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Fighting poverty with good governance

Mike Moore

There are certain economic, legal and social conditions that successful countries take for granted. Those are the rule of law, property rights, accountable politicians, an independent judiciary, free media, trade unions and an active, engaged civil society.

Are these institutions a result of a modern, successful economy or are economies successful because of the quality of these institutions? What lessons can we take from the results when we look at rebuilding nations such as Iraq or preventing future states from failing? Nation-building is important and difficult work. Preventing nations imploding and falling apart is equally difficult. Let us revisit the ideas of the founder of modern economics and the Enlightenment.

More than 200 years ago, Immanuel Kant wrote in his essay Perpetual Peace: 'Durable peace could be built upon the tripod of representative democracy, international organisations and economic dependence.' He coined the phrase 'league of nations'.

For those who think globalisation is new, listen again to Mill, Hume and Adam Smith. They all argued that expanded commerce produced good government and reduced warlike impulses; strengthened individual liberty and security; and promoted equality by lessening the 'servile dependency' of individuals on their superiors.

Smith wrote 'commerce and manufacturing can seldom flourish in any state in which there is not a certain degree of confidence in the justice of government'. Money is a coward, and investment - thus jobs - will go where it can get the best, most secure result. Guess why huge Arab investment funds buy property in London and New York and not Syria or the Gaza Strip?

This idea was recently revisited by a group of International Monetary Fund (IMF) economists. Their report suggested that if Cameroon could build political institutions as good as those in the average country, its per capita income would rise nearly five-fold from US$600 (HK$4,600) to US$2,760. To make an economy work and reward its citizens takes more than capital, labour and technology. Institutions, property rights and transparency are everything. If Bangladesh could lift the quality of its institutions to the level of Uruguay, that would give it a .5 per cent lift in gross national product.

A free press is vital to economic performance, and that idea has been quantified by economists at the London School of Economics. They discovered that state governments in India that responded most effectively to droughts and floods were those states where local newspaper circulation was highest.

Stanley Fisher, the former IMF vice-president who handled the Asian melt-down that started in Thailand, has concluded that Thailand could not have gambled so disastrously with its foreign currency reserves if more had been known about it at the time. A free press, transparency and politicians who seek re-election create a more responsive state.

The cleansing air of information puts constraints on what bureaucrats and politicians can get away with. Perhaps that is why there has never been a famine in a democracy.

Mainland China is paying a heavy price for its initial response to the Sars crisis. Finally, it acted. A minister and a mayor were sacked. A good lesson was learned, hopefully not to be forgotten.

Generous countries have for years sent millions of dollars in aid to poor countries. Much more money has been spent in Africa than the Marshall Plan delivered to Europe.

Now is the time to redirect aid money into building technical and bureaucratic skills. An efficient customs system, an honest, non-porous tax regime and competent trade negotiations are as important as roads and bridges. In the long term, they are more important. This is where rich countries need to be more brutally honest and insist on conditions attached to investment in building institutions.

The lack of coherence between global institutions and governments in this kind of capacity-building is obscene, wasteful, self-deceiving and a cruel hoax imposed upon the so-called beneficiaries.

Governments increasingly are seeing the importance of good-governance issues. However, decisive action is necessary and a fundamental rethink necessary. How about global vouchers (if you are right-wing) or entitlements (if you are left-wing) that officials from poor countries can use to go to the university of their choice provided the standards are consistent. Then lock them into spending 10 of the next 15 years working for their countries and if they do not, they repay the loan.

I set up such a system as director-general of the World Trade Organisation. It is not rocket science. We had 100 countries in need, and they each required 10 skilled negotiators. It costs US$50,000 to train them. That is, 100 times 10 times US$50,000 divided by the timeline necessary to put them in place.

The big development idea of the future is to put more naughts behind that calculation in every area of their civil service structure.

Mike Moore is former director-general of the World Trade Organisation

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