Development Beyond Neoliberalism?

Governance, Poverty Reduction and Political Economy

David Alan Craig, Doug Porter

• Publisher: Routledge
• Year: 2006
• Print ISBN: 9780415319591
• eBook ISBN: 9781134363759
• Topic: Physical Sciences
• Subtopic: Geography
• Index: Geography

Development's current focus – poverty reduction and good governance – signals a turn away from the older neoliberal preoccupation with structural adjustment, privatization and downsizing the state. For some, the new emphases on empowering and securing the poor through basic service delivery, local partnership, decentralization and institution building constitute a decisive break with the past and a whole set of new development possibilities beyond neoliberalism.

Taking a wider historical perspective, this book charts the emergence of poverty reduction and governance at the centre of development. It shows that the Poverty Reduction paradigm does indeed mark a shift in the wider liberal project that has underpinned development: precisely what is new, and what this means for how the poor are governed, are described here in detail.

This book provides a compelling history of development doctrine and practice, and in particular offers the first comprehensive account of the last twenty years, and development's shift towards a new political economy of institution building, decentralized governance and local partnerships. The story is illustrated with extensive case studies from first hand experience in Vietnam, Uganda, Pakistan and New Zealand.

1 Governing poverty

Development beyond neoliberalism?

People rise from poverty when countries act on two pillars of development: building a good investment climate in which private entrepreneurs will invest, generate jobs, and produce efficiently, and empowering poor people and investing in them so that they can participate in economic growth. What’s a good investment climate? Start with sound macroeconomic management and trade and investment policies that promote openness and raise productivity and growth. Add the elements of good governance, such as regulation of industry, promotion of competition, and prevention of corruption. Then set all that on a foundation of basic infrastructure and effective basic services, such as health and education.

World Bank, States and Markets, 2002¹

DEVELOPMENT REINVENTS ITSELF

‘The Bank’, the saying goes, ‘always knows best’. But, says the rejoinder, ‘what the Bank knows, changes’. Certainly the agendas set by the world’s leading Development institutions, the World Bank included, have varied markedly over time. In this they have both led and, more often, reacted to wider political and economic changes, and especially to crises. Yet the late 1990s shift from frank neoliberal Structural Adjustment to a softer, more ‘inclusive’ Poverty Reduction and Good Governance agenda seemed particularly dramatic and rapid. And successful, at least in repositioning Development’s lead institutions, and in creating a wider consensus around market-led growth and poor countries’ integration into global capitalism. Even more prodigious, however, was Development’s elaboration of a set of potentially harmonized, shared technical instruments with which to pursue Poverty Reduction and institution building goals.

By the early twenty-first century, the breadth of both the consensus and its technical elaboration were unprecedented. Within Poverty Reduction Strategy’s (PRS) multifaceted frames, the free global flows of capital, poor people’s participation, and competitively provided health and other services can be combined to promise opportunity, security and empowerment to the most peripheral places. Here, everyone can, indeed must be included: Washington’s financial institutions can partner with sub-Saharan NGOs, with global accounting and audit franchises, Pakistani provincial governments, and Vietnamese commune authorities. Development’s fiscal and security-oriented conservatives, market neoliberals, communitarian social developers, and governance technocrats all have roles in deepening this consensus and rolling out its practice across global and local institutions. More importantly, now, we are told, Development can finally work. A fresh commitment to harmonize around this consensus and apply its governing techniques, and a much greater investment of funds, will yield a substantial dividend for the poor.²

This is a notable turnaround: through much of the 1990s, Development was on the ropes. Post-developmentalists had dismissed Development as a pernicious discourse, a grand modernizing and colonial narrative reflecting and serving Eurocentric interests.³ Gung-ho globalizers declared that the nation state was no longer a significant entity for governing territories, and that radical market openness and integration was the only plausible development strategy. When, mid-decade, private investment transfers began to eclipse official aid, liberals and conservatives alike saw (and applauded) international private capital taking Development’s place.⁴ Yet by decade’s end, the triumphant Millenarian vision of global market integration was under siege. In some of Development’s most conspicuous success stories, the 1997–1998 Asian crisis showed how a flighty drove of fast moving capital could undo the progress of decades in a matter of weeks. And Development’s new atlas was showing the vastly uneven results produced by the first round of neoliberal reform – the ‘balance the books, open up the economy, and hope’ approach of 1980s Structural Adjustment. Two decades of development failure and zero net growth on whole continents had produced alarming peripheries of insecurity, disaffection and risk. Neoliberalism’s trust in free markets and self-regulation were brought back into critical review. As the millennium loomed, critics of the Washington Consensus were raging in the streets of Seattle and Genoa to press home questions about the basic legitimacy of International Financial Institutions (IFI) – the World Bank, the regional development banks and the International Monetary Fund (IMF). Prominent figures within IFIs were publicly conceding that the structural adjustments of radical neoliberal reform had often delivered more shock than therapy: it was all too narrow, too IFI-led, too banker driven.⁵ Once considered comprehensive, the neoliberal reforms driven home through Structural Adjustment conditionalities now seemed limited in scope and imagination. Too often, loan financed privatizations had perverse outcomes; too often, radical downsizing of the state had failed to produce a more efficient or effective set of institutions that could support market growth.

