Democratic Accountability and International Human Development: Regimes, institutions and resources [1 ed.] 1138787221, 9781138787223

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Democratic Accountability and International Human Development

Scholars and policymakers have long known that there is a strong link between human development and spending on key areas such as education and health. However, many states still neglect these considerations in favour of competing priorities, such as expanding their armies. This book examines how states arrive at these decisions, analysing how democratic accountability influences public spending and affects human development. The book shows how the broader paradigm of democratic accountability – extending beyond political democracy to also include bureaucratic and judicial institutions as well as taxation and other modes of resource mobilisation – can best explain how states allocate public resources for human development. Combining cross-country regression analysis with exemplar case studies from Pakistan, India, Botswana and Argentina, the book demonstrates that enhancing human capabilities requires not only effective party competition and fair elections, but also a particular nesting of public organisational structures that are tied to taxpaying citizens in an undisturbed chain of accountability. It draws out vital lessons for institutional design and our approach to the question of human development, particularly in the less developed states. This book will be of great interest to postgraduate students and researchers in the fields of political economy, public policy, governance and development. It also provides valuable insights for those working in the international relations field, including inside major aid and investment organisations. Kamran Ali Afzal is a career civil servant in Pakistan and has served in a range of administrative and policymaking positions over the past 20 years. He earned his PhD in political economy from the University of Melbourne, Australia, and his areas of interest include public policy, governance, public finance and social development. Mark Considine is Professor of Political Science and Dean of Arts, University of Melbourne, Australia. His research interests include public governance studies, comparative social policy, reform of higher education and public service reform.

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Nationalism, Law and Statelessness Grand illusions in the Horn of Africa John R. Campbell HIV and East Africa Thirty years in the shadow of an epidemic Janet Seeley Evaluation Methodologies for Aid in Conflict Ole Winckler Andersen, Beate Bull and Megan Kennedy-Chouane Digital Technologies for Democratic Governance in Latin America Opportunities and risks Anita Breuer and Yanina Welp Governance Reform in Africa International and domestic pressures and counter-pressures Jérôme Bachelard Economic Development and Political Action in the Arab World M.A. Mohamed Salih Development and Welfare Policy in South Asia Gabriele Koehler and Deepta Chopra Confronting Land and Property Problems for Peace Shinichi Takeuchi Socio-Economic Insecurity in Emerging Economies Building new spaces Khayaat Fakier and Ellen Ehmke Foreign Aid and Emerging Powers Asian perspectives on official development assistance Iain Watson The Political Ecology of Climate Change Adaptation Livelihoods, agrarian change and the conflicts of development Marcus Taylor China’s Foreign Relations and the Survival of Autocracies Julia Bader Democratic Accountability and Human Development Regimes, institutions and resources Kamran Ali Afzal and Mark Considine

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Democratic Accountability and International Human Development Regimes, institutions and resources

Kamran Ali Afzal and Mark Considine

First published 2015 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 711 Third Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2015 Kamran Ali Afzal and Mark Considine The right of Kamran Ali Afzal and Mark Considine to be identified as authors of this work has been asserted by them in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Afzal, Kamran Ali. Democratic accountability and international human development : regimes, institutions and resources / Kamran Ali Afzal and Mark Considine. pages cm Includes bibliographical references. 1. Economic development--Social aspects. 2. Human capital. 3. Public welfare. 4. Finance, Public. 5. Welfare economics. I. Considine, Mark, 1953- II. Title. HD75.A338 2015 338.91--dc23 2014026120 ISBN: 978-1-138-78722-3 (hbk) ISBN: 978-1-315-76673-7 (ebk) Typeset in Goudy by GreenGate Publishing Services, Tonbridge, Kent

To my parents, Muhammad Afzal and Mahmooda Afzal – Kamran Ali Afzal To my children, Kate, Tom and Pat Considine – Mark Considine

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Contents

List of tables List of abbreviations Preface 1 The centrality of the human development approach

xi xii xiii 1

2 Traversing the known: potential determinants of public spending and performance

12

3 Democratic accountability and public spending on human development: a theoretical construction

32

4 What really drives human development spending and outcomes? Regression analysis: methods and data

60

5 Why governments differ in spending on human development

79

6 From increased democratic accountability to better human development outcomes

100

7 Pakistan and India: of military ballads and popular ballots

110

8 Botswana: a miracle of institutions

139

9 Argentina: a tale told by taxation

168

10 Conclusion: ending a story to begin another

198

x

Contents Appendix I. Subsets of states: Phase-I and Phase-II analysis

220

Appendix II. Subsets of states: Phase-III analysis

222

Appendix III. Subset of states: life expectancy analysis

224

References Index

225 254

Tables

5.1 5.2 5.3 6.1 6.2 6.3 6.4 7.1 7.2 8.1 8.2 8.3 8.4 8.5 9.1 9.2

The empirics of public spending: basic subset of states The empirics of public spending: expanded subsets of states The empirics of public spending: general versus central government spending Life expectancy outcomes: democracy Life expectancy outcomes: institutions Life expectancy outcomes: modes of public resource mobilisation Life expectancy outcomes: spending on health and level of development Average annual public spending as a percentage of GDP in Pakistan and India Basic education and health outcomes in Pakistan and India Education: average annual public spending as a percentage of GDP in Botswana, sub-Saharan Africa and OECD countries Health: average annual public spending as a percentage of GDP in Botswana, sub-Saharan Africa and OECD countries Military: average annual public spending as a percentage of GDP in Botswana, sub-Saharan Africa and OECD countries Sub-Saharan Africa: average annual public spending as a percentage of GDP Basic education and health outcomes in Botswana, sub-Saharan Africa and OECD countries Public spending on education, health and the military in Argentina: a Latin American resource-centric context Education and health outcomes in Argentina: a Latin American resource-centric context

81 91 95 103 104 105 108 118 135 152 154 155 161 164 192 194

Abbreviations

BDF BHU BLUE CNLRM CSP FDI FIW GDP GFS GNI HDI ICG ICRG IMF ISI NIE NPM ODA OECD OLS PHC PMU POUM PPP PSE PSP RHC SIPRI UIS UNDP UNESCO WDI WHO

Botswana Defence Force basic health unit (Pakistan) best linear unbiased estimator classical normal linear regression model Civil Service of Pakistan foreign direct investment Freedom in the World gross domestic product Government Finance Statistics, International Monetary Fund gross national income Human Development Index International Crisis Group International Country Risk Guide International Monetary Fund import substitution industrialisation New Institutional Economics New Public Management official development assistance Organisation for Economic Co-operation and Development ordinary least squares primary health centre (India) Police Mobile Unit prospect of upward mobility purchasing power parity public sector efficiency public sector performance rural health centre (Pakistan) Stockholm International Peace Research Institute UNESCO Institute for Statistics United Nations Development Programme United Nations Educational, Scientific and Cultural Organization World Development Indicators, World Bank World Health Organization

Preface

The genesis of this book lies in our shared interest in the reform of public institutions and the impact that this can have on outcomes for citizens. This interest culminated in a doctoral study, which began at the University of Melbourne in 2007, to understand why the patterns of government spending on human development were so different amongst nations. The research literature concerning public sector resource allocation revealed several possibilities ranging from the political organisation of states and the political ideology of their governments to the level of economic development, openness to international trade and even ethnic fragmentation. But our intuition was that it is the accountability of governments and state institutions to citizens that provides state actors with the right incentives to allocate more resources for human development. This was an area that earlier studies had treated only in passing. We therefore structured a comprehensive framework of democratic accountability predicated on the three elements we thought were likely to determine its nature and form: political democracy, institutional quality and taxation. Our hypothesis was that the more accountable governments were to citizens in any state, the higher would be the level of resources they would allocate for health and education as compared to areas such as the military. While our proposal on democratic accountability made intuitive and theoretical sense, our hypothesis on its relationship with public spending on human development needed to be empirically tested. This we did through regression analysis that controlled for all major factors identified in the scholarly literature as potential determinants of public spending. And we found evidence persuasive enough to conclude that the core determinant of public spending on human development is indeed democratic accountability. Grounding our hypothesis relating to the performance of public spending for human development on the same accountability-centric argument, we also found that it is again democratic accountability that drives human development outcomes. Nevertheless, since econometric modelling can occasionally create statistical illusions, to confirm the empirical evidence yielded by the quantitative analysis we undertook three elaborate case studies, one each for the three dimensions of our accountability framework. Here again, we found strong support for the accountability thesis. It is sometimes argued that the tenets of New Public Management (NPM) and the emergence of network governance have altered traditional public institutions

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Preface

and in the process the democratic accountability of state actors to citizens has also been diluted. But as we have argued in this book, despite the many changes wrought in the public sector paradigm during the past three decades or so, accountability of governments and state institutions remains the core determinant of the incentives public actors face and the policies they formulate. This is a subject we have dealt with in greater detail in our earlier work (Considine and Afzal, 2012). Furthermore, as we have argued elsewhere, it is democratic accountability that remains the basis of the legitimacy of governments in democratic polities (Considine and Afzal, 2011). Our study described in the chapters that follow contributes to existing scholarship and to questions of institutional design in several ways. First, we support the human development approach by expanding its focus to include public spending on education and health. Second, by centring the argument on democratic accountability, this study offers a new perspective on the determinants of public spending across states. Third, we bring the insights derived from several different research traditions to bear upon the question of why some states spend more than others on human development. These diverse strands include the literature on the welfare state, economic development, institutionalism, governance, ethnicity and sociology. Fourth, we take a more comprehensive view of democratic accountability, and incorporate in our analysis all three dimensions (i.e. the political, institutional and financial) that can potentially make governments accountable to citizens. Some existing studies of public spending and performance, as the review in Chapter 2 will show, do focus on some of the factors we include in our accountability framework, but none of them builds a comprehensive framework of democratic accountability to study the questions that this book answers. Fifth, we consider the determinants of public spending on human development from a neo-institutionalist perspective pivoted on the sovereignty of the citizen that mirrors the ideal agency of the consumer in the competitive market. Such a perspective is undeveloped in earlier or contemporary literature on public spending. Sixth, we focus on the post-1990 period, which is not only characterised by a powerful movement towards democratisation, but also much less complicated in terms of the ideological confrontation of the Cold War era and the effect it had on public spending. Admittedly, the Left has seen some resurgence over the past decade or so, particularly in Latin America, but the new left-wing regimes are generally more democratic than the left-wing regimes that were in power before the collapse of the Berlin Wall. In addition, the new left-wing governments are also more neoliberal in policy terms. Consequently, the post-1990 period permits an insight into the implications of regimes, institutions and resources for public spending on human development that is more independent of the impact of Cold War ideologies: effects that figure so prominently in much of the earlier research, particularly studies of the development of the European welfare state. Seventh, because of the new data that have become available, we have been able to use general government spending for both our empirical analysis and our

Preface

xv

case studies. In contrast, because of the unavailability of general government data, earlier empirical research has frequently used central government spending as a proxy for general government spending. This convention, as Haggard and Kaufman (2008) rightly caution, can create a serious analytic problem by underestimating the size of public spending in states with federal structures, which is particularly true in the case of public spending on education and health since a large proportion of it is usually made by subnational governments. Relying on central government spending can be even more inappropriate when states with federal structures are bundled together with states that have unitary structures and little subnational government. And finally, our analysis on the relationship between the broad framework of democratic accountability and human development outcomes adds to the literature on public sector performance, which has recently begun to explore the relationship between health and education outcomes and components of democratic accountability. We do, however, have one regret. Despite a generous enhancement in the word limit by Routledge, the original manuscript had to be trimmed at several places. Quite a few earlier scholarly works had to be dropped from the discussions in the first three chapters while some peripheral, though very interesting, details had to be dispensed with in the case studies – including the debate ensuing from the bureaucracy’s nexus with cattle farming in Botswana, an analysis of the impact of factors such as ethnicity, trade openness and left-wing ideology on public spending in sub-Saharan Africa, and a historical narrative of the Argentine labour movement. The last chapter also had to be shortened considerably. Nevertheless, this editing has not in any manner compromised the core themes and arguments presented in the book. It would be unfair to present this book under our names without acknowledging our debt to the many people who have contributed to it in less obvious, but nevertheless very significant, ways. It may not be possible to include here all those who have helped, but our deepest gratitude is to: Ann Capling, Murdoch University, for her valuable guidance on existing scholarly research; Stephan Haggard, University of California, San Diego, and Andrew MacIntyre, RMIT University, for their very helpful review of the underlying study; Sandy Clarke and Marnie Collins, Statistical Consulting Centre, University of Melbourne, for their advice on econometric modelling and analysis; Jo Barraket, Thomas Davis, Brian Galligan, Roland Hodler and Jenny Lewis, University of Melbourne and Ali Cheema, Lahore University of Management Sciences, for their comments on various occasions; Monty G. Marshall for clarifying our queries relating to the Polity IV data; Pascale Ratovondrahona, United Nations Educational, Scientific and Cultural Organization, for providing historical data on public spending on education; the staff at the United Nations Development Programme for providing data on life expectancy; and the staff at the World Bank, the International Monetary Fund, the World Health Organization and the Penn World Table for always clarifying our queries on data and related matters most expeditiously.

xvi

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We also feel greatly indebted to all the scholars, researchers and practitioners whose works have provided the foundation and scaffolding for this study, and from whose scholarship and experience we have certainly learnt much. Similarly, we are grateful to all those organisations and agencies whose painstaking efforts have gone into collecting the political, economic and social data that our study relies on. Finally, we would like to thank the editorial staff at Routledge, in particular Khanam Virjee, Helen Bell and Jennifer Birtill, for their kind help and assistance in producing this book. To Bethany Wright, our Editorial Assistant, we owe an enormous debt of gratitude for the guidance she provided ever so promptly and courteously throughout the production process. We are also immensely grateful to Karen Wallace at GreenGate for her meticulous typesetting and Kate Williams for copyediting the manuscript. We wish to make it clear that the opinions and arguments presented in this book are entirely ours and do not necessarily reflect the views of the organisations we are associated with. Kamran Ali Afzal and Mark Considine November, 2014

1

The centrality of the human development approach

In his autobiography, The Singapore Story, Lee Kuan Yew delivers one of the most momentous lessons of modern development history: I thought then that wealth depended mainly on the possession of territory and natural resources, whether fertile land with abundant rainfall for agriculture or forestry, or valuable minerals, or oil and gas … I was gradually forced to conclude that the decisive factors were the people, their natural abilities, education and training. (1998: 105) Indeed, it is hard to doubt the great wisdom in Lee Kuan Yew’s words, especially when Singapore is one of only a handful of Asian countries to have attained first world status despite its meagre natural resources. But even in countries with a rich natural resource inheritance, the centrality of human capital development to progress and prosperity is compelling. A large and constantly expanding body of scholarly research provides convincing evidence of the link between investment in human capital and economic growth, poverty alleviation, distributive justice and, at an even more important level, the expansion in human choices, enhancement of human capabilities and the broader welfare and wellbeing of individuals as human beings. The latter perspective refers to what is now widely known as the human development approach. Scholarly works using this approach concentrate on the association between democracy and human choices, capabilities and welfare, but other than some occasional reference, they do not address the question of public spending on education and health or its outcomes. This book, therefore, expands the human development approach by focusing on public spending for human development and shows that an enhanced model of democratic accountability – or the accountability of the state and its institutions to citizens – can best explain how states allocate public resources for human development. In particular, we are interested in accountability relationships created by political regimes, bureaucratic and judicial institutions and modes of public resource mobilisation. In this sense, as our study shows, traditional recipes for institutional development based upon effective party competition and elections, are not enough. Rather,

2

The centrality of the human development approach

our accountability thesis requires the presence of responsive and answerable public organisational structures that are directly tied to taxpaying citizens in an undisturbed chain of responsibility and interdependence. In explaining this approach the objectives of this chapter are fourfold: section 1 delineates the human development approach; section 2 explains the importance of public spending for human development; section 3 poses the core questions that the book seeks to answer; and section 4 presents a chapter-wise outline of our enquiry.

