The World Bank and Good Governance

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The present paper is aimed at describing the notion of good governance and the role of the World Bank in its promotion. The paper works to determine the issues that are related to the concept and demonstrates the intricate relationship that the World Bank, donors, and recipients create as the idea of good governance is being promoted for the sake of the improvement of the quality of life worldwide.

Definitions and Key Concept

Good Governance

The governance as such is defined by the World Bank (2013) as “the rule of the rulers, typically within a given set of rules” (para. 1). The mechanisms that provide the rulers with the power and govern the process of the creation, modification, and enforcement of the rules are the specific processes of governance. According to the World Bank (2013), the definition of the “good governance” (GG) is difficult to produce since the criteria for the positive appraisal of the governance vary all over the world.

However, the basic notions that are connected to it include the democratic possibility of participation of the people, transparency and accountability of the governance, “the rule of law” and “efficient public services” (Kjaer 2004, p. 173; World Bank 2013, para. 2). The UN (n.d.) also mentions these aspects and implies that other characteristics, including the notions of consensus orientation, responsiveness, effectiveness and efficiency, and equitability, are beneficial for GG. In contrast, bad governance is concerned with common issues like corruption and nepotism that cause ineffectiveness of governance (Richardson & Cashmore 2011).

The World Bank and GG

The World Bank (2016b) was established in 1944 to deal with the issue of European reconstruction (Drake et al. 2001). However, nowadays it is a “unique partnership to reduce poverty and support development” that consists of five organisations, including The International Bank for Reconstruction and Development, The International Development Association, The International Finance Corporation, The Multilateral Investment Guarantee Agency, and The International Centre for Settlement of Investment Disputes (para. 4-5).

As a result, the goals of the World Bank (2016b) include the elimination of extreme poverty and promotion of shared prosperity, which is achieved through the participation in a number of projects, that involve “low-interest loans, zero to low-interest credits, and grants to developing countries” (para. 6). Apart from that, the support of the World Bank can be provided in the form of knowledge sharing: for example, the popularization of research and analysis or policy, technical, or investment advice. The aim of the World Bank is the prosperity of humanity and the improvement of the quality of life worldwide.

The World Bank is one of the institutions that have influenced the development of the GG concept immensely (Gallagher 2014). A 1989 report by the organisation introduced the term of governance and focused on the issues related to it, including corruption and “bad policies” (Kjaer 2004, p. 173). According to Drake et al. (2001, p. 7), the key reason for this report consists in the fact that the loans provided to developing countries had been used ineffectively, and this issue was attributed to bad government. To ensure effective use of aid, the World Bank sought to spread GG (Nanda, 2006).

Elements of GG

The World Bank’s development of GG in participant countries is aimed at the creation of a “relationship between the state, the market, and civil society” that would enable the governance to exhibit a number of qualities that are associated with GG (Drake et al. 2001, p. 2). Kjaer (2004, p. 173) defines four key sectors of GG, and they have been adopted as the policy guidelines for the recipient countries by the Bank.

Thus, the public sector management “entails civil service reform and privatization initiatives.” It is a very vast phenomenon that includes, for example, public spending, institutional effectiveness, public services and their effectiveness, and so on (The World Bank 1991). Another sector is accountability that presupposes the creation and empowerment of the monitoring institutions to “hold the government accountable” (Kjaer, 2004, p. 173).

The governments, as well as other governance actors, must be accountable to the stakeholders, that is, everyone who is going to be affected by their actions (Howlett, Ramesh & Pearl, 2009; UN n.d.). A related sector is the “transparency and information” that is aimed at supporting the process of making information public, for example, by publishing the budget or supporting free media. This aspect of GG ensures that stakeholders will have the information concerning the GG actions that are of consequence to them (UN n.d.).

The final sector was defined as the construction of the legal framework for development, and it involves the creation and enforcement of rules that “can make a market work” (Kjaer, 2004, p. 173). This sector will be described in detail in the following case study.

