibility of key oversight bodies. Lebanon The electricity sector in Lebanon has been plagued by problems of high inefficiency, rising numbers of brown-outs and black-outs, and being a growing fiscal drain due to low tariffs and rising subsidies for the state-owned electricity company. Despite the rising fiscal cost and increasing discontent of consumers with poor services, successive governments have not taken action to address the problem. As the sector-focused analysis reveals, in addition to the corruption and rent-seeking problems which are typical in many countries, an added dimension in Lebanon is the fact that different groups and factions in the country have each sought to secure control over parts of the power supply, during acute conflict as well as more peaceful periods (local elite capture). To date, most stakeholders who have some effective voice have jockeyed for privileged access to the subsidized energy, while ensuring themselves with back-up generators against outages. These include capital city electricity consumers, as well as the main industrial groups. Thus, there has been little demand for sector reforms. The assessment suggests that the Bank’s preferred ‘first best’ solution, unbundling and privatization of the state-owned electricity company (which has already been stipulated in a law which has remained unimplemented for the past six years) may not be feasible. Instead, the proposition is to work on building a broader demand coalition for reforms, focusing on incremental steps such as improving metering to reduce non-technical losses, and possibly to tackle reforms in selected regions first, rather than seeking overall changes at the national level. Sources: Bangladesh—Operational Risk Assessment of Roads and Highways Investments (2007) and Lebanon Draft CGAC Report (2009). roads. Assessing political economy drivers in- policy decisions (or proposed decisions that failed) cludes the question whether there are significant can be helpful for gaining an understanding of rents or rent-seeking opportunities and how how stakeholders and institutions interact, both these would be affected by proposed reforms. ‘horizontally’ within the sector and vertically Furthermore, historical legacies and experi- with wider country-level institutions such as ence of previous reforms and potentially their parliament and various levels of the executive. failure can influence the perceptions and expec- As set out in Part One, the aim of PGPE tations of stakeholders, and are therefore poten- analysis is to define feasible interventions—and tially worth exploring. Tracing particular sector this is particularly relevant for sector-level analy- 66 P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S P G P E A n a l y s i s a t t h e C o u n t r y, S e c t o r / T h e m a t i c , a n d P r o j e c t L e v e l s sis. There has often been a tendency to espouse The basic principles of PGPE analysis can be solutions in policy and lending operations and applied to each of these themes or issues. Fol- in sector policy dialogue that do not take into lowing the three diagnostic layers, the work can account what is feasible given political econ- start by defining the vulnerabilities or prob- omy and institutional conditions. As set out in lems, looking at the governance arrangements Part Two, sector-level GPE analysis should feed and policies related to the issue (which will of- into a process of deciding on appropriate oper- ten span several sectors or levels of government), ational interventions. This includes a consider- and then seeking to capture the underlying po- ation whether to primarily select what inter- litical economy drivers. Thematic analysis is ventions would be feasible given the existing perhaps the most challenging type of problem- reform space, or whether it is appropriate and driven GPE analysis, since on the one hand it re- feasible to pursue a more proactive strategy of quires more specific evidence than overall coun- seeking to expand the existing reform space. try-level diagnostics and pertinent information may be less readily available, while on the other hand it does not offer the benefit of narrowing II.2.2. Thematic problem-driven to a specific sector or policy question, including GPE analysis having a rather clearly defined set of stakehold- In a number of situations, country teams may be ers and institutions concerned. Nonetheless, looking for GPE analysis around certain themes some good and valuable examples of such work or issues. The focus of thematic analysis is are emerging, as well as specific resources for spe- broader than in the case of a single sector and cific areas of engagement (see below). As set out the analysis would usually cut across several sec- in the Introduction, this good practice frame- tors. A team may be concerned about a series of work does not seek to provide detailed guidance policy reforms around an issue (such as the po- on problem-driven GPE for specific themes. litical economy of poverty reduction), or it may Frameworks for specific themes and issues may be looking more for a background piece. emerge over time, as is already evident for the Themes that have been explored through pi- theme of natural resource management and for lot GPE analysis include: political economy for growth diagnostics. • Managing natural resources/the risk of a re- II.2.2.1. Governance and political economy source curse18 analysis for growth analysis • Complementing growth analysis with prob- lem-driven GPE analysis, notably around The importance of economic growth for sus- binding constraints to growth and defining tained poverty reduction has gained increased ‘feasible’ reforms to reduce constraints prominence among development partners over • The challenges of addressing