The Essentials of Good Governance
Policy Memo, Caspian Studies Program
December 10, 2002
Belfer Center Programs or Projects: Caspian Studies
In February 2002, the George C. Marshall European Center for Security Studies hosted a conference on "Regional Development, Conflict, and Energy Resources in the Caucasus and Central Asia." Government officials and academics from Europe, the United States, Central Asia, and the Caucasus convened at the conference to discuss the interrelated issues of economic development, political conflict, and energy resource exploitation in the Caucasus and Central Asia.
At the conference, Dr. Friedemann Mueller of the Stiftung Wissenschaft und Politik in Berlin gave an address on the question "Can Energy Wealth Produce Broadly Based Growth?" The main points of Dr. Mueller's lecture appear below.This lecture should be of interest to Western and regional policymakers in the Caspian region.
The Essentials of Good Governance
By Friedemann Mueller and Philipp Mueller
Friedemann Mueller is head of the Global Issue Research Unit and Philipp Mueller is research associate at the Americas Research Unit at the German Institute for International and Security Affairs (SWP) in Berlin.
Editor's Note: In February 2002, the George C. Marshall European Center for Security Studies hosted a conference on "Regional Development, Conflict, and Energy Resources in the Caucasus and Central Asia." Government officials and academics from Europe, the United States, Central Asia, and the Caucasus convened at the conference to discuss the interrelated issues of economic development, political conflict, and energy resource exploitation in the Caucasus and Central Asia. Among the conference participants was CSP Research Director Brenda Shaffer, who delivered an address on "Conflict and War in the Caucasus: Ethnicity, Territory, Religion" based on the research for the forthcoming book The Limits of Culture: Islam, Foreign Policy and the Caspian (MIT Press, 2003).
At the conference, Dr. Friedemann Mueller of the Stiftung Wissenschaft und Politik in Berlin gave an interesting address on the question "Can Energy Wealth Produce Broadly Based Growth?" The main points of Dr. Mueller's lecture appear below.This lecture should be of interest to Western and regional policymakers in the Caspian region.
What makes societies and economies successful? Is it the availability of natural resources, climate, religion, ethnic multiplicity, or access to foreign markets? Intuitively, each of these variables seems influential, even if a direct relationship between them and a country's success is impossible to identify: Finland and the United States both rank high on any scale of success, even though their ethnic makeup is very different; Norway and Nigeria both are endowed with similar energy resources, but their success rates could not be more different.
There is, however, a positive correlation between success and one variable: good governance. It has become conventional wisdom that development aid can do more harm than good if aid money is channeled into societies with bad governance, because the money might be used to stabilize inefficient structures and increase corruption. Good governance is not a Western concept. It relies on the core values and human rights advocated by all members of the United Nations and on the idea of open competition in a globalizing, dynamically changing world. Good governance rests on the following essentials:
1. Rule of law: A society needs to implement the rule of law. This means that the law is above any individual actor or group, even the most powerful. The law must be equally valid for all members of the society. The legal system must provide justice and equal treatment for all groups and individuals of the society. This includes the observation of human rights.
2. Functions of the state: The state must have a monopoly over the legitimate use of force in society and guarantee the enforcement of its laws. The state must also offer a political process that guarantees the participation of all members of its society through some type of representative process, and ensure that its checks and balances work properly. Beyond these functions, the state is an institution that must work to maximize the benefits of all of its members.
3. Securing fair competition: In order to make market economies work efficiently, an effective economic framework is required. The state has to assure that contracts are enforced (which requires an efficient legal and juridical system), a trusted medium of exchange exists (which requires consistent monetary policy and well-regulated financial markets), and that fair competition is guaranteed (which requires antitrust legislation, consumer protection legislation, intellectual property legislation).
4. Internalization of external effects: The state is responsible for minimizing the negative side effects of production. If a producer is able to shift the costs of environmental pollution to the public, this externalization has the effect of an (undesired) subsidy to the producer, thereby distorting the market signals.
5. Public goods: Good governance requires the state to provide public goods which, by definition, are not provided by a market, such as internal and external security (police/military), a basic infrastructure for transportation and communication, the preservation of the society's cultural heritage, basic education, and a social policy that guarantees residents a minimum income and health care. Although the quality and quantity of public goods depends on the economic wealth and foundational philosophy of a society, without these goods a successful society cannot exist.
6. Education: The state has the responsibility to make optimal use of the intellectual resources of its society. This includes giving all children access to affordable education according to their abilities and protecting them from exploitation for short term gains, thereby securing a society's longer term investment in adequate education.
7. Regional integration and global compatibility: In a globalizing world, economies and societies cannot exist self-sufficiently. Therefore, they need to make themselves more compatible to other societies by adhering to global economic and social standards and integrating into larger markets. This requires a state structure that can guarantee fair domestic competition even against powerful external investors. Regional integration is not merely about issues such as reduction of custom rates; it should focus on the harmonization of legal rules and standards in order to create viable markets and on accords with neighbors centering on the provision of regional public goods (security, water, environment, etc.).
These seven essentials offer a guideline for states to succeed in a globalizing world. They are compatible with all cultures, even if the implementation of these principles may not benefit every actor in society equally. Warlords, clan chieftains, or corrupt public officials will oppose such reforms. The vast majority of people from any cultural background, however, would welcome the implementation of such good governance principles. Therefore, foreign aid needs to focus on assisting countries in developing, implementing, monitoring, and improving good governance.
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