Case study: World Bank’s Legal and Judicial Reform

The importance of the rule of law cannot be denied, and the legal and judicial reform is one of the key aspects of the World Bank’s GG (Santiso 2001, p. 17) that is especially important for the “fresh” democracies (Laver, 2011, p. 183). The reform was primarily aimed at the development of sound institutions (noncorrupted and adhering to the law), the social development (including equality promotion and poverty elimination) and economic development that would be expected to logically occur due to the stability, predictability and other positive circumstances that should be created with the help of such a reform (Drake et al. 2001).

The initial attempts at carrying out a similar initiative were made by USAID, and they have not always been successful, providing the major lesson of the problematics of exporting a judicial system. However, the World Bank has taken up the similar agenda of promoting legal reforms with the help of lending activities and those aimed specifically at legal projects where it would act as an advisor and supporter (Drake et al. 2001; The World Bank 2016a).

The results of such project for every country are provided at the organisation’s website (The World Bank 2016a). As for their successfulness, its level varies across projects, but in general, it has been noted that the reform is capable of increasing the independence of judicial system (Helmke & McLean 2013).

Corruption and Anti-Corruption Measures Employed by the World Bank

There is not doubt that corruption (“the abuse of public office for private gain”) hinders political, economic, and social development, and this fact is approved by the modern researchers and policymakers (Drake et al. 2001). The donors have accepted anti-corruption laws, and the Bank was convinced to bring the idea into the recipient countries (Drake et al. 2001).

To address the issue of corruption, the Bank calls for improved accountability and transparency legislation, strengthens the partnership with other anti-corruption organisations (including, for example, developmental banks of USAID) and employs a number of anti-corruption techniques, the overview of which the World Bank (2007) provides. For example, at the project level, the prevention of corruption is carried out at the stage of selecting and designing it: the Bank analyses its potential susceptibility to corruption and can refuse to carry it out in case the susceptibility is high.

When the project is being carried out, disclosure, communication, and monitoring are used to ensure the lack of corruption. The Bank also expects the governments to assist in the process and works to develop the communication between anti-corruption institutions and itself. For “high-risk” cases, special, customised anticorruption plans are developed, and teams and advisors are provided (The World Bank 2007, p. 27).

The World Bank has had the unique opportunity of studying the process of GG development all over the world (The World Bank 1997). It is noteworthy, however, that when promoting GG, the World Bank encountered accusations of failing to correspond to it in its own organisation (Woods 2001). The World Bank is supposed to be accountable to its shareholders, and the shareholders (members) also have a significant impact on the organisation’s policy (Kjaer 2004).

Kjaer (2004) discusses the fact that the US is the largest stakeholder, but insists that the multilateral nature of the World Bank improves its capability of responding to global needs, which is at least partially affected by legitimacy: acceptance all over the world. However, Woods (2001) insists that the representativeness of the World Bank requires improvement as well as their accountability.

Similarly, Kjaer (2004) mentions the case of Joseph Stiglitz (1999) whose report on the actions of IMF appeared “unpleasant,” which led to the World Bank choosing to modify it. It can be concluded that the World Bank is, in fact, susceptible to corruption as any other organisation; it needs to work to ensure that it remains accountable and keeps its actions transparent to avoid discrediting itself and follow its own GG guidelines.

Pro-Market Government Policies as a Part of the World Bank’s Strategy for Good Governance

The view of the World Bank with respect to pro-market governance is concerned with the promotion of open, liberalized market (to foster competition), avoidance of price distortions, and maintaining macroeconomic stability, all of which is expected to nourish economic development (Drake et al. 2001, p. 16). The issues of these changes include the reducing accountability and prematurity of such reforms; apart from that, they are unlikely to deal with inequality (Drake et al. 2001). To help developing countries achieve these results, the guidelines of the World Bank include, for example, the strengthening of the financial sector and privatisation (Drake et al. 2001, p. 17). Unfortunately, the experience of privatisation is not always positive for recipient countries.