persistent the past few years. The growth policy dialogue poverty effectively. of the World Bank is often focused on analysis conducted as part of country economic memo- 18. NRM is defined here as a theme rather than a sector, because it comprises not only mining as such, but also specific revenue and expenditure management challenges, environmental protection, and so on. The boundaries between a sector and a the- matic analysis are somewhat open. P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S 67 ANNEX 2 Figure 7: Sector value chain for natural resource management NON-RENEWABLE SUSTAINABLE RESOURCES DEVELOPMENT EITI IMPLEMEN- AWARD OF REGULATION COLLECTION REVENUE TATION OF CONTRACTS AND OF TAXES DISTRIBUTION SUSTAINABLE AND MONITORING AND AND DEVELOPMENT LICENSES OF ROYALTIES MANAGEMENT POLICIES AND OPERATIONS PROJECTS randa (CEM). Applied work in the past few ready begun to pay more specific attention of years has focused on sharpening the prioritiza- political economy issues (see Badkoubei and tion of key constraints to growth. For example, Kaiser 2009). Such political economy analysis the Hausman-Rodrik-Velasco (HRV) approach can be catered to particular areas of public serv- to growth diagnostics sets out a decision tree that ice delivery (Keefer and Khemani 2005) and of highlights particular types of constraints. Al- financial sector development (Keefer 2007). though there are other methods of growth di- agnostics, the HRV approach has been increas- Resources: http://connect.worldbank.org/units/ ingly applied as part of the World Bank’s CEMs. prem/PD-GPEA/growth/default.aspx (intranet) This ideally yields a set of discreet types of growth constraint problems, ranging from gov- II.2.2.2. Governance and Political Economy ernment failures (including corruption, lack or Analysis for Resource-led Development rule of law, poor taxation), to infrastructure, human capital, or financial sector constraints. The development of settings rich in natural re- These constraints can impinge largely at the sources (oil, gas, mining, forestry and fisheries) country level, or have regional dimensions (in- continues to present a significant challenge. Dis- cluding when countries confront poor/land- appointing historical performance has led a locked geography). number of observers to characterize the resource Given a range of possible binding constraints wealth as a curse rather than blessing. The EI for to growth, GPE analysis can useful complement Development approach (or EITI++) has em- growth analysis to help explain the underlying phasized that resource rich countries need to political economy drivers of these constraints. manage all parts of the value chain, from estab- For an approach to applying GPE to growth lishing contracts for mining, to how resources analysis, notably for the case of infrastructure in are managed, to how they are spent (e.g., in- Zambia see Fritz (2008). A number of recent cluding public investment management) (see CEMs, including in Benin and Ghana, have al- Figure 7). Systematic GPE analysis can provide 68 P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S P G P E A n a l y s i s a t t h e C o u n t r y, S e c t o r / T h e m a t i c , a n d P r o j e c t L e v e l s implications of how particular segments of the specific project or a single policy decision. This EI value chain could be improved. can be done as an extension of sector-level analy- The political economy literature has also rec- sis and/or it can take the form of quick turn- ognized that natural resource rents can funda- around notes that complement other types of mental affect the nature of the state-society re- analysis done by task teams during project lationship. In natural resource settings, this may preparation or supervision. For investment proj- also call for particular political imperatives for ects and TA, key questions for GPE analysis strengthening non-resource based taxation as a may be whom to work with, to understand the way of enhancing accountability. Consequently, incentives of stakeholders better, as well as to as- from a structural perspective (see Annex 1), the sess whether the circle of stakeholder a project presence of significant natural resources can engages with should be broadened, for example matter significantly for the overall macro and to include demand-side actors, and how this ‘micro’ political economy of a country. could best be done. GPE analysis also con- tributes to a more thorough understanding of Resources: http://connect.worldbank.org/units/ the institutional landscape that a project inter- prem/PD-GPEA/EITIplusplus/EITIhome acts with—be it the structure of an urban gov- Wiki/Home.aspx (intranet) ernment, or a specific government agency, or SOE and its regulators and so on. For specific Frequently, thematic GPE analysis will feed policy decisions that Bank teams engage with in into several processes, including operations in the context of policy lending, targeted GPE analy- ways very similar to the case of sector-focused sis offers an opportunity to assess feasibility, as well analysis. For example, thematic GPE analysis fo- as to explore potential unintended consequences. cused on the overall challenges of natural re- In some sense, GPE analysis at this level is source management may come to inform a min- ideal, because it allows a clear focus and the ex- ing sector operation, as well as potentially ploration of a very specific set of institutions, in- operations on PFM. In the case of thematic centives, stakeholders and interests. For example, analysis focused on GPE dimensions of con- some stakeholder modeling work has been done straints to growth, results may feed into the exploring very specifically what level of compe- overall policy dialogue on growth, as well