1. Human capital and the human development approach In an encompassing sense, human capital can be viewed as a ‘stock of embodied and disembodied knowledge, comprising education, information, health, entrepreneurship, and productive and innovative skills, that is formed through investments in schooling, job training, and health, as well as through research and development projects, and informal knowledge transfers’ (Ehrlich and Murphy, 2007: 2). But at its core, human capital refers to attainments in education and health (Baldacci et al., 2008; Mushkin and Weisbrod, 1971; Weil, 2009), which are usually measured through indicators such as average level of educational attainment, school enrolments, literacy rates, life expectancy, mortality rates and survival rates. The recognition of human capabilities as a form of capital and of their being a fundamental source of national prosperity is certainly not new and can be traced back to the classical works of William Petty and Adam Smith.1 In the formal sense, however, it is works by Becker (1962, 1964), Denison (1962), Mushkin (1962), Schultz (1959, 1961), Walsh (1935) and Weisbrod (1962) that pioneered a theory of human capital development and led the way to the incorporation of human capital – alongside physical capital – as a basic tenet in the theories of economic growth. Ever since then, research on the effects of human capital accumulation on economic growth has grown rapidly, and the theories propounded to explain these effects have also graduated from fairly simple notions of increased productivity of labour through improved knowledge, skills or physical abilities to much more sophisticated modelling predicated, for instance, on: productivity enhancing externalities (Azariadis and Drazen, 1990; Lucas, 1988; Perotti, 1993; Romer, 1986); enhanced potential to innovate and absorb new technology (Benhabib and Spiegel, 1994; Nelson and Phelps, 1966; Romer, 1990); interrelations between human capital accumulation and the savings or population growth rates (Becker et al., 1990; Mankiw et al., 1992); enhanced ability to attract physical capital (Benhabib and Spiegel, 1994); and benefits accruing from international trade (Lucas, 1988; Romer, 1990). The basic predictions of the newer models are consistent with those of the earlier works and, being validated by rich empirical evidence, they establish fairly unambiguously the centrality of human capital to economic growth. Many of these works augment neoclassical growth models with measures of human capital. The aforementioned study by Mankiw et al. (1992), for example, finds that

The centrality of the human development approach 3 incorporating a measure for human capital based on secondary school enrolments in Solow’s (1956) growth model greatly improves its power to explain cross-country variations in per capita income. Similarly, a pioneering work by Barro (1991) finds human capital, as measured by school enrolment rates, to have a positive effect on the growth rate of per capita income. These findings are further reinforced in Barro and Sala-i-Martin (1995) and Barro (1997, 2001). While controlling for several other potential determinants of economic growth, all three studies find male secondary and higher schooling to enhance the rate of economic growth. In another interesting work, Azariadis and Drazen (1990) present empirical evidence to show that a high ratio of human capital investment to per capita income is a precondition for accelerated economic growth. Amongst the notable empirical works focusing on health capital are the two studies by Knowles and Owen (1995, 1997) that find the effect of human health, as represented by life expectancy, on economic growth to be even stronger than that of education. A more comprehensive study by Bloom et al. (2004), while controlling for work experience and schooling in addition to most other determinants of economic growth, also yields similar findings. In an equally elaborate study, Gyimah-Brempong and Wilson (2004), positing a relationship between health and the potential for technical innovation, augment the Solow (1956) growth model with health capital. They operationalise this, in sequence, with the child mortality rate, life expectancy and the infant mortality rate. In each case, they find health capital to enhance economic growth – both in sub-Saharan Africa and the countries in the Organisation for Economic Co-operation and Development (OECD). Interestingly, by simultaneously including an attainmentbased measure for education in their models, they also find education to have a positive effect on the rate of economic growth. Ranis et al. (2000), operationalising human capital with measures based on life expectancy at birth and the adult literacy rate, find that human capital improves the rate of economic growth. Similarly, McDonald and Roberts (2002) not only find health capital to contribute significantly towards enhancing economic growth rates, but also find that omitting it from augmented Solow growth models generates misspecification biases. On the other hand, in his elaborate historical analyses, Fogel (1994, 2004) shows how sustained improvements in human health and ability since the early eighteenth century contributed to long-run economic growth. Arora’s (2001) study, which finds improvements in health to have enhanced the pace of economic growth in a sample of ten industrialised countries from around the late nineteenth to the late twentieth centuries, is in the same tradition. The body of empirical evidence affirming the positive effects of education and health on economic growth is vast and constantly growing; and not all of it can be cited here. But what gives even greater credence to this relationship is that the evidence contradicting it is rather weak and scarce. And with the exception of a few studies such as Benhabib and Spiegel (1994) and Pritchett (2001), it is also based mostly on data from developed states (e.g. Bhargava et al., 2001; Hartwig, 2010), where tendencies towards convergence in the level and rates of economic growth, coupled with decreasing marginal productivity of any further

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The centrality of the human development approach

improvements in the already high human development levels, tend to limit the effects of human capital on economic growth as well as the ability of statistical methods to isolate these effects. However, there are more dimensions to the relationship between human capital and economic development than just higher rates of growth. Admittedly, the importance of accelerated economic growth should not be underestimated, but it must also be understood that economic growth does not necessarily lead to poverty alleviation or to an equitable distribution of the benefits of growth (Drèze and Sen, 1989, 2013; Haq, 1976; Sen, 1999; Todaro and Smith, 2009; United Nations Development Programme [UNDP], 1996). Rather, in the early stages, as Kuznets (1955) discovered, growth may even exacerbate inequalities in the distribution of income. The subsequent empirical evidence on the Kuznets hypothesis is mixed, which only serves to reaffirm that inequality may persist even during the more mature stages of growth rather than wane as the hypothesis predicts. However, a growth strategy based on human capital development can be expected to reduce poverty through its effect on the income-earning potential of individuals. The causal effect of education in raising incomes is well established (Becker, 1962, 1964; Psacharopoulos, 1972, 1994; Walsh, 1935; Welch, 1970) and hardly needs elaboration. Similarly, the improved health of individuals also means greater income-earning potential (Behrman, 1993; Chirikos and Nestel, 1985; Haveman and Wolfe, 2000; Schultz, 1999; Selowsky, 1981; Strauss and Thomas, 1998). Moreover, the reciprocal effects of improvements in health on educational attainment, and then of educational attainment on health levels, further reinforce the independent effects of education and health on the incomeearning potential of individuals. The income-enhancing benefits of education and health are all the more critical for the poor (Drèze and Sen, 1995; Schultz, 1993; Sen, 1999; Tanzi and Chu, 1998), and often mean their emancipation from the vicious cycle of poverty structured by low productivity, low income and low investments in human capital (Bloom and Canning, 2003; Ranis et al., 2000). Todaro and Smith succinctly contextualise these interrelationships within the overall question of economic growth: That development requires a higher GNI [gross national income], and hence sustained growth, is obvious. The basic issue, however, is not only how to make GNI grow but also who would make it grow, the few or the many. If it were the rich, it would most likely be appropriated by them … But if it were generated by the many, they would be its principal beneficiaries, and the fruits of economic growth would be shared more evenly. (2009: 208) Clearly, for the society as a whole, broad-based education and health provision that lead to more equitable educational attainments and health levels across socioeconomic groups can also mean greater equity in the distribution of income (Drèze and Sen, 1995; Schultz, 1993; Sen, 1999; Tanzi and Chu, 1998; Weil,

The centrality of the human development approach 5 2009). But again, the significance of education and health is not confined to their economic and material advantages, as the UNDP’s first Human Development Report notes: The basic objective of development is to create an enabling environment for people to enjoy long, healthy and creative lives. This may appear to be a simple truth. But it is often forgotten in the immediate concern with the accumulation of commodities and financial wealth. (UNDP, 1990: 9) Echoing the social and economic insights of scholars such as Haq (1976, 1995) and Sen (1973, 1977, 1981, 1984, 1985, 1999), this notion of development – or the human development approach – takes a human-centric view of economic growth in which the human part of human capital development is at least as important as the capital part. In this perspective, human health and education are intrinsically valuable, and not just because they are instruments of economic growth. Similarly, poverty is not a simple reference to the deprivation of material sustenance, but acquires a much larger meaning focused on deficiencies in basic human attainment and the lack of choice that is caused by the lack of basic education and health, which then become critical obstacles both to the realisation of the income-earning potential of individuals and to their enjoyment of life (Drèze and Sen, 2002; Haq, 1995; Sen, 1999). Consonant with this conceptualisation, the meaning of economic growth also expands into a much more encompassing notion of socioeconomic enrichment. In this paradigm, social and economic development, as a process, is driven by a fuller and more inclusive utilisation of human capabilities; and, as an ideal, it aims not just at expanding the economic entitlements of individuals, including the question of an equitable distribution, but also at enabling them ‘to avoid such deprivations as starvation, undernourishment, escapable morbidity and premature mortality, as well as … [to acquire the capabilities] associated with being literate and numerate’ (Sen, 1999: 36). In this framework of development, achieving higher levels of education and health becomes not just a means to an end, but an end in itself (Anand and Ravallion, 1993; Todaro and Smith, 2009). The UNDP’s Millennium Development Goals defined in 2000 clearly reflect this approach to development; and more recently the UNDP has also introduced the non-income Human Development Index (HDI) to emphasise the centrality of human capabilities in the overall development paradigm (UNDP, 2010). In accordance with this new approach to development, many scholars (e.g. Anand and Ravallion, 1993; Ranis et al., 2000) and most international agencies associated with development now prefer to use the term human development rather than human capital development. We also adopt this term since it appears to us to encompass, without bias, both the material and human aspects of investing in the education and health of human beings. The term human capital development, on the other hand, tends to convey a meaning tilted towards the material dimension and, in a sense, may seem to commodify human existence (Drèze and

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The centrality of the human development approach

Sen, 2002). Our usage, nevertheless, is not inspired by any underestimation of the economic imperatives of human life, for meagre incomes and agonised survival along the lower peripheries of subsistence are the fate of countless millions, and poverty-compelled suicides, sometimes even preceded by the killing of dependent children, are but one stark reminder of the misery found in the less developed world.

2. Public spending on human development So we must take as given the centrality of education and health to the material and non-material prosperity and wellbeing of nations, and to the quality of life, happiness and satisfaction of the individuals who constitute them. This awareness, coupled with the fact that a laissez-faire market mechanism will almost invariably lead to a provision of education and healthcare skewed in favour of the upper socioeconomic classes (Drèze and Sen, 2002; Sen, 1999; Todaro and Smith, 2009), explains the significance of public spending on human development. Even though some scholars (e.g. Filmer and Pritchett, 1999; Filmer et al., 2000, 2002; Flug et al., 1998) have failed to find any relationship between government spending on education or health and human development outcomes and therefore might disagree with our assertion, it is an approach that receives empirical support from many other comprehensive works; for instance, Anand and Ravallion (1993), Baldacci et al. (2003, 2008), Bidani and Ravallion (1997), Bokhari et al. (2007), Gupta et al. (2002b, 2003) and Przeworski et al. (2000). Each of these studies finds strong empirical evidence suggesting that public spending on education and health certainly improves human development outcomes. Indeed, public spending on education and health has a critical role in improving human development outcomes, particularly in developing states, and even more particularly for their poor, who usually have very limited access to education and health facilities other than those provided by the public sector (Tanzi and Chu, 1998; World Bank, 1991, 2003a, 2006). This means that without public provision not only will the poor most likely remain deprived, but also the state cannot hope to fully utilise the potential of its human resources for economic growth or to address the problems of poverty and distributive inequalities, with all their far-reaching social, political and global implications. It should be clear from the previous overview that public spending on education and health is likely to improve the social and economic life of individuals in at least three ways: • • •

fostering economic growth and increasing the overall size of the pie to be distributed; alleviating relative and absolute poverty of incomes by improving the earning potential of the poor; and increasing human capabilities, expanding individuals’ choices and thus enhancing societal freedoms.

The centrality of the human development approach

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These outcomes appear all the more important when we consider that a marketdetermined distribution of education and healthcare is most likely to further entrench the vicious cycle of socioeconomic inequity by allowing the rich disproportionately greater – and the poor disproportionately lower – access to education and healthcare, generation after generation. But this is not all: the human aspect of public intervention must also be considered. In the human dimension, disease, illness and mortality are not merely cold statistics: they are figures alive with human suffering. The loss of a child is not one person less; it is agony, pain, and lifelong emotional trauma for an entire family. Similarly, illness and the loss of a few days’ work for the poor may translate into hunger and psychological anguish for an entire household; and even worse, the death of a breadwinner may plunge dependents into a lifetime of absolute poverty, with ramifications spread over more than one generation. Indeed, the many stories of human helplessness, exploitation, suffering and misery arising from poverty, ill health and disease published every year in the development literature attest to the overwhelming significance of health in human life. Education has equally far-reaching human consequences. It affects the way in which individuals think, respond and interact within their communities. It makes them more aware of both their rights and their responsibilities, and influences their relationships with state and societal institutions. And it enables them to overcome bias and prejudice, to reassess their loyalty to any restrictive historical legacies, and to rise above dogma, taboo and superstition. Most importantly, education encourages individuals and communities to think and to reflect, imbuing them with compassion, understanding and restraint. The effects of education will, of course, not always be the same in all individuals, and some of those that we refer to may never emerge amongst some individuals or communities; but on the whole education signifies a journey towards empathy and tolerance. And depriving people of education only means denying them the opportunity to live enlightened lives as members of civilised societies, emancipated from ignorance and myth.2 Unfortunately, however, this is but the fairer end of the spectrum of human costs associated with the lack of basic education and health. The other end of this spectrum is tragedy most macabre. The rise of the Taliban in Afghanistan and parts of Pakistan is a prime example. The Taliban movement is not just the product of misguided ideologues, or a Frankenstein of the geopolitical exploitation of a people perpetrated to neutralise the threat of Soviet communism with an equally unyielding and relentless resistance. It is as much, or perhaps even more, an outcome of ignorance, poverty, disease and hunger, which are so pervasive in the region. Uneducated communities are fertile pastures for the spread of ideological extremism, while socioeconomic deprivation forces even those people who are opposed to ideological extremism to support it simply because they are, as Hirschman (1970) might say, incapable of exit; or, to use Sen’s construction, because the unfreedoms imposed upon them by their lack of basic human capabilities deprive them of the option to ‘choose a life one has reason to value’ (1999: 74). Even when we consider the frequent remonstration that

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the region has been prey to the intransigence of local militarised interests and external interventions beyond the control of common citizens, it is unlikely that citizens with greater capabilities and choice would have allowed themselves to remain so haplessly embroiled for three decades in a ruthless and merciless reenactment of the Great Game.

3. The central questions The discussion above has identified the imperative for public spending on human development. In particular, it has explained why Sen could not be more justified in arguing for ‘substantive public support in the provision of those facilities (such as basic health care or essential education) that are crucial for the formation and use of human capabilities’ (1999: 42). And this brings us to the central interest of this book: if public spending on education and health is so central to the expansion of human capabilities and choices, and to the socioeconomic wellbeing, quality of life, freedom and happiness of individuals, as well as to the survival and prosperity of nations, then why do governments in some states choose to spend more on providing education and healthcare to their citizens, while others do not? Is it possible in the negative cases that policymaking is indifferent to the value of human development? In the positive cases is there greater accountability to citizens? Does democratic responsibility make a difference to how governments allocate public resources for education and health? Similarly, do the strength and quality of bureaucratic and judicial institutions influence public spending in these areas? Do the modes of public resource mobilisation also affect decisions on how public resources are utilised? These are the core questions that we seek to answer in this book. We construct our argument on a revised conception of democratic accountability that encompasses its political, administrative and financial dimensions, and then employ a combination of regression analysis and case studies to show that once other potential influences on public spending are controlled for, it is the strength of democratic accountability that best explains the differences across states in public spending for human development. This enhanced notion of democratic accountability offers strong support for policies and programmes that seek to build institutional capacity as part of the human development framework. Our primary focus in this book will be on public spending on education and health, but to differentiate the impact of democratic accountability on public spending for human development from its impact on public spending that may not always enhance human wellbeing, we also take into consideration military spending across states. In addition to the effects of democratic accountability on public spending for human development, we further study how democratic accountability affects the outcomes of this spending. This provides an important, although subsidiary, part of the narrative on public spending.