Case Study: Privatisation

A case study of “loans-for-shares” scheme in Russia is going to be used here to explore the complex issue of privatisation and provide an insight into the phenomenon. Case studies are most suitable for the analysis of complex and controversial phenomena (Yin 1994; Zainal 2007).

Stiglitz (1999, p. 133) defines the case of “loans-for-shares” privatization in 1995-1996 as “notorious,” and this designation is justified. Carried out for political (to gain the support of businesses) and economical (to provide for the budget deficit) reasons (Treisman 2010), the program consisted of the government borrowing money from commercial banks and making the shares in state enterprises the collateral.

This activity was a part of privatisation in Russia that had been arguably successful in rendering governmental enterprises private until this project was carried out (Chang 2006). It has resulted in Russia’s major companies being privatised the businessmen with right connections at a discount price (Treisman 2010). It is also noteworthy that these businessmen were also taking part in the development of the project, which further explains the reasons for this outcome (Chang 2006). As a result, while Russia has managed to privatize much of the industry and natural resources, its economic development went backward rather than boosted, and the inequality in the country continued to rise (Stiglitz 1999).

Privatization needs to be carried out in suitable environment wth strong institutions, low level of corruption, transparency and accountability (Drake et al. 2001). Stiglitz (1999) points out the low level of transparency and high corruption as the reasons for the failure of Russian initiative, which demonstrates that World Bank’s GG may indeed be premature or incompatible with certain cases.

Institutional and Project Reforms

Other issues that were encountered by the World Bank included the problem of the difficulty of supporting specific projects and institutional reforms (Kjaer 2004). In other words, while institutional reforms were easy to promote, they are difficult to measure and control. On the other hand, separate projects often prove to be even more complicated from the point of view of monitoring. These issues made the World Bank question a number of its ideas, including that of avoiding politics.

Economics and Politics

The World Bank has intended to limit ts activities to outside politics as had been stated, for example, in its 1997 report (The World Bank 1997). As it became more and more politically and socially involved, the Worldwide Governance Indicators were allegedly supposed to depoliticise the process (Erkkilä & Piironen 2014). However, as had been rightfully noted by a number of researchers (Drake et al. 2001; Kjaer 2004; Krever 2011; Santiso 2001), the activities that the World Bank undertakes to promote GG are difficult to be carried out without interference with the political system.

In particular, the privatisation means the loss of income source for governments, the reorganisation of the civil service leads to layoffs and the loss of power by certain political actors (Kjaer 2004). The World Bank is convinced that the government needs to play a part in the development of the market and society, which means that the businesses and the community also become affected in a way that may not be welcome (Drake et al. 2001).

The attempts at fostering GG remind one of the intricate relationships between the international, national, and local actors. Apart from that, all these aspects (together with the nature of GG) make the GG initiatives of the World Bank more political than economic since the distribution of power and resources is related to politics rather than economics. Also, the World Bank had never denied that the regime is a very important part of GG (The World Bank 1997).

The push towards including the promotion of human rights and democracy in the agenda makes the World Bank exert pressure on recipients with respect to their political regimes as well (Kjaer 2004, p. 179). Finally, it is noteworthy that the study of GG was also concerned primarily with political research, and in this respect, GG contributed to the investigation and subsequent development of the understanding of international factors in domestic policy-making (Kjaer 2004, p. 174-174). To sum up, it is questionable that the World Bank can avoid politics.

Exporting Western Systems

The fact that the World Bank is acting as a political actor brings about the issue of “exporting” Western ideas concerning GG. This notion has been criticised. For example, the case of USAID political reforms in recipient countries proved to be unsuccessful (Kjaer 2004). Toope (2003) warns about the dangers of exporting judicial system pointing out hat it may be “inimical” to the society of recipient country. In general, it is strongly suggested that Western Systems are not “exported” but adjusted to fit the recipient country and its culture (Nanda 2006).