Poverty reduction: a shift beyond neoliberalism?

So Development’s most recent change, like others before it, was partly impelled by crisis, and reactions to both insecurity and to IFI’s apparent inability to contain it. In some political economy circles, this reaction to free marketism and its IFI avant-garde was plausibly described in terms of Karl Polanyi’s 1944 thesis that a self-regulating market ‘could not exist for any length of time without annihilating the human and natural substance of [its] society’.⁶ Through the 1990s, and via failed programmes of Structural Adjustment, it was arguable that unregulated global markets were causing enormous disruption to rich and poor societies alike. The High Street protests, public debunking of narrow neoliberal orthodoxies and the calls for re-regulation, strengthening governance and social protection might be examples of what Polanyi termed an ‘enlightened’ reaction, a plural, broad based social reaction⁷ against the insecurities unfettered markets routinely generated. For Polanyi, this reaction was a part of a much bigger, more powerful pattern he called the ‘double movement’. In his conception, markets and societies always existed locked in a lurching relationship and struggle, which progressed unevenly (or could even be destroyed) as, in a two stage or ‘double’ movement, markets disembedded themselves from social constraint, and were then re-embedded and thereby secured and sustained, as well as constrained in the reactionary phase. In Polanyi’s historical account of events from the industrial revolution to the mid-twentieth century, the first part of the ‘double movement’ had seen markets breaking out from – and enormously disrupting – social and territorial constraints of a pre-industrial age: the somewhat more bounded territories of rural, local, national production and consumption. In the second phase of the double movement, multiple ‘enlightened reactionaries’ within societies had acted to re-embed markets within social, governmental, security and regulatory contexts, forming unions, supporting labour laws and early sanitation and town planning, extending the franchise, buying British (or German or French) and pursuing rival empires with privileged internal trade. Ultimately, this second phase proved perversely potent: the alignment of reactionary, nationalist, socialist, local and imperialist movements seeking to co-opt the market had led to the collapse of liberalism in the Great Depression and the Second World War. By then, it seemed to Polanyi as to Keynes that the unregulated market might safely be consigned to history.

As the 1980s and 1990s had demonstrated, this was simply not the case: here again, another double movement round of liberalization saw markets tearing away at social, regulatory and territorial constraints, disembedding themselves in revolutionary projects recognized as neoliberalism and globalization. They also restructured and disaggregated the state through privatization and new contractual and managerialist arrangements in ways that would mimic markets. Through the 1990s, markets seemed to be triumphant: but following the Asian/IFI crisis, and especially after 11 September 2001, it seemed that the security-reaction ambit might again return, and perhaps Polanyi would get the last word. But even if the reaction were truly Polanyian, how profound and powerful was it, and how might market forces (and especially market promoting international financial agencies) in turn recover? This time around, the enlightened reactionaries might succeed not in rolling back resurgent global liberalism, but in the equally Polanyian end of enabling its socially embedded rollout.⁸

Or just Development’s new clothes?

In fact, as this book will show, before the 1997–1998 Asian crisis Development was already well on the way to rebuilding consensus. And, through the 1990s, it had been assembling an astonishing array of instruments to put it into practice. The 1997 World Bank Development Report (WDR), The State in a Changing World, was a thoroughgoing treatise on the ways in which a ‘capable state’ was needed to support markets. But more on this later. More evident at the time was that crisis and violent protest needed immediate response. Development’s lead institutions had to be recast as more ‘inclusive’, more responsive and ‘participatory’, and thereby, somehow, more legitimate. Hence IFIs’ quickly rebranded their products, for example, in 1999, relabelling overnight the Enhanced Structural Adjustment Facility (ESAF) with the nomenclature of Poverty Reduction and Growth Facility⁹ (PRGF). And they redoubled efforts to show how recipient countries, ‘development partners’ and even the poor themselves endorsed what the IFIs were doing. Now, collaboration around IFI-led Development would be pinned to national Poverty Reduction Strategy Papers (PRSP) ‘owned by’ recipient governments themselves.