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4. Structure of the enquiry Our enquiry begins in Chapter 2 with a review of the literature on the determinants of public spending. As our account reveals, earlier research has identified several potential factors, ranging from some long-standing ones such as the nature of the political organisation of states and the political ideology of their governments, to demographic factors such as ageing populations and economic conditions such as industrialisation or the level of development, to self-aggrandisement by bureaucracies, and to some more recently discovered effects such as those of openness to international trade or of ethnic fragmentation. We also briefly review the literature on public sector performance (PSP). Against the backdrop of the many possible influences on public spending indicated in the literature, we present our own proposal in Chapter 3. Within an overall paradigm of neo-institutionalism, we conceptualise the public sector resource allocation mechanism as being very similar to the resource allocation mechanism of the private sector, but where the accountability of public actors to citizens replaces the accountability of markets to consumers, and the notion of citizen sovereignty substitutes the concept of consumer sovereignty. Building on this foundation, we construct a framework of democratic accountability with three basic dimensions: regimes, institutions and resources. The regime dimension refers to the political organisation of a state in terms of its democratic or autocratic features; the institutional dimension means the administrative and judicial structures of a state; and the resources dimension asks whether a state relies predominantly on revenues from taxation, foreign aid or rents and royalties generated by natural resources. We argue that each of these dimensions produces its own chain of accountability – linking governments and public policies back to citizens – and that it is the nature and strength of these chains of accountability that, ceteris paribus, explain the pattern of public spending on human development and its outcomes. In Chapter 4, we describe how we operationalise our democratic accountability framework and the regression models that we use for our cross-country empirical analysis. The regression models for public spending control for the effects of the several potential determinants identified in the literature, while the models for performance control for per capita public spending and level of development. The chapter also describes the country samples, the data, the independent and dependent variables and the management of certain issues related to econometric modelling and underlying statistical procedures. Chapter 5 presents the results of our cross-country regression analysis. Broadly, our findings show that, ceteris paribus, the more democratic the political regimes of states, the better the quality of their administrative and judicial institutions and the more reliant they are on tax revenues or foreign aid (compared with rents from natural resources), the higher will be the level of their public spending on education and health, and the lower will be the level of their public spending on the military. In a similar fashion, Chapter 6 presents the findings from the regression analysis for performance, which again shows that greater accountability to citizens yields better human development outcomes.

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Despite being a powerful analytical tool, regression analysis has some limitations. For instance, the quantitative variables that it relies upon can never truly reflect the complex qualitative dimensions of the social, economic, political or institutional conditions that they represent. A more fundamental issue, however, is that even though a regression model may reveal precise statistical associations between variables, the regression output cannot in itself explain the causes underlying the statistical associations. Consequently, a major limitation of regression analysis is that the direction of causality between variables can never be determined unambiguously. We therefore follow the tradition in the literature and support our empirical examination with three country case studies to explain the effects of each of the three dimensions of democratic accountability. Our approach to the case studies is historical comparative. The historical element is crucial, for concentrating only on current scenarios while ignoring historical developments, as Kuznets (1941) cautions, can be misleading. And the comparative element is equally essential to our argument since it is hardly possible to decipher the effects of democracy on public spending sans the antithetical touchstone of autocracy, and even less possible to understand the effects of strong institutions or of tax-generated revenues without taking into consideration the implications of weak institutions or the impact of foreign aid or natural wealth. The insights emanating from the case studies broadly validate the predictions of the regression models. The first case study, presented in Chapter 7, is a comparative analysis of Pakistan and India, which shows how an oligarchy structured around the military deracinated democratic accountability in Pakistan soon after independence and created a framework of incentives that channelled resources away from education and health in favour of the military. The narrative compares political developments and public spending in Pakistan with those in India, where, despite the many weaknesses of the Indian democracy, there has been sufficient democratic accountability to make Indian governments spend more on human development than governments in Pakistan. The study also compares education and health outcomes in Pakistan with outcomes in India. The second case study, Botswana, is presented in Chapter 8. Here, the focus is upon the effect of strong and accountable administrative and judicial institutions – in particular bureaucracies – on public spending for human development. After reviewing Botswana’s public spending on education, health and the military since independence in the context of its enduring institutional legacies from pre-colonial times, and showing how the country’s comparatively high level of human development spending could be largely attributed to a high-quality bureaucracy, the study situates Botswana in a broader sub-Saharan context to gain further insight into the relative importance of political regimes versus administrative and judicial institutions for public spending decisions. This comparison reveals, rather interestingly, that the relationship between high-quality institutions and high levels of public spending on human development holds in both democracies and autocracies. The study also reviews education and health outcomes in Botswana and compares them with those in other sub-Saharan nations.

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In the third and last case study, constituting Chapter 9, we look at government expenditures on education, health and the military in Argentina as an example of a tax-dependent state and then compare the Argentine pattern of public spending with patterns in groups of foreign aid-dependent, natural resource-rich and other tax-dependent states in Latin America. We adopt a similar approach based on group comparisons to explore the effects of the nature of resource dependence on education and health outcomes. The Argentine case study broadly supports our contention that public spending on human development tends to be higher and outcomes better in states more reliant on taxation. And finally, Chapter 10 concludes the book by bringing together its main arguments and findings, and by drawing from them lessons for institutional design, which are particularly meaningful in the context of the less developed world.

Notes 1 Petty ([1691] 1899) was probably the first economist to recognise the capital value of human beings by attempting to calculate their monetary value. On the other hand, Adam Smith ([1776] 1937: 101) equated expenses incurred on education and the development of human skills with investment in machines. 2 Interestingly, even indoctrinated education may increase the ability of individuals to accept a much broader set of ideas than those being administered. Simple literacy and numeracy skills, as Amartya Sen has often argued, expand human capabilities and freedoms in numerous ways, which include the faculty to make sense of the information that becomes available to them through their broader environments. The former USSR and its satellite states in the Eastern European Bloc should suffice as examples.

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Traversing the known Potential determinants of public spending and performance

Not many studies focus directly on public spending for human development. However, several strands of the political economy literature take into account government expenditures on education and health as part of a broader enquiry into the determinants of the size and composition of public spending. Similarly, many studies in politics, economics and management consider PSP, including education and health outcomes, from a range of different perspectives. But, as this chapter reveals, research on the effects of the broader democratic accountability framework on the patterns and outcomes of public spending is still in its nascency. Only a handful of studies consider these effects, and even these only partially operationalise the framework of democratic accountability. In this chapter, we review the main arguments in the research literature relating to the determinants of public spending, along with the empirical evidence that supports them. We also briefly visit the body of theory and evidence on PSP. Our objective here is not just to contextualise the questions our book seeks to answer or to explore how related research informs them. We also want to provide a rationale for the methodology that guides our research. The remainder of this chapter is divided into three sections: section 1 focuses on public spending; section 2 focuses on PSP; and section 3 offers some concluding arguments.

1. Public spending: arguments and evidence Most prominent in the research literature concerning the size and composition of public spending are the many studies of the welfare state. The more recent literature on governance also sometimes takes account of public spending patterns, as do works relating to development, globalisation, racial heterogeneity and demography. Each of these strands of literature, however, has its limitations. Research on the welfare state, for instance, concentrates mostly on the developed democratic welfare states; the views and arguments presented are varied, even conflicting; and the studies are frequently carried out using a single or composite measure of social expenditures based on unemployment, pension, sickness and old-age benefits, or a measure of social security expenditure conforming mostly to the International Labour Organization’s criteria for the Cost of Social Security. Moreover, not only are the empirical analyses conducted to verify the different

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theoretical constructions of the welfare state mostly predicated on narrow samples comprising industrial democracies, but they also tend to yield findings that are as varied as the theoretical constructions. The limitations of studies in the other strands of the political economy literature are quite similar. Even so, extant studies are of value in that they identify factors that can potentially influence public spending by shaping the incentive structures that governments face, and that at least need to be controlled for. Second, public spending on education and health is sometimes also included in these studies, thus providing a basis for comparison and empirical modelling, as well as standards against which our own findings can be compared. Therefore, in explaining how democratic accountability affects public spending on human development, we draw insights from several bodies of existing research. Section i reviews the literature relating to the impact of the nature and form of political organisation on public spending; section ii looks at the influence of state institutions and the effects of economic, demographic and ideological factors on public spending as predicted in related research; section iii describes two non-conventional determinants of public spending identified in the literature; section iv examines the relationship enunciated in the literature between governance and public spending; and section v surveys existing research on the potential implications of external rents. i. The polity and its nature Intuitively, one would imagine that the most significant determinant of public spending should be the nature and form of political organisation. After all, the pattern of public spending in democracies cannot be expected to be the same as that in undemocratic polities. The right of citizens to hold elected governments responsible for their actions should provide incentives for the political elite to uphold the interests of citizens in their policies on public spending, while autocrats could be expected to spend more on bolstering themselves and their regimes, including certain sectional interests deemed to be useful to the regime. Conforming to this conceptualisation, most studies of the relationship between democracy and public provision ground this relationship in various nuanced, albeit sometimes narrow, conceptions of democratic responsiveness that range from the decisive influence of the voter with median income to incentives faced by ruling majorities, the pressure exerted by interest groups and the efficiency of political markets. Amongst the more prominent works structured around the decisive role of the median voter is a pioneering study by Meltzer and Richard (1981), wherein the authors contend that an expansion in the franchise leads to both larger government spending and higher taxation for as long as such expansion lowers the income of the decisive voter relative to the mean income of the society, thereby generating pressures for redistribution. Similarly, comparing the incentives faced by autocrats with those confronting ruling democratic majorities possessing encompassing interests, McGuire and Olson (1996) argue that democracies will

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ordinarily provide more public goods, and also tax at lower rates, than would autocracies. The inferences of these authors are based primarily on the premise that to maximise their net surplus, autocratic governments will levy taxes up to the level beyond which they might decrease total revenue through deadweight losses, while the stake of democratic majorities in market incomes will induce them to levy taxes below this extreme limit. On the other hand, as these authors suggest, autocrats will provide public goods to the point where the marginal cost of provision becomes equal to the amount of tax collected through enhanced productivity, whereas the benefits democratic majorities draw from public provision will induce them to provide public goods above the autocracy level. The arguments and inferences in Olson (1993, 2000) are comparable to those presented by McGuire and Olson (1996); and in a model based on the median voter, Niskanen (1997) also reaches similar conclusions on the difference between democracies and autocracies in terms of government provision and taxation. However, when analysing the implications of democracy from the perspective of the median voter, it is noteworthy that a strand of this literature argues that groups with income below the mean will not always support high redistribution policies in the hope that they themselves, or at least their descendants, will receive higher incomes in the future, in which case such redistribution is likely to be to their disadvantage. This expectation of higher future incomes is frequently referred to as the prospect of upward mobility (POUM). Explanations based on this argument – for instance, Benabou and Ok (2001), Piketty (1995) and Rainer and Siedler (2008) – differ as to how and under what attendant conditions the POUM effect will materialise or become stronger than any redistributive pressures. But the basic prediction of these studies from the perspective of the models predicated on the influence of the median voter on public spending patterns is the same: if the POUM effect holds, greater democratisation may not necessarily result in effective pressure for higher redistribution through higher taxation or higher public spending. But again, the extent to which the POUM effect holds in practice, as studies such as Beckman (2006) show, is at best an unresolved question. Nevertheless, democracies can also have different outcomes from autocracies because of greater efficiency. As Wittman (1989) argues, democratic political markets can perform as effectively as economic markets and similarly reward political actors for efficient behaviour. In his construction, Wittman (1989) rejects the scepticism of conservative economists on political markets grounded in notions of political rent-seeking, information asymmetries, externalities and monopolisation. His rejection of the conservative misgivings is, in turn, driven by his belief that political competition and accountability minimise the scope of any opportunistic behaviour by representatives; that voters are generally well informed on party policy positions and candidates’ reputations, which enables them to make intelligent choices even if they do not have perfect information; and that low negotiation costs in democracies, effected through, for instance, a majority rule rather than a unanimity rule, ameliorate the problems of intergroup spillovers and policy monopolisation.

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Wittman’s (1989) arguments are indeed appealing; but then, all democracies are not the same. They exhibit great diversity in terms of their style of political organisation and their institutional structure. There are presidential democracies and there are parliamentary democracies; some are federal, others are unitary; some rely on a majoritarian voting rule, some on proportional representation, and yet others use a complex combination of both. These differences in democratic structure can be significant and may produce, as Myerson (1995) posits, different incentives for governments, leading to different policy outcomes, just as different market structures produce different market outcomes. In line with Myerson’s (1995) argument, several studies highlight the differences between public spending policies adopted by presidential and parliamentary regimes. Persson and Tabellini (1999) and Persson et al. (2000), for instance, present models in which parliamentary regimes, compared with their presidential counterparts, tend to have higher taxes, larger overall government expenditures (or bigger government size),1 greater provision of public goods, redistribution programmes targeted at the majority rather than minorities, and more universalistic welfare policies. The differences in outcomes between the two democratic regime types, according to the authors, emanate from the incentive structures created by the separation of powers, lower legislative cohesion and the direct responsibility of both the executive and legislature to voters in presidential regimes. Moreover, as the authors note, the instability of legislative coalitions under presidential regimes tends to give leverage, and consequent policy advantages, to minorities at the expense of the provision of broad public goods. Under parliamentary regimes, on the other hand, the direct accountability of the executive to the legislature creates legislative cohesion and induces the legislature to pursue the aggregated interests of voters, rather than members pursuing the sectional interests of their individual constituencies. The authors also find empirical support for their argument relating to the bigger size of government under parliamentary regimes. Stronger support for this prediction is yielded by a detailed empirical study by Persson and Tabellini (2002). Just as the institutional variations between presidential and parliamentary regimes produce different public spending patterns, differences in electoral rules also influence government decision-making. Persson and Tabellini (1999) present a model predicated upon the greater competition amongst political parties created by majoritarian elections than in proportional elections, leading them to concentrate on marginal districts. The model predicts a lower provision of public goods as well as more narrowly targeted redistribution under majoritarian voting regimes than under proportional representation systems. The empirical study by Persson and Tabellini (2002) referred to earlier also finds that states with majoritarian voting rules tend to have both lower welfare spending and a smaller government size than states with proportional voting systems. Milesi-Ferretti et al. (2002) present an alternative model structured on a differentiation between various categories of public expenditures on the basis of

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their ability to be targeted either across spatial groups or across social groups. The model predicts that majoritarian voting regimes lead to comparatively higher expenditures on public goods because of the ease with which they can be targeted geographically, and that proportional voting regimes lead to higher transfer spending because of the need for transfers to be targeted across social groups. The authors also find empirical support for the predictions of their model in the OECD countries. At first glance, the predictions of Milesi-Ferretti et al.’s (2002) model appear to be inconsistent with the models presented by Persson and Tabellini (1999, 2002), in which majoritarian regimes yield lower expenditures on public goods. However, the specification of public goods in the two models is different. The general inference in both models, nevertheless, is that proportional representation drives broader public provision. These empirical findings relating to the effects of political institutions on public spending patterns appear to conflict with the predictions of another body of theory, which find the role of pressure groups to be the primary determinant of public policy. Beginning perhaps with Bentley ([1908] 1949), this literature is now broadly identified with the Chicago School of Political Science. The pressure group model contends that public policy is mostly shaped by the influence of interest groups, which are produced – and act within the framework set – by economic, social and demographic forces. In this view, the nature of the polity and political institutions are not important in themselves as determinants of public sector outcomes, but are significant only to the extent that they enable or empower interest groups to achieve their objectives.2 Stigler’s (1971) seminal work shows how strong industrial and occupational interests can procure advantageous regulations by exploiting democratic political processes. Formalising this model, Peltzman (1976) explains why only the compact, financially resourceful groups can obtain favourable policies: voting is periodic and based on a policy bundle, rather than on a single policy matter, whereas the costs to obtain information on a single policy issue could be prohibitively high; thus, only small resourceful groups with high per capita stakes will be willing to search for and invest in candidates sympathetic towards the group’s preferred policies. The picture of pressure groups competing for benefits, campaigning and lobbying, investing in candidates and creating a stage for endless logrolling may present a rather negative image of democracy. This, however, may not necessarily be the true picture, and, in fact, it may be erroneous to view pressure groups as always yielding distorted or skewed outcomes. In the Chicago School view, the competition – and cooperation – among different interest groups tends to produce efficient solutions. As Becker (1983) posits, equilibrium outcomes depend not only on the comparative ability of an interest group to exert pressure, but also on the resistance it confronts. In this argument, the resistance that any particular group faces in demanding a benefit will depend on the costs to other groups of allowing that benefit. In particular, increased deadweight costs resulting from the taxation required to provide any benefit will not only evoke resistance from taxpayers, but also reduce the ability of the prospective beneficiary group to demand such a benefit. From this it follows that more efficient taxation, or spending that