Conditionality and Aid Effectiveness

A report of the World Bank in 1998 demonstrated that the effectiveness of aid increased in “good policy environment” (Kjaer 2004, p. 175). It was not surprising: the level of corruption in organisations and government prevented resources from just and logical distribution, ensuring that they were used to foster inequality rather than combat it (Drake et al. 2001). Similarly, GG is associated with transparency and stability, all of which allow reasonable and just distribution and consistent economic development (Drake et al. 2001, p. 9).

Currently, the World Bank donor use selective aid allocation: more aid is provided to the countries that perform better int he terms of GG (Riegner 2016). The Worldwide Governance Indicators are used to assess his performance (Erkkilä & Piironen 2014). This decision has been criticised due to the fact that it leads to cutting the aid for the countries that need it the most.

The Way Forward?

Santiso (2001) criticises the World Bank’s intention to steer clear of political issues and provides evidence to the idea that GG is necessarily democratic. Therefore, the author insists, the World Bank cannot avoid getting involved in politics; otherwise, the results of its actions will not be noticeable of consists. He proposes merging the notions of GG and democracy and insists that providing aid selectively, in exchange for the promise of taking certain political actions is not effective.

Instead, the author proposes “a more radical approach” is chosen that allows donors to “cede control to the recipient country, within the framework of agreed-upon objectives” (Santiso 2001, p. 4). According to Santiso (2001, p. 19) “genuine development partnerships” are more likely to lead to the effective aid distribution. In the cases when there is a danger of aid misuse (for example, the issue of lack of democracy), it must be suspended.

Another similar suggestion of future development was offered by Nanda (2006). The author is exceptionally concerned with the fact that GG remains somewhat undefined term, and the measures of a country’s success in achieving it are even more unclear. Nowadays, frameworks for such assessment exist, but they remain questionable and are subjected to criticism (Riegner 2016). Similarly, Nanda (2006) indicates that the aid conditionality proved ineffective in the actual change of policy (rather than the nominal one). The author also points out the need for the partnership with the recipient government and insists that it needs to be provided with the greater freedom to ensure that the context of the country (cultural, historical) are taken into account when creating the custom variant of GG in it.

To sum up, both critics are opposed to the way the World Bank donors tend to limit the freedom of recipient governments (Lie 2015), arguing that greater freedom would allow them to form a more trustful partnership and that the government is more knowledgeable with respect to the country’s needs.

The UN Global Compact

The World Bank is not the exclusive promoter of GG. Nanda (2006). For example, UN Global Compact (2016d) that is “the world’s largest corporate sustainability initiative” aims at the promotion of GG in business. ITs mission consists in “inspiring, guiding and supporting companies” to take up GG, which involves responsible business and corporate sustainability (UN Global Compact 2016c).

The core areas of such responsibility include social, environmental, and supply chain; also, the UN Global Compact (2016b) promotes sustainable development and investment. Moreover, the UN Global Compact (2016a) works to involve corporate actors from all over the world to resolve issues like poverty, education quality, water preservation, and inequality. To sum up, the UN Global Compact promotes GG and responsibility among business actors in an attempt to improve the well-being of humanity.

Conclusion

The present paper allows an insight into the notion of GG and the World Bank’s contribution to its development and promotion. Through the activities of the World Bank, GG emerged as a clear (despite the extensiveness) term that is being promoted for the sake of fostering economic, social, and ultimately political development in the recipient countries. The notion involves many controversial issues including the aid conditionality, the problem of customizing Western types of legislation and politics, and the inevitable interference with national and local political actors.

Despite these issues, the notion itself, as well as the actions aimed at its development, are mostly justifiable. GG is aimed at promotion participative, equality-based, law-governed, poverty-free governance that will boost economic development of a recipient country. If it is modified to become less Westernised, more diverse and customised, it is likely to bring positive effects.

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