The Mechanisms of Governance and their Consequences for Development and Fighting Poverty

Introduction

The concept of “government failure” is well understood in economic theory. Due to information asymmetry and bureaucratic complexity, government sometimes misunderstands the “problem” and promotes the wrong solution. This has nothing to do with the motivation and skill of all public servants. Instead, it is a structural problem that is exacerbated at country, macro, level where the information base needed for effective interventions is not easily if at all available. This is not the same as “governance failure” even though the two are inter-related. Comprehending governance failure is made difficult by the absence of a consensus on what “governance” is. Is it a process, activity or system and what is the objective of having governance in the first instance? When societal objectives and goals are not achieved, this is partly explicable in terms of a governance failure. Similarly, when public and private institutions address societal challenges with a degree of success, then that is due to governance effectiveness. Since the late 1980s, “Governance” is the solution to many challenges and its absence is the explanation of many social problems. 

Governance and Compliance

Instead of getting bogged down in the definitional disputes, it is more productive to establish what doing effective governance means and why it is important. Here, it must be emphasised that governance is not simply compliance although it includes compliance. Compliance should help organisations and government achieve strategic goals through reporting, but it should not become an end in itself.

Governance and Complexity

Governance entails a number of inter-connected processes such as participation, decentralisation, rule of law, accountability, transparency, oversight and integrity management. The quality of the systems embedded in each of these mechanisms of governance that enable or obstruct their individual and combined effects in improving performance and responsiveness.  This is the basis for establishing whether a country, province or municipality has “good” / effective as opposed to “weak” ineffective governance. The same applies to the private sector in terms of corporate governance, even though some of the mechanisms mentioned here might not apply.

Governance and Ethics

Governance isn’t simply a technical process that might be engineered although it does require this in terms of organisational design. It also includes Ethics and Integrity Management. While abstract, Ethics needs to be embedded in organisations to ensure that things are done for the right reasons while minimising harm to all stakeholders and the environment (community and natural) within which organisations operate. Building ethical organisations through ethical leadership / custodianship is more difficult than it appears and yet contributes significantly to governance effectiveness. Integrity Management, on the other hand, is a standard operating procedure that through declaration and enforcement minimises opportunities for corruption and other high risk behaviours.

Governance and Corruption

Effective governance limits opportunities for corruption while ineffective governance enables it. This is a fundamentally important issue in Social Services governance issues. Empirical studies show that corruption is not a victimless crime where resources are re-allocated without any social consequence. On the contrary, corruption reduces the flow of resources to vulnerable people and communities, those who need such resources the most. Better governance results in better public spending with more service provision and of a better quality.

Governance, Economic and Socio-Economic Development

There is a correlation between: ineffective governance and low country GDP and also effective governance and higher GDP. Governance in economic terms impacts on growth, investment, employment creation and absorption as well per capita income. The reasons for this are well understood and related to policy stability vs policy volatility, financial management vs leakage and economic multipliers vs unproductive capital. Similar dynamics occur in the social services sector and a replacement of country GDP with the UNDP’s HDI shows similar correlations – better governance leads to better socio-economic environments that enhance the life opportunities of citizens. The inverse, unfortunately, also applies.

Governance and Consequence Management

At a systemic level, effective governance requires that there are consequences for actions taken by officials in public and private organisations. Governance is about quality institutions that ensure that malfeasance and dereliction of duty are detected and addressed either through internal or criminal processes. Again, ineffective governance enables a culture of impunity and a downward spiral of performance and responsiveness coupled to increased wastage of scarce resources. The rule of law, again, is integral to governance.

Conclusion

Governance is about process in general and the quality of process itself within specific mechanisms. But this is insufficient in allowing an understanding of the purpose of governance. It cannot just be system / standard operating procedure for the sake of it – that would be goal displacement. The macro process of how government is constituted through elections to how the judiciary is appointed, the legislature convened and the executive formed must have a greater objective. Similarly, corporate governance has to have an objective greater than just having and complying with procedure. In both, governance might be about the strategic direction taken by public and private organisations with the goal of improving society and the life chances of citizens. Through effective governance, appropriate strategies are adopted that direct organisations and the mechanisms of governance ensure that the organisation stays on course through participation, decentralisation, rule of law, accountability, transparency, oversight and integrity management. These mechanisms enable direction setting and system responsiveness that allow for correction and alignment of purpose, outcomes and impacts. Ineffective institutions have the completely opposite consequence – no direction and no responsiveness. For all of these reasons, governance matters at national, provincial, municipal, State Owned Corporation and private sector level.