Traversing the known 17 reduces deadweight losses, will discourage opposition against taxation and spending by the taxpaying group, and will encourage demand for more spending by the beneficiary group, thereby leading to a higher equilibrium level of public expenditures (Becker and Mulligan, 2003). Even in Peltzman’s (1976) model, rather than a policy aimed to benefit only a single interest, governments adopt composite policy packages that are expected to maximise their political returns. On the other hand, in an interesting perspective on collective interests, Weingast and Marshall (1988) argue that interest groups represent broader community interests; that they may be necessitated by the rational ignorance of voters; and that by monitoring the performance of candidates, these groups create incentives for politicians to pursue, in their own political interest, the preferences of their constituencies. A related view on the importance of pressure groups in democratic polities is presented by Breton (2002), who posits that democratic governments are actually a composite of numerous elected and nonelected centres of power, whose competition and cooperation to achieve their objectives shape public policies. In this construction, pressure groups become crucial for efficient outcomes since they transmit vital information between voters and the centres of political power, which may not be possible without them because the costs involved may be prohibitive, or because the information may not be accurate. Whether public decision-making in democracies is viewed as a response to popular preferences, whether political institutions are seen as the determinants of public policy, whether pressure groups are believed to exploit democratic processes to their advantage or whether democracies are thought to foster efficient political markets, the common denominator is that the patterns of public spending in democracies should be different from those in non-democracies. Empirical studies, however, present varied findings. Cutright (1965), for instance, finds that once the level of economic development is controlled for, more representative governments tend to introduce social security programmes earlier than less representative governments. Maravall (1994) finds a positive association between democracy and welfare spending. In his historical perspective, Lindert (1994) finds that extensions in the franchise and higher voter turnouts will enhance social spending, albeit only in a study of democracies. In the same vein, Lindert (2003) finds that democracies with full franchise and greater political voice will allocate more public resources to broad primary education than restricted franchise elite democracies, even when socioeconomic, demographic and historical variations are accounted for. In a much more elaborate study based on historical data spanning a century, Lindert (2004a, 2004b) reaches the same conclusion with respect to the influence of democracy on public spending on education, especially schooling. Przeworski et al. (2000) find public spending on health in democracies to be twice the size of spending in dictatorships. Kaufman and Segura-Ubiergo (2001) find democracy to promote public spending on health and education. And Ghobarah et al. (2004) find democracy to have a positive effect on public spending on health. In contrast to these findings, the aforementioned study by Przeworski et al. (2000) finds no difference between democracies and dictatorships in terms of

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public spending on education, just as Lindert (2003) finds strong autocracies to be similar to full franchise democracies in allocating more public resources to primary education, when compared with elite democracies. Though such findings appear anomalous, they can perhaps be explained by Lott’s (1999) argument that totalitarian regimes tend to spend more on early schooling because they use it as a means to indoctrinate in the same way that they use the media. Lott (1999), however, does not find any significant difference between democratic and autocratic regimes in terms of public spending on health. Similarly, even though Mulligan et al. (2004) find democracies to spend less on the military as a percentage of gross domestic product (GDP) than non-democracies, they do not find any difference between the two regime types in terms of total government consumption or public spending on education, and pension and non-pension social security. Interestingly, they do find the percentage of GDP spent on education and social security to be higher in the former communist bloc. In a similar vein, McGuire (2010) does not find any association between democracy and public spending on health, while Mulligan et al. (2010) do not find any difference between democratic and nondemocratic regimes in terms of their public spending on social security, except that democracy may cause a slight reduction in this spending as a percentage of GDP. Other recent cross-country empirical studies, nevertheless, present evidence reflecting a positive association between democracy and public spending on broad public goods, including education and healthcare. Brown and Hunter (2004) and Avelino et al. (2005), for instance, find democracy to enhance public spending on education, just as Huber et al. (2008) find it to enhance public spending on both education and health. Rudra and Haggard (2005) find that when confronted with pressures generated by trade openness, autocracies retrench public spending on health, education and social security more readily than democracies. Keefer and Knack (2007) find that the absence of competitive elections and political checks and balances influences public spending by generating incentives for governments to divert public resources to public investments, which provide greater rent-seeking opportunities. Stasavage (2005) finds multiparty competition to enhance public spending on primary education. Deacon (2009) finds the provision of nonexclusive public goods such as public schooling to be much lower under dictatorial regimes than under democracies. In his comprehensive study of Latin American states covering the period 1973–2003, Segura-Ubiergo (2007) finds democracy to have a positive effect on public spending on education and health, with the effect becoming stronger in the long run. Similarly, based on their exhaustive historical analysis of the development of welfare states in Latin America, East Asia and Eastern Europe, Haggard and Kaufman (2008) conclude that even though its influence is mediated by economic conditions and fiscal capacity, as well as by political and social factors, democracy is not inconsequential in shaping the pattern of social spending by governments. At the same time, however, it must also be acknowledged that the mere presence of seemingly democratic political structures does not mean the existence of a democratic political system, organisation or culture. Keefer and Khemani (2005),

Traversing the known 19 for instance, find that politicians in less developed countries can be faced with incentives, even when regimes are apparently democratic, to funnel resources towards private benefits or narrow provision targeted at their clients, rather than broad public goods that benefit all citizens. According to these authors, the perverse incentives emanate from imperfections in political markets that arise when voters lack sufficient information on the performance of their political representatives, or when they do not find politicians’ pre-electoral commitments to be credible, or when they vote on the basis of the personal identities of political competitors rather than the policy agendas of political parties. Such imperfections, the authors posit, tend to impede voter preferences from being translated into public policies by undermining the role of elections in creating accountable and responsive governments, and thereby lead to the diversion of resources away from broad public provision such as education and healthcare. Similarly, in his empirical analysis, Keefer (2005) finds the provision of broad public goods to be lower, but rent-seeking and narrowly targeted benefits to be higher, in young democracies than in mature democracies. Controlling for economic, geographic and demographic factors, information asymmetries and social fragmentation, as well as for differences in political institutions, he finds democratic age – a proxy for politicians’ ability to make credible pre-election commitments – to be the only explanation for the differences in the pattern of public provision in young and old democracies. Owing to the lack of credibility in their pre-election promises, Keefer (2005) argues, politicians in younger democracies are usually forced to rely on intermediary patrons who can make credible promises to smaller groups of voters, and since the patrons prefer narrow benefits for their clients over broad public goods, public provision in young democracies tends to be comparatively narrow and targeted. There may not be a single truly functioning democracy in the world; each may have its own weaknesses; and the structural and institutional differences amongst democracies may also make each of them unique. But democracies share a common characteristic: they lead to the formation of governments that are, at least to some extent, directly accountable to citizens. It needs to be emphasised at this juncture that this book is not interested in finding an answer to the question whether or not democracies lead to pareto-optimal public spending with respect to voter preferences. Within the overall framework of democratic accountability, the question that the book proposes to answer with respect to democracy is whether or not democratic forms of political organisation – despite the weaknesses exhibited by democratic governments and the institutional variations amongst democratic states – produce better outcomes than nondemocratic forms in terms of public spending on human development. ii. Ideology, economics, demography and state institutions Moving beyond the nature of the polity and the structure of political institutions, political ideology has also been viewed in the literature as an important influence on the patterns of public spending, particularly in the context of social

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provision by the welfare state. Theories of class mobilisation, political protest, power resources of the Left and social democracy are all centred on the growing strength of labour in the society. These theories mainly view the expansion in social spending as a right-wing government’s response to the increasing strength of the Left–labour alliance, or the consequence of the inclusion of left-wing parties in government coalitions, or the logical outcome of the outright formation of governments by left-wing parties sustained by powerful labour unions. Prior to the formation of governments by the Left in the radically altered post-Depression socioeconomic scenario, as Hicks et al. (1995) assert, outcomes such as the Bismarckian insurance programmes covering industrial accidents, old age and sickness in Germany could be seen as a discerning response by the state to socialist demands. Similarly, these authors view the introduction of pension and insurance reforms by Lloyd George’s Liberal government in the UK to be a result of the liberal–labour alliance, just as they consider the pro-labour policies of Catholic or centrist parties to have been necessitated by challenges from the Left. Such challenges, or pressure exerted on centrist and right-wing governments by strong left-wing parties in opposition, often referred to as contagion from the Left, have also been found to instigate an expansion in social provision (Hicks and Swank, 1992) in quite the same way that centre-left alliances have promoted certain forms of social spending (Huber et al., 1993). Finally, with left-wing parties in power, it could be expected that social provision should have increased. And there are a number of studies that support this intuition. More prominently, Castles (1982, 1985), Castles and McKinlay (1979), Esping-Andersen (1990), Korpi (1978, 1980, 1983), Shalev (1983) and Stephens (1980) show how the expansion of social provision in Europe and elsewhere has been driven by leftwing ideologies in tandem with labour interests. On the other hand, right-wing governments have frequently been seen as impediments to welfare spending, particularly those forms that were likely to distort markets (Castles, 1982). However, many scholars tend to discount the role of ideology in the growth of public spending, and present empirical evidence to show that left-wing political philosophy may not have been as important a factor behind the expansion of social provision as it is sometimes believed to be (e.g. Flora and Alber, 1981; Pryor, 1968; Wilensky, 1975, 1981). In fact, arguments based on the power resources of the Left or on social democratic ideology appear to be competing with other theories in providing the core explanation for the emergence and growth of the welfare state. The longest standing amongst these is perhaps the logic of industrialism, which explains increasing state intervention in the shape of social spending as being necessitated by the socioeconomic transformations, population dislocations and demographic changes brought about by industrial expansion and economic growth. As enunciated in influential works such as Kerr et al. (1962), Wilensky (1975) and Wilensky and Lebeaux (1958), industrialisation requires the state to intervene in times of unemployment, sickness, disability and old-age poverty – circumstances that are conventionally the responsibility of family members, but become increasingly devolved upon the state because of the weakening of traditional family structures as societies move from a rural–agricultural to a

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predominantly urban–industrial mode of production. Similarly, industrialisation requires an educated and trained labour force that can handle constant innovations and changing technologies, which in most cases entails public spending in the education sector to facilitate industrial activity. Moreover, economic development is almost invariably accompanied by longevity, which further expands state responsibility to provide for the ageing population. The basic predictions of the logic of industrialism are that the nature of welfare expenditures in any state will largely depend on its stage of industrialisation, and that convergence in economic development across states will also cause the patterns of their social provision to converge, though with some variations emanating from their historical, political and institutional differences (Mishra, 1973; Quadagno, 1987; Skocpol and Amenta, 1986). In a broader sense, the logic of industrialism reflects the positive association between economic growth and public spending that the literature often refers to as Wagner’s Law – after Wagner ([1883] 1958) – to indicate more generally the high income-elasticity of public provision (e.g. Boix, 2001; Pryor, 1968; Shelton, 2007). The literature also offers several varying explanations for Wagner’s Law;3 many are no different from the classical industrialism argument we have just reviewed, while others tilt somewhat more towards the greater ability and willingness of citizens to pay higher taxes for the provision of public services when their incomes rise. Nevertheless, as Pryor’s (1968: 451–454) succinct review illustrates, there could be several phenomena simultaneously underlying the operation of Wagner’s Law, including industrialisation and the socioeconomic changes it generates. In an interesting interpretation of his empirical results, Shelton (2007) finds Wagner’s Law to take effect through the impact of ageing populations in richer countries! Remarkably, most neo-Marxist theories of the welfare state are a mirror image of the logic of industrialism argument, but present a radically transformed conception of the state and social provision. Neo-Marxist theorists largely view the state as a biased protector of capitalism, which must step in to provide for the social deprivation caused by industrialisation in an attempt to contain labour unrest and to retain capitalism within democratic structures (Skocpol and Amenta, 1986). Moreover, in this view, public spending on education and health is believed to subsidise industry by providing it with a healthy and skilled labour force, and thus the state is seen to create distortions by allocating public resources for expenditures that ought to be borne directly by capitalists (Quadagno, 1987). Scholars such as Pampel and Williamson (1988) add yet another dimension to the logic of industrialism theory. In their interest-group-politics argument, economic development brings about social and demographic changes that create non-class interest groups, such as the aged, that derive benefits from state welfare policies and use democratic institutions to protect and promote their interests. Pampel and Williamson’s (1988) conceptualisation, in fact, epitomises the neopluralist argument: first, a combination of demographic changes and enhanced fiscal capacity through economic development leads to greater state provision for the unemployed, the disabled and the retired, but particularly for the aged; and

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then these groups – with vested interests that transcend class boundaries – engage in political lobbying, create voting blocs and mobilise their members to enhance their election turnouts, and thereby lead to an expansion of welfare spending. On the other hand, we find the state theorists, who see the role of state institutions, particularly of bureaucracies, to be of paramount importance in shaping the patterns of social provision. In his seminal work, Heclo (1974), for instance, views policy formulation to be driven mainly by bureaucratic initiatives. Similarly, Orloff and Skocpol (1984), while acknowledging the role of economic and political factors, attribute the differences in the patterns of social provision in the US and UK primarily to the earlier development of a strong and efficient civil service, as well as the control of patronage politics in the case of the UK. More broadly, bureau-centric perspectives view the role of bureaucracy in spending as expanding with the greater bureaucratisation of states and the increased authority vested in bureaucrats (Amenta and Poulsen, 1996; Hicks and Swank, 1992), but not always in the context of the essential state capabilities required to adopt and implement social programmes. The role of bureaucrats is, in fact, more frequently understood in terms of the theory of public choice, which perceives bureaucracies working to maximise their own self-interest by expanding their budgets and authority (DeViney, 1983; Niskanen, 1968, 1971). Furthermore, statist theories view the institutional effects of past policies as major influences on future policies (Quadagno, 1987; Skocpol and Amenta, 1986). These institutional effects are more fully developed in the neo-institutionalist literature in which institutional feedback is argued to even create inexorable path dependence (Considine, 2013). However, none of the various theoretical traditions of the welfare state appear to be able to provide a complete explanation for an expansion in social spending to the exclusion of competing theories (Amenta, 1993; Hicks et al., 1995). More importantly, these theories tend to become competitive largely because the proponents of each, despite giving marginal concessions to rival arguments, often exaggerate the differences to establish their own theoretical distinctiveness (Hicks and Misra, 1993). In fact, the different theories appear to be complementary in many respects. For instance, it is not difficult to see that labour movements or unions may not emerge in the absence of industrialisation; left-wing parties may not be able to challenge or form social democratic governments in the absence of democratic polities (Skocpol and Amenta, 1986); it may not be possible for governments to introduce social provision programmes in the absence of bureaucratic capabilities; and the financial resources generated by economic development may be a prerequisite for welfare policies, even if it is not their direct cause (Hicks et al., 1995; Quadagno, 1987). The real difference between the various theoretical traditions then appears to be only the importance that each of these attaches to politics and political processes vis-à-vis economic development and productive structures, and to the role of competing class interests vis-à-vis non-class groups (Pampel and Williamson, 1988). This inability of any single tradition to explain increased social provision has been acknowledged in the literature and scholars of diverse traditions have

Traversing the known 23 attempted to provide more integrated theoretical frameworks supported by empirical evidence. Hicks and Misra (1993), for instance, amalgamate the various theoretical traditions of welfare provision in their political resource model; and their empirical study finds, inter alia, that various factors such as political protest, left-wing governments, demographic interest groups, bureaucracies and economic growth all influence social provision, depending on the context. Following a similar integrated approach, Huber et al. (1993) find that both social democracy and Christian democracy (centre and left party coalitions) influence welfare spending, but with different – even opposite – effects, depending on the category of public spending, and that demographic features also affect outcomes just as do economic factors and constitutional structures that empower minorities. Even more significant in the context of an integrated approach is the neoinstitutionalist paradigm, which is inherently broader in its conceptualisation of the determinants of public policies. Neo-institutionalism in political science, sometimes also referred to as new political institutionalism, takes into account the various political and institutional factors as well as economic, ideological and demographic influences in its discourse on social provision (Cook and White, 2001; Hicks et al., 1995). For instance, Amenta and Poulsen (1996) find that once economic and demographic factors are controlled for, the interaction of democratic processes, political structures and bureaucratic authority have significant, and party-orientation notable, explanatory power for the differences in the social spending policies of US states at the end of the New Deal era. In a similar neo-institutionalist framework, Pierson (1996) posits that the logic of industrialism, left-wing power and institutional structures jointly explain the expansion of social provision in welfare states. iii. Beyond the conventional determinants In his seminal study, Cameron (1978) found openness to international trade to be the single most important determinant of public spending. The positive association between trade openness and public spending was not a new discovery, but its significance in the hierarchy of potential determinants was. Also novel was the author’s explanation for it: openness led to high industrial concentration, which promoted labour unionisation and expanded the scope of collective bargaining; these factors then resulted in strong labour confederations and governments frequently dominated by the Left; and this, in turn, culminated in much larger welfare spending, particularly on social protection. Cameron’s (1978) work has generated a number of studies focused on openness such as Katzenstein (1985), which yields similar findings, and Rodrik (1998), which is perhaps the most widely cited study regarding the effects of openness on public spending. Using a large group of over 100 states and public spending data for two periods, 1985–1989 and 1990–1992, Rodrik (1998) finds that trade openness has a positive effect not only on the total size of public spending, but also on certain individual components of public spending, including health and education. However, his explanation for these effects is