as tencies a proposed civil service commission into operations related to specific constraints might receive in a country, given the varying po- to growth such as investment lending to improve sitions of different stakeholders, and seeking to roads and railroads. Other potential themes are establish a possible compromise point. However, managing environmental resources and risks/ad- an analysis that is exclusively focused at the mi- justing to climate change, managing food secu- cro-level will clearly also have limitations, e.g. in rity risks, and so on. respect to understanding how the particular is- sue of concern is linked to wider country-level dynamics. II.3. PROBLEM-DRIVEN GPE FOR As for levels one and two, PGPE for specific SPECIFIC PROJECTS OR SINGLE operations can follow the basic framework set POLICY DECISIONS out in Part One and use the approaches dis- Teams may seek to understand governance and cussed in the annex. Here, we just point to a few political economy issues directly related to a specific issues to consider: P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S 69 ANNEX 2 • For immediately project-focused GPE, the II.4. SUMMARY: LEVELS OF aim is most directly to have an output that ANALYSIS can be used in operations, either in design or operations management. In order to achieve This section has spelled out how problem-driven this aim, it is important to integrate the per- GPE analysis can be applied to different levels: son/team carrying out the political economy the country level, the sector-focused or thematic analysis closely with the task team—to access level, and the project or individual policy level. the task team’s existing tacit knowledge, to In many cases, teams have undertaken GPE understand operational concerns, etc. (see analysis that straddles more than one of these also Part five above on process issues). levels. This allows combining an analysis of the • Similar to sector-focused or thematic analy- country-level ‘big picture’ with specific analysis sis, having existing macro (and relevant sec- more directly focused on questions linked to tor) analysis is very useful to be able to Bank strategies and operations. This has for ex- embed the analysis in the ‘bigger picture’. ample been the route that the CGAC GPE pilots However, even where such background ma- in Zambia, Mongolia, and Mali have taken (as re- terial is missing, GPE analysis can still be flected in the arrow on the right hand in Figure 3). valuable for addressing issues of feasibility It is important to recognize that the nature of and potential risks. the benefit varies across levels. That is, the ben- • This level of analysis may be combined with efits of country-level analysis are different from social development-types of analysis, in par- those that can be derived from a sector or proj- ticular analysis of the distributional impacts ect-level use of problem-driven GPE analysis. of reforms (Poverty and Social Impact Analy- Furthermore, each level presents somewhat dif- sis or PSIAs). Some PSIA studies focused on ferent challenges of doing GPE analysis. The in- specific policy decisions and their likely dis- tention of this section has been to draw atten- tributional impacts have included political tion to the need to be aware of different levels economy analysis.19 and hence different options that task teams may • Also, at this level, it can be particularly use- chose to pursue, to provide some broad guidance ful to drill down by using the Senturion ex- and ideas, as well as to reflect some key existing pected utility stakeholder model (see Box 10 experiences for each level. in Annex 1). 19. On Poverty and Social Impact Analysis, see: http://go.worldbank.org/39I9SFVEJ0. 70 P R O B L E M - D R I V E N G O V E R N A N C E A N D P O L I T I C A L E C O N O M Y A N A LY S I S References Auty, R. 2007. Aid and Rent-Driven Growth— abilities at the Sector Level. Washington, Mauritania, Kenya and Mozambique Com- DC: World Bank. pared. UNU-WIDER Research Paper No. Chabal, P., and J. P. Daloz. 1999. Africa Works: 2007/35. 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It is also important to gain better understanding of the environment—at country as well as at sector levels—in which World Bank operations are taking place, to define feasible entry points and seize opportunities to promote progressive change. Applying problem-driven governance and political economy analysis is not a panacea but should help with: • Enhancing World Bank strategies (e.g. CASs, ISNs, sector strategies) and operations, and improving their feasibility. • Finding ways to change Bank programming if a ‘best practice’ technical approach has not been accepted, is not implemented and/or produces negative unintended consequences. • Supporting Bank staff to be more informed and effective interlocutors with clients. • Speeding up the time taken to inform staff newly working on a country about relevant governance and political economy contexts. The objective of this good practice framework is to systematize approaches to governance and political economy analysis for World Bank task team leaders and teams. As country and sector situations are very different, this framework does not set out a particular product but instead presents a menu of options, proposes standards for diagnostics and synthesizes lessons learned. The emphasis on a ‘problem-driven’ approach helps to make the analysis operationally relevant, and comprises working through three layers: first, identifying the problem or opportunity to be addressed, second, mapping out the institutional and governance arrangements and capacities and, third, drilling down to the political economy drivers. This basic approach can be applied to analysis at country, sector, or project levels.