Poverty Reduction Development would from 2000 roll out on a broad, three-legged agenda of promoting economic opportunity through global market integration, and enhanced social and economic security and empowerment through innovative governance arrangements for local delivery of health, education and other poverty-reducing services. None of these alone would reduce poverty: but together, the consensus concurred, they should. Indeed, progress would be monitored against a range of poverty related targets and goals. Poverty Reduction’s Millennium Development Goals (MDGs) were birthed within the United Nations Development Programme (UNDP), adopted by 189 nations in the Millennium Declaration in September 2000, and then reaffirmed by all United Nations (UN) members in the Monterrey Consensus and in the Johannesburg Plan of Implementation in 2002. With these targets came technical and institutional alignments, generating a breath-taking round of High Level ‘harmonization’ Forums, largely sponsored by the ‘like minded’ group of bilateral donors, the British, the Scandinavian countries, in Rome (February 2003), Marrakech (February 2004) and Paris (March 2005). The 2004 WDR, Making Services Work for Poor People, made the urgent need for a new consensus even more explicit: neoliberal, market integration would not by itself produce the kinds of economic growth needed to lift the world’s poor out of poverty. MDG targets would require focused moral commitment by rich and poor alike. Where poor countries and their citizens were able to demonstrate this, social services could be delivered in ways that supported Poverty Reduction’s ‘empowerment’ and ‘security’ at the same time.

The strength of the new consensus was evident in the fact that these high level forums barely discussed the efficacy of its underpinning neoliberal market orthodoxy. Rather, the focus was from 2000 largely on its organizing rubrics and technical means. By 2000, for over 80 of the world’s poorest countries, PRSPs would be presented as the primary strategic and implementation vehicle to reach the MDGs. They would allow global commitments to be communicated through national and local level arrangements that tied all Poverty Reduction spending to highly visible technical instruments that controlled budget-making and the transfer of fiscal resources, and could be used to deliver sanctions where necessary. In this way, the global, national and local levels could be ‘joined-up’ and clearly accountable to the poor. By this time, from Uganda to Uzbekistan, NGOs across the world had contributed to a variety of techniques that delivered ‘Voices of the Poor’ to policy-makers, and made it possible for the whole enterprise to appear to be legitimated by the poor themselves.

Not everyone was convinced. For all the consensus and partnership, PRSP’s doubters have found numerous points of issue.¹⁰ What is this, they ask, beyond structural adjustment in pro-poor, ‘inclusive’ neoliberal drag, or a mere technical elaboration of the notorious neoliberal formulism of the Washington Consensus?¹¹ Certainly, despite endless reference to local ownership and professed rejection of ‘one size fits all’, the three-legged PRSP formula of ‘Opportunity, Empowerment and Security’ varied little across countries.¹² Indeed, because they were so slippery they could easily be adopted by the World Bank’s landmark 2000 WDR, Attacking Poverty; Cambodia’s PRSP (‘promoting opportunities, creating security, strengthening capabilities and generating empowerment . . .’); New Zealand’s Third Way, social democratic Prime Minister Helen Clark, (‘fairness, opportunity, security’); and, at least on 8 September 2001, even in George Bush Jnr’s ‘Priorities for Fall: Education, economy, opportunity, security’.¹³

Beyond rhetoric? The rise of governance

As this book will make clear, this was certainly more Liberalism, but it was also more than a new rhetorical garb for neoliberal Development. How much more, this book will debate: but in general, the major substance came under the apparently benign label of ‘good governance’. At times, good governance seemed to be a fourth leg in the Poverty Reduction rubric, at other times, merely an elaboration of the ‘empowerment’ dimension. This is evident in Pakistan’s 2003 PRSP. It faithfully renders the Opportunity, Empowerment and Security troika, but in four goals, weaving the three legs through with the various inflections of ‘good governance’; stability, service delivery efficiency, devolved power, justice, and reducing regional vulnerabilities and inequalities:

• Achieving high and broad-based economic growth focusing particularly on the rural economy, while maintaining macroeconomic stability.
• Improving governance and consolidating devolution, both as a means of delivering better development results and ensuring social and economic justice.
• Investing in human capital with a renewed emphasis on effective delivery of basic social services.
• Bringing the poor and vulnerable and backward regions into the mainstream of development, and to make marked progress in reducing existing inequalities.¹⁴

In fact, the appearance and disappearance of governance as a fourth leg of Poverty Reduction is a little misleading. Rather, the most important innovations of the Poverty Reduction paradigm were eventually put together under the rubric of governance, and wider conceptions of ‘institution building’. In the early to mid-1990s, governance reform tended to be restricted to protecting and building confidence around market and capital security: privatization together with anti-corruption measures would remove obstacles in the way of market forces, and promote a secure, rule of law environment for investments. But capable, corruption free governance, it soon became apparent, also held keys to putting a ‘human face’ on macroeconomic structural adjustment, enhancing investments in human capital, health and education, working with civil society for better delivery of social services. This promised healthier, more educated and engaging citizens able to participate in new market Opportunities. But its more expansive claim was that good governance would also create Security and Empowerment via a new, citizen responsive, capable state.