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less circuitous than Cameron’s (1978): because of their greater integration with the world economy, more open states are exposed to higher risk from international financial and economic fluctuations, and public spending provides a buffer against, and compensates for, this risk. This explanation, referred to in the literature as the compensation hypothesis, in fact, echoes the arguments of scholars prior to Cameron (1978) such as Lindbeck (1975), who posits that governments could reduce the impact of international disturbances on the internal economy by increasing public spending. Similar to Rodrik’s (1998) findings, Garrett (2001) discovers a positive relationship between the level of trade openness and public spending; and in their more recent study of Latin American states, Avelino et al. (2005) also find openness to have a positive impact on public spending on education and social security. Nevertheless, there are many studies that find the impact of trade openness on public spending to be ambiguous or even negative. The latter effect is consistent with the efficiency hypothesis, which, in opposition to the compensation hypothesis, contends that large public sectors, entailing high taxation, render states internationally uncompetitive, particularly with capital having become highly mobile. Therefore, as states become more open to trade and globally integrated, they reduce public spending to attain comparative efficiency and advantage. Notwithstanding this contention, the efficiency hypothesis concedes that in the case of human development, governments might respond to increasing openness by expanding, rather than contracting, public spending in order to attain greater comparative advantage. Amongst empirical studies that support the efficiency hypothesis, we might include Burgoon (2001), who finds openness to have a negative influence in most areas of public spending in OECD countries, just as do Garrett and Mitchell (2001). Similarly, in a sample of Latin American states, Kaufman and Segura-Ubiergo (2001) find trade openness to have a negative influence on aggregate social spending, but an indeterminate effect in the case of public expenditures on health and education. An elaborate empirical analysis by Segura-Ubiergo (2007) for Latin American states yields similar findings. Interestingly, replicating Rodrik’s (1998) regression models and running them with updated data for the same period and country sample, Spence (2007) finds openness to have little effect on public spending. In the context of openness, it also needs to be noted that many studies relating to the impact of globalisation on public spending view trade openness only as one of several other correlates of globalisation such as foreign direct investment (FDI) and international financial openness and integration (e.g. Garrett and Mitchell, 2001; Gemmell et al., 2008; Kittel and Winner, 2005). But again, both the theory and the empirical evidence on the relationships between the new variables used to operationalise globalisation (for instance, stocks or flows of inward or outward FDI as a percentage of GDP) and public spending remain inconclusive. Amongst the unconventional determinants of public expenditures, the research literature also identifies ethnic fragmentation, that is, the friction between ethnolinguistic or racial groups.4 Easterly and Levine (1997), for instance, find that ethnic fragmentation explains the low provision of public

Traversing the known 25 goods in sub-Saharan Africa. Alesina et al. (1999) find that US cities and other urban areas with greater racial heterogeneity spend proportionately less on public goods such as education, roads and sanitation than those that are more racially homogeneous. The reason for this, the authors contend, is that political actors in racially heterogeneous areas prefer to spend less on broad public provision and more on targeted expenditures that benefit their racial constituencies. Alesina et al. (2001) test the racial fragmentation argument in broader cross-country samples. Comparing the US with Europe, they report that even though political factors remain significant determinants of social provision, the relative racial homogeneity of European states tends to be the single most important factor explaining the higher percentage of GDP spent on social provision by European governments as well as the broader and more redistributive pattern of this provision. The argument presented by the authors is that since a majority of the poor in the US belong to racial minorities, the development of reciprocal altruism for the poor is inhibited. The study further finds that differences in racial homogeneity are also an important explanatory factor for the cross-national differences in the patterns of social provision beyond the European and US contexts. In similar vein, Ghobarah et al. (2004) find ethnic heterogeneity to reduce public spending on health. iv. Patterns of governance In its conventional sense, governance could be taken as a synonym for government, public administration or public management; but the contemporary literature tends to apply the term to a range of closely related, yet distinct, concepts. Rhodes (1996, 1997), for instance, shows how governance has been used varyingly to mean the minimal state, corporate governance, NPM, good governance, self-organising networks and even socio-cybernetic systems. Van Kersbergen and Van Waarden (2004) add economic governance and global governance to this list. The dimension of governance most relevant to this book is good governance: a concept enveloping accountable legislatures, competent and responsible bureaucracies and independent judiciaries as well as transparent public sector operations, firm implementation of legal frameworks, a stable public order and, quite significantly for this book, increased public allocations for health and education. Interestingly, good governance does not, as is often understood, relate only to the developing states: it is as relevant, as Van Kersbergen and Van Waarden (2004) note, to the developed world through the setting of standards, for example through best practices, in areas such as social policy. This conceptualisation of good governance has largely been inspired by a reawakened sensitivity to the overarching role of state and societal institutions in determining economic and political outcomes, as embodied, for instance, in the arguments of new institutional economists such as North (1981, 1990). The positive association between good governance (i.e. a conducive institutional environment) and economic development has been long understood by scholars but, based on strong empirical evidence, good governance is increasingly

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being seen as a precondition for economic development (e.g. Acemoglu et al., 2001; Knack, 2003, 2006). International development agencies have also been swift in propagating this relationship to guide public policy in the less developed world. The underlying theme of the World Development Report 1997: The State in a Changing World (World Bank, 1997), for instance, is the pivotal role played by the state in establishing effective institutions to facilitate economic development. Similarly, the World Development Report 2002: Building Institutions for Markets (World Bank, 2002) emphasises the necessity of strong institutional structures for efficient market performance, a factor considered critical for economic growth. However, despite the fact that on the one hand the good governance paradigm recognises the importance of accountable public institutions, and on the other hand it also emphasises the need for enhanced public spending on human development, it does not focus explicitly on the relationship between democratic accountability and public spending on health and education. Some scholarly studies have indeed shown interest in the relationship between public spending and aspects of good governance that are also elements of the larger structure of democratic accountability – but only a few. More notably, Mauro (1998) finds corruption to have a strong negative effect on public spending on education as well as a weaker negative effect on public spending on health; and Keefer and Knack (2007) find a strong causal relationship between weak governance and public investment, which is explained by the large prospects for private gains that such investment offers for public officials. v. External rents External rents such as revenues from natural resources or foreign aid can also influence patterns of public spending. Mineral wealth, as Stijns (2006) suggests, may be positively correlated with human development. Oil-rich states in particular may have surplus funds to spend on social sectors such as education and health (Karl, 1997; Shambayati, 1994). On the other hand, however, a strand of literature (e.g. Gylfason, 2001a, 2001b, 2007) also argues that states rich in natural resources spend less in areas such as education because primary production requires mostly a low-skilled and low-educated labour force. In fact, almost all studies – including the studies noted above – relating to the social, political and economic consequences of natural resource abundance, particularly oil, view these resources to be as much a curse for economies as they may be an opportunity. We discuss some of these aspects in Chapter 3. On the other hand, states reliant on foreign aid, particularly in the form of programme-tied or sector-specific grants or loans, not only may have larger overall public expenditures, but also could reasonably be expected to spend more on education and health than they would in the absence of such aid. However, the impact of aid on public spending tends to become complicated because of the ability of states to indirectly transfer the aid to sectors other than those for which the aid may have been granted, in particular to the military, by reducing their

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own allocations for these sectors (Feyzioglu et al., 1998). This fungibility of foreign aid is substantiated by a number of empirical studies. Feyzioglu et al. (1998), for instance, find that concessionary loans specified for sectors such as agriculture, energy and education are diverted by recipient states to other sectors, whereas loans meant for transport and communication are fully utilised in the same sector. Similarly, Hunter and Brown (2000) find World Bank lending to have failed in expanding public spending on education or health in Latin America.

2. Public sector performance The term performance is used in the literature to refer mostly to the productive efficiency5 of private and public enterprises and agencies, the quality of their outputs and their effectiveness6 in achieving targeted outcomes. Although there is evidence indicating that in some instances the public sector can perform better than the private sector, particularly in terms of the quality of, and access to, public services (e.g. Amirkhanyan et al., 2008; Rainey and Steinbauer, 1999), the comparative performance inadequacies of the public sector are well recognised. The research concerning PSP can be classified into two broad categories: the body of literature that focuses on PSP at the micro level; and the body of literature that studies PSP from a broader perspective of the aggregate outcomes of public spending. The first body of literature is fairly large, and expanding rapidly under the rejuvenated attention that issues of PSP have received in the theories of NPM. The second body of literature, however, has emerged more recently and is relatively small. Drawing from both these fields, section i below reviews the theoretical dimension, and section ii takes a look at the empirical dimension of PSP. i. The theoretical dimension As we shall further discuss in Chapter 3, market forces tend to structure powerful incentives for private sector enterprises to minimise their costs, improve quality and achieve overall productive efficiency. On the other hand, the absence of market-driven incentives, it is argued, tends to make the public sector somewhat complacent towards cost reduction or quality improvement. Bureaucratic rigidities, inflexible procedures, cumbersome regulations and financial subsidisation by governments are also believed to contribute towards public sector inefficiencies. Public agencies are, therefore, often required to consciously ensure efficiency and improve performance. What would constitute acceptable standards of efficiency and performance for the public sector, however, remains contested. The concern with PSP is, of course, not a new development, and dates back at least to the late nineteenth and early twentieth centuries (Holzer and Kloby, 2005; Kelly, 2002; Van Wart and Berman, 1999). The promotion of a meritbased bureaucracy and the restriction of patronage appointments in the upper tiers of civil service towards the end of the nineteenth century by the Progressives in the US, for instance, were motivated by their desire to improve government

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performance (Groot and Budding, 2008; Van Wart and Berman, 1999). The expanded size of the public sector in the wake of the Great Depression increased this concern with PSP even more, leading to further reforms in the civil services and procedural regulations to improve public sector efficiency (PSE) (Van Wart and Berman, 1999). Similar concerns for PSP and patterns of reform can also be seen in most European countries, Japan, Australia and New Zealand (Boston, 1987; Ferlie et al., 1996; Nolan, 2001). But never has the emphasis on PSP been as profound or as all-encompassing as it has become with the adoption of the postulates and practices of NPM: performance now appears to be the central concern of every public agency at every level of activity; it cuts across internationally; and has affected all states, developed and developing (Van Wart and Berman, 1999). The emphasis has been to such a degree that performance auditing has taken a central position in government agencies (English and Skærbæk, 2007). The proponents of NPM compare the traditionally structured public sector with the private sector and recommend the adoption of private sector practices by public organisations to improve performance. However, NPM focuses on performance not merely as an end in itself, but also as a means to make public agencies more accountable to their customers. Performance measures, it is argued, provide managerial accountability holders with tools to evaluate the performance of public agencies more objectively, and enable them to use the findings to improve outputs, decisions and policies, as well as to develop better incentives to maintain or improve performance levels (Brun and Siegel, 2006; Halachmi, 2002; Hatry, 2002; Holzer and Kloby, 2005; Van Thiel and Leeuw, 2002). Scholars of public management, nevertheless, identify several negative consequences of introducing private sector concepts and practices in the public sector, in particular their ability to detract from traditional public sector values (Considine and Painter, 1997). The extent to which NPM practices have actually improved or aggravated the performance of public agencies remains controversial (Groot and Budding, 2008). But notwithstanding whether the proponents of NPM are justified in extolling its potential to enhance PSP or whether its critics are right in their distrust, the most prominent deficit in the NPM discourse from the perspective of this book is its disregard of the influence of the overall democratic accountability framework on the performance of public agencies. Contrary to this, the good governance discourse does recognise the importance of making public institutions more accountable to citizens as a means to improving service delivery. ii. The empirical dimension Inspired largely by NPM’s scepticism about public sector inefficiencies, a number of studies have attempted to evaluate PSP empirically. Most of these studies examine the performance of specific clusters of public organisations such as hospitals, schools, libraries or municipal bodies, mostly in terms of their outputs, outcomes or the quality of the services they deliver. While these studies often take into account organisational accountability mechanisms or client-oriented

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accountability, much like the NPM discourse they typically ignore the broader democratic accountability framework in which the organisations operate. On the other hand, a more recent, though comparatively much smaller, strand of empirical literature studies PSP from the broader perspective of socioeconomic wellbeing. The studies constituting this strand of literature, while acknowledging the micro-level performance issues of public organisations, do not take them directly into account and instead concentrate on broader social and economic outcomes of public interventions, considered either sectorally – as, for instance, education or health spending – or as the overall size of government spending. These studies also vary considerably in terms of the range of contexts for which they examine PSP. For instance, Gupta and Verhoeven (2001) compare the performance of African states inter se as well as with Asian and western hemisphere countries in terms of education and health outcomes to reveal the comparative inefficiency of Africa. Afonso and St Aubyn (2005) compare the efficiency of education and health spending across OECD countries to argue that efficiency is a significant issue in sectors where public provision is of strategic importance. Similarly, Afonso and Gaspar (2007) use estimates of comparative PSP from earlier studies to argue that inefficiencies in public provision lead to more than proportional tax rate increases, which in turn result in higher than proportional deadweight losses from taxation. A group of these studies also identifies comparative inefficiencies in public provision across states to argue that larger public spending may not necessarily yield better socioeconomic outcomes. Tanzi and Schuknecht (1998), for instance, use a set of social and economic indicators to compare PSP across a sample of developed and newly industrialised countries grouped according to the size of their public expenditures. The authors find that the performance of countries with large public sectors is no better than countries with small public sectors in terms of health, education, economic and administrative outcomes. A more elaborate study by Tanzi and Schuknecht (2000) reaches similar conclusions. Building further on the studies by Tanzi and Schuknecht (1998, 2000), Afonso et al. (2005) use a set of PSP and PSE indicators7 to compare public sector outcomes in the areas of health, education, administrative performance, income distribution, economic stability and performance, and infrastructure across 23 industrialised countries classified according to the size of their governments. In the case of the PSP indicators, the authors find that on the whole there is only moderate variation across their sample, but that countries with small governments exhibit the best economic performance, while countries with large governments have a more equitable distribution than other country groups. On the other hand, the study finds much greater differences in the PSE indicators across their sample, with small government countries showing higher PSE levels than both the medium and large government groups. However, like studies of the performance of public sector organisational clusters, most research focusing on broader public sector outcomes also tends to ignore the effect of democratic accountability on PSP, or take it into account only partially. Works such as Afonso et al. (2010), which do take into account

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a notion of the overall democratic accountability environment while examining PSP, are more of an exception than a norm. These authors conceptualise the wider accountability context as the capacity of citizens to monitor and sanction the performance of public actors; and using a sample of emerging economies, they find that the level of secondary schooling, per capita income and the security of property rights (which serve in the study as proxies for the ability of citizens to monitor the performance of public actors) have a positive impact on public sector outcomes, as measured in terms of PSP and PSE indicators used in their earlier study (i.e. Afonso et al., 2005). Nevertheless, factors that determine the nature of the broader democratic accountability framework are being increasingly recognised as important influences on PSP (e.g. Mandl et al., 2008). The research on the relationship between democracy and human development outcomes measured across states is fairly extensive, and there is now also a growing literature that focuses on the link between PSP and good governance – of which democratic accountability is an important component. However, while studies concentrating on the effects of democracy generally ignore the other dimensions of democratic accountability, most of the governance-related research is based on field evaluations or anecdotal evidence. Even the studies that do consider cross-country evidence are interested primarily in the governance–performance nexus, with democratic accountability being operationalised only in part. Even so, these studies do suggest a strong correlation between PSP and the operationalised components of democratic accountability. For instance, in a pioneering cross-country study, Kaufmann et al. (1999) find a positive causal relationship between (improved levels of) their governance measures of voice and accountability, rule of law and graft (which reflect in part the strength of democratic accountability) and outcomes such as lower infant mortality and higher adult literacy rates. But these authors do not control for the level of public or private spending on health or education. This gap is filled to some extent by Gupta et al. (2002a) and Rajkumar and Swaroop (2008), for instance, who include public spending while studying the relationship between governance and health and education outcomes. But even in these studies, democratic accountability is only partially operationalised. Gupta et al. (2002a) consider only corruption, while Rajkumar and Swaroop (2008) restrict themselves to corruption and the quality of bureaucracy.

3. Concluding comments Studies on the roles of democracy, institutions and governance in shaping public spending patterns constitute the literature most relevant to our book. However, research on the impact of economic, ideological and demographic factors on public spending provides the broader context for our enquiry as it identifies the other potential determinants of public spending and underscores the need to take them into account while studying the impact of democratic accountability on public spending for human development.

