Modernizing The State Next Generation Reforms to Strengthen the Capacity to Govern

1. Modernizing The StateNext Generation Reforms toStrengthen the Capacity to Govern ALLEN SCHICK Regional Policy Dialogue Meeting Inter-American Development Bank December 12, 2003

2. IS MODERNIZATION OF THE STATE ENOUGH The Logic of Modernization • A State that does not perform well and is not accountable, cannot sustain social and economic improvement and cannot productively use development assistance But Does Modernization Work? • Most developing countries still have high corruptions scores • Most developing countries also rank low on governance indicators • The scores and rankings do not appear to have improved in countries that have had successful modernization projects

3. BASIC QUESTIONS ABOUT MODERNIZATION OF THE STATE • Can a state be truly modern if its markets and society aren’t? • Can a state be modern if informal rules and behavior still predominate? • Can a state be modern if civil society remains disengaged? • Does modernization entail more than tinkering with the machinery of government? • How can modernizers know that modernization objectives have been achieved?

4. CAN THE STATE BE BOTH MODERN AND HOLLOW? Five contemporary initiatives are shrinking the effective role of the state: • Vesting legitimacy, authority and resources in NGOs • The decentralization movement shifts resources and responsibility to subnational governments • International governments claim primacy in providing global public goods • Autonomous agencies are created with independence from the state • Reliance on markets to allocate public goods and services.

5. MODERNIZATION REQUIRES A STRONG EFFECTIVE STATE • It may be appropriate to reconsider pressure from IFIs to downsize the civil service • In poor communities, there often is too little government, not too much • The absence of the state cannot be remedied by shrinking public employment LESSONS FROM URUGUAY AND BRAZIL • Uruguay has a higher public employment rate than other countries in the region • It also has high quality, accessible public services • Modernization has promoted downsizing of public employment rolls and reliance on contract employees • In Brazil, the Lula Government aims to “complete the State” • This entails bringing public services to communities and people who have been excluded • It may lead to more public employees • In both countries, the key challenge is to upgrade the professionalism and performance of the civil service

6. TO BE EFFECTIVE, A STATE MUST HAVE CAPACITY TO PERFORM • A state is effective when it has the capacity to set and carry out objectives and is accountable for its actions and accomplishments • IFIs have tended to emphasize accountability and to slight capacity • Accountability without capacity yields impotent government that cannot deliver basic public services or promote development • Governing institutions that appear strong enough to repress public sentiment and civil liberties may nevertheless be too weak to uplift the country • Building capacity should be a central aim of modernizing the state

7. THE MODERN STATE REQUIRES THREE BASIC CAPACITIES • NATION BUILDING AND MAINTENANCE The capacity to maintain social order through political democracy, robust markets, the accountable exercise of executive power, legislative oversight, and independent courts: protection against external threat, mobilization of revenue to finance basic services, protection of civil liberties and human dignity • STRATEGIC DEVELOPMENT The capacity to steer and transform society so that it progressively becomes more advanced and creates a future that is significantly more favorable than its past • OPERATIONAL CAPACITY The capacity to run government efficiently, to deliver basic services and continually improve performance, and to make the benefits of government accessible to poor, excluded people

8. STATE CAPACITY IN URUGUAY AND BRAZIL URUGUAY • Uruguay rates high on nation building and operational capacity, but may be deficient in strategic development • Change tends to be slow and cautious, and the country has had difficulty adapting to changing economic conditions • If economic adversity persists, public services may degrade over time BRAZIL • The Lula Government has given priority to strategic development through a four-year plan that aims to transform society • Brazil’s national plan is distinctive in that it has a financial constraint, covers all government programs, and is supposed to drive annual budget decisions • In Implementing the plan, the government intends to “complete the state” by improving public management and bringing services to excluded people and communities

9. THE STATE CANNOT BE MODERNIZED IF SOCIETY AND THE ECONOMY AREN’T • State modernization is likely to fail if it is not closely linked to transformation of society, the economy, and the political system • The State cannot be modern if informality predominates in labor markets, commercial transactions, and business-government relations • The State cannot be modernized if markets languish, the poor are excluded and government does little to improve their lot, or if income disparities widen • Although sensitive, political reform may be an essential element of modernization

10. MODERNIZE THE STATE BY MODERNIZING SOCIETY • Modernization must be as much about development as about the state, for if society does not improve, the state will languish • Modernization must be connected to reforms that alleviate poverty, improve services, facilitate markets, and promote rule-based behavior • Poverty, social disorganization, immature markets, informality and cronyism are breeding grounds for an ineffective state • The peaceful redistribution of money and power through democratic means should be a high priority of modernization

11. URUGUAY AND BRAZIL: THE LINKAGE OF STATE AND SOCIETY URUGUAY • For decades, the quality of public services and of the state was mirrored in the quality of markets and society: a large middle class, low corruption, strong adherence to rule of law • Recent deterioration in socioeconomic conditions may be taking a toll on the quality of government BRAZIL • The new multi-annual plan links social transformation, economic improvement, and participatory government • It is premised on the notion that government cannot become more inclusive if society and markets aren’t • Public management reform is intended to facilitate political, social, and economic transformation