Crucially for this book’s story, it was decentralized aspects of governance that offered some of the most enticing promises. The community, the locality, the territories of sub-national authorities became the domains where good governance seemed to offer most. Here, good governance rubrics promised a less corrupt institutional environment for local business, and better access to decentralized service delivery, by responsive agencies held accountable by informed clients. In slightly more technical terms, explained later, new fiscal arrangements for decentralized governance, acting together with multiple market actors and revitalized local juridical (or law based) mechanisms, could lower transaction costs and raise allocative efficiencies for businesses and services alike, creating multidimensional accountabilities for service providers, and better outcomes for poor people.

Thus, by the early 2000s, good governance had emerged from the brown manila folder of ‘public administration and anti-corruption’ and achieved a spectacular primacy in Development’s headline strategies, including 2004 WDR, Making Services Work for Poor People, the UN’s 2005 Millennium Project Report¹⁵ and the Blair Commission’s 2005, Our Common Interest, which framed entrenched poverty in Africa (‘the greatest tragedy of our time’) for substantive G8 attention. In this, we will argue, it aligned itself a little more with a somewhat Polanyian shift in international political economy. And at the same time, recast itself once again in the image of a much more durable political and economic project: a project with a history of promising relief from poverty to those who respected, above all, the rule of law, and the property rights of the powerful. The project, that is, of wider historical Liberalism.

Governance and the poor

This book tells the story of how Liberal conceptions of good governance and the need for stronger institutions came to dominate Development and Poverty Reduction programmes. Before we lay out the book’s argument, we need to understand why this happened, and some general parameters of the recent relationship between governance and poverty.

As often, crisis has fuelled much of the resurgence of interest in governance. Strong impetus came with the early 1990s collapse of Soviet Union and Eastern bloc economies, attributed to a lack of institutional and regulatory frameworks to make new markets work. The same period saw the emergence of the criminal mafias and ethnic warriors in ‘failed’ states – the former Yugoslavia, Central Asia, Somalia. Poverty, it became clear, was not just a matter of humanitarian disasters or Structural Adjustment failures, but was linked to the breakdown of civic order into civil war, and the predatory rule of warlords and cronies running ‘out of control’.¹⁶

At the same time, especially across Africa but also in parts of Asia and Latin America, other forces were undermining government. The pace of urbanization was outstripping the capacity of poor governments to deliver basic services, or to police and provide security in emerging urban settings.¹⁷ A new phenomenon emerged, urban ‘involution’,¹⁸ in which against all predictions of theory, urbanization was disconnected from economic growth. Urbanization into slums and resettlement zones was escalating at the same time as Structural Adjustment Programmes (SAPs) were prompting the collapse of import substitution industries, contractions in public sector employment, and the weakening effects of debt. The growth of informal sector economies in burgeoning urban slums meant that, for much of the 1990s, an increasing share of employment in poor countries was generated ‘outside the rule of law’, in zones of ‘illegality’. Thus, the poor lived increasingly in ungoverned domains: they occupied land illegally or with uncertain ownership, and became dependent on unprotected subsistence economies and insecure, unregulated enterprises. Here they faced marginal profitability, and became enmeshed in criminality, racketeering, trafficking and desperate, illicit migration.

All this might be seen in hard-nosed political economy terms: struggles for scarce resources among growing populations, within markets that scarcely valued their labour. And then tearing away at whatever could be pulled from the public domain, destroying it in the process. Yet through the 1990s, a consensus emerged that much of this resulted from ‘bad governance’: governments not completing reforms, poor Public Expenditure Management (PEM), failing to produce good legal and other environments for growth. Bad policemen and greedy officials, abusing power to oppress the poor.

Certainly governance in many poor countries was appalling: but its fa...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Illustrations
• Acknowledgements
• 1 Governing poverty
• Part I: Liberal Development and governance from free trading to ‘neoliberal institutionalism’
• Part II: Cases from Vietnam, Uganda, Pakistan and New Zealand
• Abbreviations
• Notes
• Bibliography