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Against the background of the scholarly literature on the possible determinants of public spending reviewed in this chapter, we present in the next chapter our argument on how the overarching framework of democratic accountability in any state affects the level of its public spending on human development. The conflicting perspectives and diverse empirical findings in the literature make this study challenging. But, as mentioned in the Preface, since most of the previous empirical research has been carried out on the basis of data for the pre-1990 period, that is, prior to the collapse of the USSR and the former Soviet Bloc, studying the relationship between public spending for human development and democratic accountability in the post-1990 scenario – that is, in a largely democratised, unipolar world – can be expected to yield more compelling and coherent findings. As for PSP, NPM-inspired theoretical constructions recognise the necessity of accountability in improving the performance of public agencies, but conceptualise it mostly as managerial accountability within organisations or the accountability of organisations to their customers. The impact of the overall public sector accountability framework on the performance of public agencies is largely ignored. The empirical literature on PSP does not, in general, consider the accountability framework of the public sector either. Nevertheless, it has begun to explore its implications, and we build further on this area of research to argue in the next chapter that democratic accountability provides the broader context for PSP so far as human development outcomes are concerned.

Notes 1 In most studies, the size of government is measured by total central government expenditures as a percentage of GDP. 2 Peltzman (1980) provides a good example of the Chicago view. 3 Wagner ([1883] 1958) himself attributes the association between public spending and economic growth to two factors: first, the increasing complexity of wealthy, specialised economies entails greater public intervention for regulation and protection, etc. to facilitate operations; and second, the demand for public goods such as education is income elastic. 4 Although there are significant overlaps between ethnolinguistic fragmentation and racial fragmentation, the two concepts are not completely synonymous: the former is language-centred and the latter race-centred. This difference, as Alesina et al. (2001) show, can be important. 5 Productive efficiency can be understood as the ratio of output to input (Hedley, 1998). 6 Effectiveness can be understood as the relationship between outputs and outcomes (Jones, 2001); or as a comparison of actions or outputs with standards, expectations or mandates (Hedley, 1998; Rainey and Steinbauer, 1999). 7 The authors define PSP as the ‘outcome of public sector activities’ and PSE as ‘the outcome relative to the resources employed’ (Afonso et al., 2005: 321).

3

Democratic accountability and public spending on human development A theoretical construction

The research reviewed in Chapter 2 identified several factors that can potentially influence the level of public spending on human development. However, as this discussion revealed, both the theoretical constructions and the empirical findings vary. In many cases they are in open conflict based on their different traditions and approaches for explaining the size and composition of public spending. Even more importantly, existing studies have tended to either ignore the impact of democratic accountability on public spending or have taken it into consideration only in the more restrictive sense of electoral democracy. From this perspective, the literature relating to PSP is not much different. In this chapter, drawing from neo-institutionalism, we argue that: (i) the level of public spending for human development in any state can be best explained by democratic accountability; and that (ii) the democratic accountability framework of any state is configured not just by the nature of its political regime, but also by the quality and strength of its administrative and judicial institutions, as well as by its dominant mode of public resource mobilisation. Our argument does not deny the influences on public spending identified in the literature, but we view them more as factors that need to be controlled for, rather than as its main determinants. We further argue that (iii) PSP is also largely described by the overall framework of democratic accountability. To provide a logical standard for comparison, the chapter begins with a brief review of the dynamics of resource allocation and productive efficiency in the private sector. This is the subject matter of section 1. In section 2, situating the analysis in a neoinstitutionalist paradigm, we posit the relationship between democratic accountability and public spending. Section 3 examines the role of political regimes, administrative and judicial institutions, and modes of public resource mobilisation in shaping the framework of democratic accountability. Section 4 presents, very concisely, our argument concerning PSP, and section 5 offers some concluding comments.

1. Resource allocation and productive efficiency in the private sector Owing to the many overlaps, gaps, joint ventures and organisational forms of an interdependent nature, as described for instance by theorists such as Rainey et al.

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(1976), there has never been an unequivocal demarcation between the organisation of the public and private sectors. But with the increasing acceptance of private sector practices and values in the public sector over the past two decades under the rubric of NPM, particularly with many public goods and services now being delivered through non-governmental or private sector organisations, the border between the two sectors has become even more blurred. Nevertheless, the public sector continues to retain some of its core characteristics, such as: the collective ownership of resources; decision-making by collective entities on the basis of public value;1 a concern for the protection of the public interest; and some focus on the maximisation of the common good. On the other hand, the private sector continues to be defined by private ownership of resources; enterprise and exchange motivated by self-interest; and decision-making on the basis of private value.2 Therefore, distinguishing between the private and public sectors as well as the mechanisms that drive resource allocation in the two sectors remains critically relevant. Resource allocation: sovereignty of the consumer Resource allocation in the private sector tends to be determined by consumer preferences through a system of markets and prices: a principle conventionally termed consumer sovereignty. Simplistically understood, consumer sovereignty means that profit-oriented private producers will produce only what they can sell, and what they can sell will essentially be what consumers demand. Consumers’ preferences can, in fact, be seen in terms of their dollar votes or the price they are willing to pay for any producer’s output. More specifically, economic theory argues that firms being profit-maximisers (or conversely, loss-minimisers) have an incentive to expand or contract production up to the point where the marginal cost of the firm is equal to its marginal revenue. Under assumptions of perfect competition, marginal revenue is also equal to the average revenue of the firm or the commodity price. The resultant equality between the commodity price and marginal cost at the point of equilibrium is the critical factor in establishing consumer sovereignty. The price of a commodity is the measure of the value consumers attach to an additional unit of the firm’s output. Marginal cost, on the other hand, represents the value consumers attach to the inputs used for the production of an additional unit of the firm’s output in terms of their opportunity cost: that is, the value of these resources in producing a commodity other than that firm’s output. As such, the equality between marginal cost and price means that at that level of production, consumers value the resources allocated to the output of the firm just as much as they value those resources in producing the output of any other firm. This equality between marginal cost and price at a firm’s equilibrium level of production characterises not just the operation of a single firm, or all firms in a single industry, but also the operation of perfectly competitive markets across all industries, thereby establishing consumer sovereignty in the economy as a whole.

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Long-run equilibrium, on the other hand, occurs where firms are producing an output level at which the marginal revenue is equal not only to their short- and long-run marginal costs, but where it is also equal to both the short- and longrun average costs. This eventuates because new firms can enter the industry and existing firms can exit or alter plant sizes until the industry yields only normal profits. Again, this long-run equilibrium and consumer sovereignty tends to be established in all industries across the economy. Productive efficiency In addition to achieving allocative efficiency from the vantage point of the consumer, market forces in the private sector also tend to ensure productive efficiency. Assuming perfect competition, this means that each firm will produce at the minimum obtainable average cost and charge a price that is also equal to this minimum obtainable level. Although in the short run firms may be producing at levels above or below minimum average cost in an effort to maximise profits or minimise losses, in the long run firms will enter or exit the industry until only normal profits are earned. Consequently, each firm will produce at a level where the industry’s short- and long-run average costs are at their minimum obtainable level. It needs to be emphasised that since consumers, in attempting to maximise their utility, will not pay any price above the market price, firms not producing at the industry’s minimum cost level will be driven out of production. Some issues in analysis This brief explanation of short- and long-run resource allocation and productive efficiency under conditions of perfect competition in the private sector is rather simplistic in many respects. First, perfect competition is an ideal market type that exists very rarely, if at all, in the real world. It is mostly the imperfectly competitive – ranging from monopolistically competitive to duopolistic – or even monopolistic market structures that characterise the real-world private sector. In each of these market types, the marginal revenue of a firm at any level of output will be lower than its average revenue or the commodity price. Consequently, in less than perfect markets, at any equilibrium level of production, the marginal cost of firms will be below the commodity price, reflecting an under-allocation of resources. This phenomenon somewhat compromises the absolute sovereignty of the consumer; but even then consumer preferences remain the most significant determinant of resource allocation since firms are constrained to produce at levels as close as possible to the equality between marginal cost and commodity price. The closer the marginal cost of a firm is to the commodity price at any point of production, the greater it reflects the sovereignty of the consumer in resource allocation. Second, owing to exogenous changes (for instance, in demand, technology, incomes, input prices, etc.), any stable long-run equilibrium is elusive, and firms and industries tend to be in constant transition in the long run. However, this makes no difference to the conclusions reached regarding consumer sovereignty

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since firms and industries are in transition predominantly because they are continuously attempting to align and realign their production to changing consumer preferences and market conditions. Third, in terms of productive efficiency, monopolistic or imperfectly competitive market structures cannot compel firms to produce at the minimum obtainable level of average costs; but even so, firms in these markets are constrained to produce at the lowest average costs permitted by the market conditions. In general, the easier it is for firms to enter or exit an imperfect market, the closer the equilibrium production will be to the industry’s minimum possible average costs. As such, consumer preferences, given the conditions of entry and exit of firms into and out of markets etc., can be seen as the basic determinants of private sector accountability, which is enforced rather inexorably by the market mechanism through the threat to the very survival of firms (Pegnato, 1997). Or as Jones notes, ‘[t]he market is ruthless and unforgiving; poor performers have to either improve to match the performance of the most efficient producers or else go out of business’ (2001: 125). The role of institutions in the private sector There is, however, a broader framework that governs markets. As the theories of New Institutional Economics (NIE) argue, it is institutions that produce the incentive structures that eventually determine how resources are allocated by markets. And these institutions, North describes, are ‘the rules of the game of a society composed of the formal rules (constitutions, statute and common law, regulations), the informal constraints (norms, conventions, and internally devised codes of conduct), and the enforcement characteristics of each’ (2001: 16). The rationale of NIE on how institutions affect resource allocation in the private sector is rather straightforward. Real-world markets – in contrast to their neoclassical abstractions – are imperfect, mostly because of information limitations or transaction costs;3 they function within the constraints set by the incentive structures produced by societal institutions; and, consequently, they tend to be efficient only to the extent that these incentive structures permit. In such markets, the interests, behaviour and choices of economic actors are also shaped by the institutional structures in which the markets operate (Cook and White, 2001; North, 1990, 2001, 2005). The consumer remains sovereign in terms of resource allocation, but with outcomes that are mediated by the institutional structures. The focus on good governance by the World Bank and other international donor agencies as a prerequisite for economic development largely emanates from this understanding of the overarching role of these institutions in the economy. Limitations of the private sector Despite its inherent ability to ensure allocative and productive efficiency, the market mechanism fails in many ways. The most significant of its shortcomings in the context of our argument are two: (i) the standard for allocative efficiency

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is consumer preferences, irrespective of whether such allocation can or cannot be considered fair from the perspective of society as a whole; and (ii) the market only takes into account the private costs and benefits of any transaction, not the benefits or costs that accrue to the society as a whole, that is, externalities or spillover costs and benefits. Given the importance of human development, these limitations of the market, as noted in Chapter 1, provide a strong rationale for public spending on health and education. And this brings us to the question of how resources are allocated and productive efficiency achieved in the public sector in the absence of the well-coordinated and powerful system of markets and prices. In many ways public sector resource allocation and production are similar to resource allocation and production in the private sector, particularly with regard to the overarching role played by institutions. But they are also quite different in some very important ways, especially in terms of the complexities involved in the registration of a society’s preferences for the allocation of public resources as well as the incentives for public actors to respond to these preferences. Achieving productive efficiency in the public sector is also much more complicated than in the private sector.

2. Resource allocation in the public sector Governments are required to act where markets fail or underprovide, and to intervene where they are distorted. Despite the popularity of minimalist theories, the state is still perceived to have a moral obligation to protect the basic social and economic rights of citizens. In fact, it is difficult to overstate the importance of the public sector, for it ‘continues to finance and deliver core goods and services that are of major significance to society as a whole: health, education, R and D, criminal justice, social security’ (Ferlie et al., 1996: 3). But neither does the public sector have the invisible hand of the price system to coordinate the allocation of public resources, nor does competition help discipline its production. All public sector allocation and performance decisions must therefore be taken, and evaluations made, through deliberately designed institutions, mechanisms, processes and standards. Resource allocation: the sovereignty of the citizen Resource allocation in the public sector, assuming a democratic government, is carried out by the citizens. It is they who, through their representatives in the legislature, decide the functions that the government must perform and the quantum of public resources that are to be allocated to each function of government. It is their preferences that are the arbiters of public value and it is their sanction that legitimises public sector operations (Alford, 2002; Moore, 1995). This phenomenon gives rise to the concept of citizen sovereignty in the public sector, in a theoretical construction parallel to that of consumer sovereignty in the private sector. Budgetary outlays for various public sector operations, in this sense, are an expression of citizens’ preferences for the allocation of public resources.

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However, just as the sovereignty of the consumer is established in the private sector within the parameters of incentives created by economic institutions and to the extent that these institutions make firms accountable to consumers, the sovereignty of the citizen tends to be constrained by the incentive structures produced by political institutions and established only to the extent to which these institutions make public actors accountable to citizens. In this context, the link between economic and political institutions is significant. The rule of law, protection of property rights, enforcement of contracts, etc., recognised to be the preconditions for the proper functioning of the market mechanism, are largely the outcome of accountable executives and legislatures, responsible bureaucracies, independent judiciaries and empowered citizens, which are the very institutional factors that explain the strength of democratic accountability in any state and that can be expected to: •

•

create strong incentives for a pattern of public resource allocation targeted at enhancing the broad wellbeing of citizens, in particular high levels of public spending on education and health; and in the same way promote efficiency in PSP.

As such, the most appropriate theoretical construction for our argument is provided by neo-institutionalism, a brief explanation of which is now in order. Neo-institutionalism4 in political science assigns the same overarching role to political institutions in creating incentive structures that determine political behaviour and outcomes that NIE assigns to economic institutions in shaping economic activity and consequences. It also broadly adopts the conceptualisation of organisations in the NIE discourse as the players, and of institutions as the formal rules, informal norms and their enforcement characteristics. However, neo-institutionalist theorists such as March and Olsen ([1984] 2008, 1995, 1996) also include concrete institutions or formal organisations such as legislatures, political parties and bureaucracies (which are termed as organisations in the NIE discourse) under the rubric of institutions. Pierson (2004) makes another important distinction by including public policies alongside institutions in the formulation. There is a strong rationale for such inclusion. As Pierson notes: ‘[p]olicies, grounded in law and backed by the coercive power of the state, signal to actors what has to be done, what cannot be done, and establish many of the rewards and penalties associated with particular activities’ (2004: 35). Since institutions have different meanings for different authors not only within the neo-institutionalist discourses, but also in the broader literature, it is necessary to clarify that we include both abstract institutions (e.g. laws and rules) and concrete institutions (formal organisations, such as bureaucracies and courts of law) under the definition of institutions. It is also noteworthy that the interest of political science in institutions is not new. As March and Olsen ([1984] 2008) explain, political theory has historically understood institutions as central to collective life, as determining or modifying individual motives and as structuring political behaviour and outcomes. But

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following a diffusion of ideas from other disciplines, particularly from theories of exchange, social contract and utilitarianism, the vision changed towards the 1950s to produce what have been called the contextual, reductionist and utilitarian trends in political theory (March and Olsen, [1984] 2008, 1996). The revival in the concern with institutions appears to have come from the emergence of institutions in more recent times as larger and more dominating entities that are even more central to collective life. March and Olsen aptly note that ‘[m]ost of the major actors in modern economic and political systems are formal organizations, and the institutions of law and bureaucracy occupy a dominant role in contemporary life’ ([1984] 2008: 204). Nevertheless, neo-institutionalism is different from the old focus of political theory on institutions. For instance, neo-institutionalism in political theory derives primarily from the NIE discourse (Cook and White, 2001; Pierson, 2004); it endogenises institutions in its formulations (March and Olsen, 1996); and it blends, in political theorising, the purely institutional approach with the purely political (Amenta and Poulsen, 1996). Moreover, it amalgamates the exchangebased theories of political science with the exclusively institutional arguments (March and Olsen, [1984] 2008, 1995, 1996), while maintaining that political institutions play the dominant role in policy outcomes (Cook and White, 2001) or, more specifically, in enabling governments to formulate and implement appropriate public policies (Pierson, 1996, 2004). Having outlined these theoretical dimensions of neo-institutionalism, we can now return to the point of the constrained sovereignty of the citizen and the role of democratic accountability in determining the pattern of public sector resource allocation. Couching the argument in the neo-institutionalist discourse, citizens establish their sovereignty in the political market through their representatives; these representatives reach equilibrium positions through political negotiation, bargaining, coalition-building and exchange; and the outcomes ultimately depend on the interests, perceptions and preferences of the political actors, their bargaining power and the political resources that they command. This entire political process takes place within an institutionally structured framework of rights, procedures, informal norms and formal rules, the objective of which, March and Olsen (1995, 1996) explain, is to ensure the realisation of the collective goals, preferences and ideals of the society, and which themselves are drawn from the society’s values, cultural context and belief system. However, since these institutional rules and procedures, and the incentive structures that they create, can be determinative only when they are binding, the extent to which public sector decisions are actually shaped by societal aspirations will depend largely on the form and strength of the accountability mechanisms undergirding these rules and procedures. An important objection that the interpretive approach to political science, for instance, raises against the ability of institutional rules and procedures to define political behaviour is that ‘people not only wilfully choose to disobey a rule, but also, they subvert, ignore, avoid and redefine them’ (Bevir et al., 2003: 5). From this it follows discursively that the ability of any set of rules, norms and procedures to yield a pattern of

Democratic accountability and public spending 39 public resource allocation that conforms to citizens’ aspirations will ultimately depend on the extent to which that particular set of rules, norms and procedures enables citizens to control public sector decision-making structures, or, in other words, on the extent to which citizens can hold accountable their legislatures, the government and the institutions of state. And this brings us to the question of democratic accountability, which is central to our understanding of public sector resource allocation decisions. In the next section, we explain the concept and dimensions of democratic accountability and how it provides the necessary incentives for public actors to align their objectives with the preferences of citizens.

3. Democratic accountability: regimes, institutions and resources In its classical construction, the central postulate of democratic accountability can be understood as the duty of those who hold public office to work for the commonweal and safeguard the public interest (e.g. Waldo, 1956; Wilson, 1887). The contemporary conceptualisation of the term is much the same: the right of citizens to hold public actors answerable for the fulfilment of their duties (e.g. Behn, 2001; Dowdle, 2006). In an elementary sense, democratic accountability may appear to refer to the ability of the electorate to hold governments accountable for past actions. But such a notion is much too restrictive – even erroneous. From the more encompassing perspective of neo-institutionalism, democratic accountability would not just denote the accountability of governments to citizens produced by periodical elections, but its meaning becomes much more comprehensive to also include all state institutions with the capacity to make public policy and public action more responsive to citizens’ aspirations and wellbeing. Democratic accountability has its systemic underpinnings: that is, the mechanisms, institutional structures and relationships that enable citizens to hold individuals and agencies vested with public authority and responsibility answerable for their actions. In the most straightforward terms, an accountability relationship exists between two individuals or entities when: (i) one of them is responsible and/or authorised to act on behalf of the other; and (ii) the first actor, on whose behalf the second actor is performing, also has formal or informal authority to reward or punish the second actor on the basis of some predefined, preconceived or expected performance criteria or outcomes (Fearon, 1999; Maravall, 1999). A useful way of conceptualising this accountability relationship is to view it in terms of the principal–agent framework, where the agent is responsible to act on behalf of the principal in accordance with the principal’s preferences or interests, in the expectation of being rewarded or punished on the basis of their performance and outcomes achieved (Fearon, 1999; Maravall, 1999). The point that requires explication at the outset is that while a central objective of all forms of accountability is to futuristically induce agents to be responsive to the preferences of principals or act in their best interest, the process

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of accountability is essentially retrospective in that it comprises ex post assessment of the agents’ actions by the principals (e.g. Przeworski et al., 1999). This apparent incongruity is reconciled by the imminence of accountability, which tends to create an incentive structure that aligns the interests of the agents with the interests of the principals. Behn refers to this quality of accountability as the deterrent effect, and argues that: Holding people accountable is designed not solely to catch, reverse, and punish wrongdoing. It is also designed to deter wrongdoing. By holding a specific accountability holdee accountable for a specific case of wrongdoing, the accountability holder seeks to influence the behavior of all future public officials – to convince them to live up to our expectations for finances, fairness, and performance. (2001: 14, original emphasis) The strength of the accountability process and its deterrent effect depend on the nature of the authority of the principals over their agents. Drawing insights from the neo-institutionalist perspective presented in the preceding section, we argue that the ability of citizens (principals) to hold public actors (agents) accountable for the fulfilment of their obligations depends on: • • •

the nature of a state’s political regime, that is, the extent to which it is democratic or autocratic; the quality and strength of its administrative and judicial institutions; and its dominant mode of public resource mobilisation, that is, whether the state relies on revenues from taxation; on nontax resources such as rents generated by natural resources – for instance, by petroleum; or on foreign aid.

Regimes, administrative and judicial institutions and resources can, in fact, be viewed as the three dimensions of democratic accountability: the political, the institutional and the resource-based. The framework of democratic accountability that these three dimensions produce in turn shapes the incentives that determine the pattern of public sector resource allocation. A democratic regime, for instance, is expected to be more accountable and more responsive to citizens’ socioeconomic wellbeing than an undemocratic one, and therefore to allocate more public resources to human development than would an autocratic regime. Within democracies, a more democratic and accountable regime can be expected to be more sensitive to citizens’ wellbeing than a democracy that is less accountable. On the same plane, bureaucracies that are answerable and proficient can be expected to promote a pattern of public resource allocation that better serves the commonweal. Similarly, higher taxation, by reinforcing citizens’ ability to demand accountability from governments, should produce a pattern of resource allocation that is more closely aligned with citizens’ wellbeing. We take up each of these dimensions of democratic accountability in detail below. But before moving any further, we must clarify that in contending that

Democratic accountability and public spending 41 greater democratic accountability induces higher public spending on human development, our premise is that citizens prefer a pattern of public resource allocation that enhances their wellbeing. In terms of our argument, citizens can be expected to prefer public spending on education and health, which increases their socioeconomic wellbeing, over public spending that does not, such as spending on the military without legitimate need. This understanding is validated by the assertion of development practitioners such as Keefer and Khemani that the under-provision of broad social services such as education and healthcare in less developed countries cannot be attributed to a lack of demand for them by citizens, because even the poor can be seen making ‘large sacrifices to educate their children despite imperfect credit markets and discount rates that are not particularly low’ (2005: 4). The social under-provision, these authors argue, is actually the result of imperfections in political markets caused by factors such as citizens’ lack of credibility in politicians’ pre-election promises, which undermine the role of elections in guaranteeing responsive and accountable governments. Similarly, Drèze and Sen (2002) refer to the findings of a number of studies in India to argue that Indian parents (including those who belong to the deprived segments of society) have an overwhelming desire to educate their children, and that the reason for so many Indian children being out of school is not the lack of demand for education. From a related vantage point, Caldwell (1986), in his exhaustive examination of the different social, cultural and political reasons for low mortality rates in Costa Rica, Sri Lanka and the Indian state of Kerala, also notes that the demand for the public provision of education and healthcare by citizens during elections led political parties to offer these services. Now we move to the three dimensions of democratic accountability. Regimes: the political dimension Democratic regimes, despite their many imperfections, tend to be more representative of citizens’ interests, more responsive to their preferences and more accountable for their wellbeing than any other type of regime (Diamond, 1999, 2008; Manin et al., 1999a). Even in its minimalist sense, democracy can be viewed as being ‘more rational, more representative, and more egalitarian than dictatorship tout court or its various species’ (Przeworski, 1999: 44, original emphasis). Democracies can, therefore, be expected, more than non-democracies, to exhibit a pattern of public resource allocation that more closely reflects citizen interests: that is, higher public spending in areas that increase citizen wellbeing than in areas that do not. This is not to say that the resource allocation decisions made by democratic governments will invariably coincide with the desires of citizens. As Manin et al. (1999a) note, being representative does not necessarily mean that the decisions of citizens’ representatives should always coincide with what the citizens want, and that representation also includes acting in the best interest of citizens and the common good even when citizens may want something else. Rare as they may

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be, such situations, as the authors explain, can arise, inter alia, when citizens are myopic, or when representatives, by virtue of their position, have access to information that the citizens do not have. Moreover, as Manin et al. (1999a) further observe, being democratic does not mean the absence of conflicting interests; most decisions in democracies tend to be majority decisions rather than unanimous, and the interests of minority groups (for instance, the elite who can afford private education and healthcare and may prefer less public provision in these areas) will not always be served. But then, it is the commonweal that is central in the public domain, and in democracies a logical measure of the commonweal is what the majority considers it to be. There could, nevertheless, sometimes be selfish reasons for representatives not to take decisions in accordance with citizens’ aspirations or best interests. After all, political decision-making tends to be ‘vulnerable to many different kinds of corruption – the most important being the triumph of special interests over the general … [and] to many kinds of irrationalities’ (Moore, 1995: 54). Moore’s lamentation that ‘[w]e have all become painfully aware of the folly and corruption that can beset the deliberations and choices of representative democratic institutions’ (1995: 31) is, therefore, not out of place. These hazards notwithstanding, in the normal course of events, representatives’ preferences in a democracy tend to coincide with citizen interests, either as citizens themselves view it to be or as governments view it bona fide. And this brings us to the question of what makes government in a democracy representative of citizens’ interests? This is akin to asking what will align public policy – or, in the specific context of our argument, public spending – with the citizens’ preferences. In the private sector, as section 1 delineated, an inexorable accountability process aligns resource allocation with the preferences of customers. Customers both pay for and consume the goods and services produced by firms as individuals in a direct and reciprocal exchange process based on private value for both parties (Alford, 2002). Consequently, if firms do not produce what consumers prefer, their very survival is jeopardised (Pegnato, 1997). In the public sector, on the other hand, accountability is diffuse and indirect; the exchange process neither is direct between individual entities, nor yields reciprocal private value; even the provision of a service and payment for it are only indirectly connected (Moore, 1995; Pegnato, 1997). More specifically, citizens take decisions on resource allocation collectively, but indirectly, through their representatives; they also take collective decisions on public resource mobilisation, but eventually it is the taxpayers who in most cases bear the burden of public sector operations (Alford, 2002; Moore, 1995). Collective decisions taken by citizens do not necessarily yield private value to every citizen, and in most instances the citizenry consumes public value indirectly through the implementation of decisions taken by their representatives. Even more significantly, representative democracy – the most popular form of contemporary democracy – does not have any legally binding mechanism to ensure that citizens’ representatives abide by the citizens’ wishes or even by the promises that they make during election campaigns (Przeworski et al., 1999).

Democratic accountability and public spending 43 These are, of course, serious issues. But just as liberal representative democracy is considered to be the most conducive practicable form of contemporary political organisation in terms of the implementation of citizens’ wishes or their best interests (Diamond, 1999, 2008; Diamond et al., 1990a; Gilley, 2009), the election process embodied in representative democracy is seen to operate as the primary mechanism that tends to ensure, despite its many shortcomings, that citizens’ representatives either implement citizens’ wishes or act in their best interests (Diamond, 2008; Przeworski et al., 1999). Broadly, there are two explanations for how the election process leads to the outcomes preferred by citizens or, in other words, how citizens can use the election process to induce representatives to align their objectives with citizens’ preferences. The first is what is referred to in literature as the mandate or selection model, in which citizens are seen to vote for those politicians who promise to implement the policies that citizens prefer as being in their best interests, and who are also likely – on the basis of their character and reputation, etc. – to abide by their mandate (Manin et al., 1999b). The second is the accountability or sanction model, which argues that citizens vote on the basis of representatives’ performance over their tenures, and that elections thus create an incentive structure for representatives to align their objectives with citizen preferences in their own interests if they wish to be re-elected (Manin et al., 1999b). The two models are not mutually exclusive and may, in fact, be complementary under certain conditions (Fearon, 1999; Maravall, 1999). When citizens are assumed to vote in order to select their representatives on the basis of their mandates, they also tend to assess how credible are their promises in view of their past performance, which may actually imply a sanction for having reneged on a previous mandate. And when citizens are assumed to vote so as to sanction incumbent governments on the basis of their performance, they would also tend to take into account the policies offered by competing political parties and their credibility as well as the character of political rivals (Fearon, 1999; Maravall, 1999). As such, the combination of models appears to provide a better explanation than either model independently for how the election process makes governments accountable and creates incentives for them to pursue citizens’ preferences or their best interests. The election process may have many weaknesses and shortcomings, and may not even always be sufficient to align representatives’ objectives with citizens’ preferences, as the possibility of breakdown in either model depicts (Przeworski et al., 1999). But even then, this remains the most effective primary mechanism available in democracies to translate citizens’ aspirations or their best interests into public policies. For instance, while illustrating the classical perspective on democracy and elections, Maravall notes that: [E]vidence has shown that public opinion drives policy; that, either through electoral replacement of the incumbents or rational anticipation of the latter to policy moods of the citizens that might change over time, governments reflect in their policy initiatives the preferences of voters … So democratic

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A number of comprehensive empirical studies included in the review by Maravall and Sánchez-Cuenca (2008) validate this understanding of the centrality of the election mechanism to democracy. Collectively, these studies show that even though factors such as ideology, ethnicity, class interests, information gaps and internal party organisation mediate the ability of voters to control governments, governments in democratic polities cannot escape democratic accountability and that voters can and do hold them accountable for policies pursued and performance shown, including public spending. As noted earlier, there is large variation within democratic polities. On one end of the spectrum are what Diamond et al. term pseudodemocracies: that is, states in which the ‘existence of formally democratic political institutions, such as multiparty electoral competition, masks (often in part to legitimate) the reality of authoritarian domination’ (1990b: 8). And on the other end of the spectrum lie Diamond’s (2008) thick liberal democracies of the Western tradition, where core democratic institutions are bolstered with well-implemented frameworks of basic rights and liberties, the rule of law and elaborate measures that deepen political participation and competition. The variance between the two ends of the democratic spectrum is continuous, and somewhere in between we might locate Diamond and Morlino’s minimalist democracies that at least permit ‘universal adult suffrage’, ‘recurring, free, competitive, and fair elections’, ‘more than one serious political party’ and ‘alternative sources of information’ (2005a: x–xi). On the other hand, even regimes that are clearly authoritarian may have certain limited elements of democracy, which, in fact, creates a continuous spectrum of democratic attributes ranging from extreme authoritarianism to the best form of democracy. But from one end of this spectrum to the other, it is the strength of democratic accountability that remains central to the responsiveness of governments to citizens. As Ferejohn posits, ‘responsiveness is a measure of how much accountability an institutional structure permits’ (1999: 131). In line with this understanding of democracy, the expectation is that the greater the level of democratic accountability, the more will be the responsiveness of representatives to citizens’ preferences and the higher will be the level of public spending on citizens’ wellbeing, that is, on human development. We must also add here that while most studies of the relationship between democracy and public provision, as Chapter 2 illustrated, have modelled it – albeit with differentiated constructions – in terms of the role of the median voter, influence of pressure groups or the efficiency of political markets, we have presented a broader argument predicated on the notion that what differentiates democracies from non-democracies, and more democratic polities from the less democratic varieties, is the accountability of governments to the broader citizenry. Our argument, in fact, echoes Dahl’s belief that:

Democratic accountability and public spending 45 [T]o a substantially greater degree than any alternative to it, a democratic government provides an orderly and peaceful process by means of which a majority of citizens can induce the government to do what they most want it to do and to avoid doing what they most want it not to do. (1989: 95) Administrative and judicial institutions: the institutional dimension Without compromising the argument that citizens are made sovereign in the public domain by the accountability of their representatives in legislative bodies, it must also be recognised that bureaucracies influence the patterns of public spending. Under the classical assumption of a Wilsonian dichotomy between politics and administration sustained by a neutral Weberian bureaucracy, policy formulation falls in the remit of the political representatives of citizens, while the efficient implementation of public policies is the domain of the bureaucracy. But in reality, civil servants can and do affect the formulation of public policies, including policies on public spending (Behn, 1995, 2001). Moore explains succinctly the role of the bureaucracy in policy formulation: On close inspection, however, it often became clear that the professionals were defining ends as well as means. Thus, in the domain of defence policy, elected representatives knew ‘how much was enough’ by asking generals about the likely threats from the enemy and what was needed to meet them; in the domain of public health, they learned what sorts of health threats should be confronted by asking the experts in public health: and so on. (1994: 298) There is another, more subtle, manner in which bureaucracies tend to influence policy. As Behn argues, ‘policy statements are rarely so explicit as to leave only the technical details of implementation to be worked out by the administrating agency’, which, combined with resource limitations, allows for discretion in policy execution, and thereby enables public managers to ‘choose the policies on which to concentrate those resources’ (1995: 317). Similarly, by networking deep into policy circles and by creating reputations for professional competence, bureaucracies can also lead to situations, as Carpenter (2001) explains in the US historical context, in which legislators simply yield to the bureaucrats’ wishes. Not just this but, as Amenta and Poulsen note, ‘bureaucrats or entrepreneurial policy experts can fabricate the support needed to unite the polity behind social spending programs’ (1996: 34). This contention, in fact, constitutes an extreme form of public choice theory, which views bureaucracies as being motivated by self- or organisational interests, and as working primarily to maximise these interests by expanding their agendas, budgets, prestige and authority. Even if fabrication of evidence by bureaucracies would be very rare, their using correct but selective data or interpreting factual information to give it a spin with the intent of generating social and political support for a particular policy is not uncommon.

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On the other hand, it would also be wrong to conclude that the role of the bureaucracy in policymaking is mostly negative or self-interested. Indeed, bureaucratic participation can frequently bring into policy formulation valuable information, institutional memory, ethical rigour, knowledge based on expertise and experience, and a practical understanding of policy implications. Such contributions can moderate political inclinations or expedience, lead to better informed and insightful decision-making, and even facilitate a more sagacious realisation of politically defined goals (Dunn, 1999). Nevertheless, to concede that bureaucracies can influence resource allocation decisions is to acknowledge that the question of the ability of the citizens to align their representatives’ preferences with their own is only one part of a bigger story. Whether or not public policies are shaped by citizens’ preferences also then comes to depend on the extent to which the policy input by bureaucracies is also aligned with the preferences of citizens or the common good, rather than their own personal or organisational interests. It follows from this that in the bigger picture, the realisation of the citizens’ preferences further depends on the ability of their political representatives to hold accountable the administrative institutions of the state and their bureaucracies. Even though the accountability of bureaucracies to citizens is indirect and complex, because of the more formal procedures available to legislatures as well as less information asymmetries, the ability of legislatures to control bureaucracies tends to be greater than the ability of citizens to control legislatures. In a parliamentary democracy, for instance, the chain of accountability runs from the citizens to the legislature to the cabinet,5 to ministers, to senior bureaucrats,6 and to subordinate civil servants (Laver and Shepsle, 1999; Sinclair, 1995). The first link in the chain, that is, the accountability of the legislature to the citizens, as already discussed, tends to be institutionalised by the election process; whereas the second link, the accountability of the cabinet to the legislature, tends to be institutionalised, in a similar fashion, by the ability of the legislature to move a motion of ‘confidence’ or ‘no confidence’7 with respect to an individual minister or the Cabinet (Laver and Shepsle, 1999). It is mostly the apprehension of a confidence motion failing, or the threat of an effective no confidence motion, that induces governments to act in accordance with the preferences of the legislature – making accountability ‘a veritable club behind the door that induces appropriate behavior’ – and thereby links the government with the preferences of citizens, even if indirectly, through the legislature (Laver and Shepsle, 1999: 280). On the other hand, in the case of presidential regimes, the legislature tends to have a weaker control over the executive, but because the executive is directly elected, it is also directly accountable to the citizens. Autocracies may sometimes also have representative bodies, but they are generally ineffective. The third link in the chain is the control of the bureaucracy by the government, which is established by the institutionalised accountability of the heads of government departments – in most cases senior career civil servants – to their ministers. The formal procedures of accountability range from appointments, transfers, promotions and demotions, to public embarrassment and budget

Democratic accountability and public spending 47 reductions, disciplinary proceedings, investigations and even dismissals from service (Dunn, 1999; Sinclair, 1995). These formal procedures of administrative control and accountability create strong incentives for the bureaucracy to act in tandem with the preferences of the government, which, provided that the links in the accountability chain are effective, in turn reflect the preferences of the citizens or at least their best interests. The accountability of the bureaucracy to the government, and through the government to the legislature and citizens, is defined in the literature as political accountability, and lies at the very centre of democratic accountability. Theorists such as Behn (2001), Halligan (2001) and Sinclair (1995) identify several other forms of institutional accountability, the more significant of which are: administrative, managerial, professional, personal and legal. We discuss each of these below very briefly. Administrative accountability This form of responsiveness refers to the internal hierarchical relationships of responsibility and answerability of public functionaries that exist within government departments as well as to the accountability of the departments themselves within the organisational structure of government (Behn, 2001; Halligan, 2001). Administrative accountability also refers to the answerability of public agencies to external governmental administrative institutions such as the Ombudsman, the Auditor General and parliamentary committees. Administrative accountability, in fact, defines the traditional form of institutional responsibility of bureaucracies. Managerial accountability This can be viewed as the NPM variant of administrative accountability, and it focuses on cost-effectiveness, output efficiency, results and customer satisfaction, rather than institutional processes and formal procedures. Even though the managerial model of accountability, supported by quantitative techniques of evaluation, may have strengthened accountability in the public sector, particularly in terms of performance by providing supplementary evaluation tools, it would be quite fallacious to presume that managerial forms of accountability can or should replace the traditional forms of political or administrative accountability. An unqualified focus on quantification will always have the inherent danger of compromising public sector concerns for probity, traditional public sector values and procedural propriety (Considine and Painter, 1997). Nor can public managers ‘ignore the question of a fair distribution of privileges and burdens’ (Moore, 1995: 48). Professional accountability This is the dimension of accountability that relates to civil servants’ sense of responsibility emanating from loyalty to the ethos of their service or profession, which might include time-honoured values such as:

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Democratic accountability and public spending [P]robity, a care for evidence and respect for reason, the willingness to speak truth to power, a capacity not just to live with the consequences of what is conceived to be a mistaken course but to pursue it energetically, an awareness of other people’s life chances, equity and fairness, constant and careful concern for the law and for the needs and procedures of Parliament, and concern for democracy. (Woodhouse, 1997: 34)

Such unwritten value systems are expected to be an integral part of a civil servant’s character. Personal accountability Personal accountability refers to the sense of accountability produced by the principles and moral values of public officials as individuals, which tend to be moulded by the belief system in which they live as well as by their organisational culture. Legal accountability The capacity of courts and other legal establishments to review the work of bureaucracies provides for horizontal answerability of all public functionaries before courts of law, statutory bodies and other regulatory agencies. Legal accountability is implemented through formal laws, rules or codes of conduct. However, each horizontal linkage of legal accountability cannot be understood as being independent of the others. Rather, as O’Donnell notes: Effective horizontal accountability is not the product of isolated agencies but of networks of agencies that include at their top – because that is where a constitutional legal system ‘closes’ by means of ultimate decisions – courts (including the highest ones) committed to such accountability. (1999: 39) Legal accountability can sometimes make governments, public sector institutions and public officials more effectively accountable to citizens than the channels of political accountability (Behn, 2001). The ability of bureaucracies to resist political aggrandisement and protect the public interest depends not just on the quality and strength of the bureaucracy itself, but also on how strong the other forms of accountability (i.e. other than political accountability) actually are, in particular, legal accountability to courts of law. Strong, transparent, independent and impartial judiciaries can force both aggrandising governments and their bureaucracies to act in citizens’ best interests where the channels of political accountability leading from citizens to state institutions are weak or under threat. If judicial systems are effective and imbued with some sense of responsibility for the broader wellbeing of the citizenry, they become the final guarantors of public policies that are well aligned with the

Democratic accountability and public spending 49 commonweal. Of course, courts cannot directly align the policy objectives of politicians and bureaucrats with citizens’ preferences but, by providing firm disincentives against laxity, improbity or corruption, or the disregard of codes or rules, or the neglect of due processes in matters of the public interest, to say the least, and sometimes even simply by ensuring free and fair elections, they create an environment that induces governments and bureaucracies to act in the best interests of citizens. It is, therefore, rather unsurprising that Sullivan should posit that ‘[t]he existence of an independent judiciary enforcing a rule of law is significant in defining the relationship between the executive apparatus of the state (the bureaucracy) and its citizenry’ (1996: 46). Even more important is the role of judiciaries in relation to legislatures. Strong judicial systems are expected to induce legislatures to pursue the common good and to act in the public interest where they are not already doing so; to uphold the sanctity of the constitution where violations are apprehended; and to protect the civil rights and political liberties of citizens where they are disregarded. And by doing so, courts become an anchor for the overall framework of horizontal and vertical accountability in the state (Diamond and Morlino, 2005a; O’Donnell, 2005). This is what makes strong, high-quality judiciaries so central to democratic accountability and the supremacy of the public interest; it also explains why democracies establish formal codes of law, rules and conduct, and structure independent and transparent judicial institutions to implement them. In fact, there cannot be a concept of liberal democracy without the rule of law and the judicial institutions that establish it (Behn, 2001; Considine, 2005; Diamond, 1999, 2008; Diamond and Morlino, 2005a; O’Donnell, 2005). After all, as Madison observes – perhaps a little wistfully – in ‘Federalist No.51’: ‘A dependence on the people is no doubt the primary controul [sic] on the government; but experience has taught mankind the necessity of auxiliary precautions’ ([1788] 1961: 349). The forms of accountability other than political accountability that we have outlined above may not appear so important in the context of their ability to align directly the objectives of public sector institutions and bureaucracies with the preferences of the legislature or of the legislature with those of the citizens, but they tend to be very important in the context of upholding the public interest and the common good. This distinction may not appear significant where political accountability itself is effective (i.e. from citizens to legislatures to cabinets to bureaucracies), in which case the interests of the bureaucracies can be expected to be well aligned with citizens’ preferences. But where these channels are ineffective, for instance where governments or legislatures act in an unrepresentative manner, public sector administrative institutions and their bureaucracies may become safety mechanisms to align public policy with citizens’ interests. In such instances, bureaucracies can discharge their inherent professional responsibility only by advising and warning political representatives of policy issues without fear of personal consequences (Dunn, 1999), by adhering to formal rules and procedures and by establishing the force of law. This is why, as Wood and Waterman assert, ‘bureaucratic resistance to duly elected politicians may actually sometimes

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be more consistent with democracy and public preferences than bureaucratic responsiveness may be’ (1994: 126). Interestingly, while NPM appears to tolerate partisanisation as well as the ideological politicisation of the senior echelons of career bureaucracies by accepting merit-based appointments ‘in which the definition of merit at least implicitly recognises political considerations, such as demonstrated commitment to the policy agenda of a particular government or party’ (Coaldrake and Whitton, 1996: 189), the new management paradigm clearly aims to strengthen the classical values of bureaucratic neutrality and autonomy at the more operational level, as epitomised in its dictum let managers manage. And it is in this legal, moral and administrative sense that bureaucratic institutions might attain almost as much legitimacy in democratic regimes as representative institutions. In the context of the relationship between institutional accountability and public resource allocation, since high-quality, answerable bureaucracies and impartial judiciaries tend to make public policy formulation and public action more responsive to citizens, it would be reasonable to expect that the better the quality and the greater the accountability of bureaucratic institutions, and the stronger the judicial institutions, the higher will be the level of public spending on citizens’ wellbeing, that is, on human development. A word on government to governance Beginning in the 1980s, the structure and operation of public sector administrative institutions experienced unprecedented change, particularly in the Western industrialised nations, but to a considerable level also in the developing world. In broad terms, the traditional, hierarchical structures of the public sector appear to have given way to structures characterised by markets and, more recently, by networks comprising state and private sector actors, not-for-profit agencies, community bodies and citizens. Many scholars of political science and practitioners of public administration have viewed the new countenance of the public sector as a paradigm shift from government to governance without government and have voiced concerns regarding the continued relevance of the chain of accountability running from bureaucracies, to elected representatives, to citizens. Their concerns are understandable but not entirely valid. First, as Bevir and Rhodes (2006a, 2006b) posit, there is nothing inevitable or inexorable in the perceived drive from hierarchies to markets to networks; and the emerging public sector structures in any state are a continuity of its institutional heritage in that they are the outcome of that state’s peculiar governmental traditions, beliefs of elite actors and the nature of the dilemmas (challenges) faced. Second, traditional hierarchical bureaucracies continue to integrate public sector organisation (Bevir and Rhodes, 2003, 2006a). Even in domains where market and network structures dominate public provision, core government departments remain at the centre of operations (Van Dijk and Winters-van Beek, 2009) and state actors continue to be accountable in their traditional vertical hierarchies, with the new forms of accountability created by markets and networks providing

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additional horizontal linkages (Considine, 2002, 2005). In fact, as some practitioners (e.g. Paterson, [1988] 1997) argue, the greater operational openness and transparency afforded by the new market-oriented arrangements may have actually strengthened the traditional control of legislatures over bureaucracies. Third, the question of the public interest has not lost its centrality even in the new models of public sector organisation (Keating, [1990] 1997). The Clinton– Blair Third Way, for instance, was aimed at ‘utilizing the dynamism of markets but with the public interest in mind’ (Giddens, 1998: 100). Fourth, and perhaps most importantly, traditional public sector institutions continue to sustain the overarching framework of democratic accountability. As Considine notes: Real institutions ask questions about how they [public officials] perform. Courts still wish to see the letter of the statute honoured and due process followed. Parliaments still expect detailed, descriptive reports which name and shame programmes. Citizen groups still press ministers and civil servants to take responsibility for public programmes, even if the programmes are delivered by contractors. (2005: 213) As such, even if public officials must navigate across multiple accountability relationships in the quest for the most advantageous route to achieving objectives, they remain responsible and answerable within the traditional hierarchical accountability relationships (Considine, 2002, 2005). Another conceptual problem in the framework of institutional accountability appears to have been created by NPM’s focus on the customer8 in a manner akin to that of private sector enterprises (Ferlie et al., 1996; Kaboolian, 1998). Legitimised by the arguments of theorists such as Barzelay (1992), DiIulio et al. (1993) and Osborne and Gaebler (1992), this customer-centricity is often seen as the displacement of the citizen in favour of the customer. The customer focus in the public sector may indeed be useful to the extent that it provides incentives for public sector agencies to improve the quality of their services, but the impression of the customer having displaced the citizen does not appear to be correct. First, not all clients9 of government organisations are customers; some are also beneficiaries10 or obligatees11 (Alford, 2002; Moore, 1994). As such, the customer focus can at best be relevant to public agencies involved with the sale of services, which too are often subsidised. Second, even where government agencies are involved in providing services to customers, the focus on customer satisfaction, backed by resources, is made possible only by citizens’ ratification. Similarly, resource allocation decisions in areas relating to beneficiaries and obligatees are also taken collectively by citizens (Alford, 2002; Moore, 1995; Pegnato, 1997). Third, in the very act of producing private value for the customer, the public sector is, in fact, also producing public value for citizens by complying with their collective preferences for the customer (Alford, 2002). Or as Moore posits:

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Democratic accountability and public spending The ultimate consumer of government operations is not the individuals who are served or obliged in individual encounters (the clients of the enterprise) but citizens and their representatives in government … They decide what is worth producing in the public sector, and their values ultimately matter in judging whether a governmental program is valuable or not. (1995: 38)

The essence of this brief discussion is that the new channels of horizontal accountability, which include many forms of direct accountability to citizens, largely supplement, rather than supplant, the accountability nexus running from the bureaucracy to the elected representatives to the citizens; and further that the citizen has not been replaced by the customer in the public domain. The state cannot abdicate its guardianship of the public interest and the commonweal, for it will lose both its legitimacy and its raison d’être. For so long as this is true, the strength of traditional institutional accountability will continue to be associated with the bureaucracy’s responsiveness to citizens’ wellbeing and the preservation of the common good irrespective of a changing public sector environment. Before moving on to resource-based accountability, however, we must clarify that from here onwards in the book, unless we explicitly refer to political institutions, any unqualified use of the term institutions is a reference to administrative (bureaucratic) and judicial institutions. The distinction we make is primarily for the ease of argument and analysis while segregating the effects of administrative and judicial institutions from those of political institutions. Modes of public resource mobilisation: the resources dimension The manner in which states generate the resources needed for public expenditures also tends to create accountability relationships for governments that affect public decision-making, including the allocation of those public resources. The accountability structures that the various modes of public resource mobilisation produce may not be as formally institutionalised as is, for instance, the political accountability created by the election process, or as legally enforceable as often is, for example, the codified administrative accountability of bureaucracies; but even so, resource-based accountability can exert a powerful influence through political and administrative institutions. No state can be entirely free to structure its resourcing options, at least not in the short run, and the nature of its resource dependence will be determined largely by the level of its economic development, the quantity and quality of its human and natural resources, and its creditworthiness in financial markets. But in the main, states might mobilise resources by levying taxes, imposing nontax charges, or by raising loans. In some cases, public investments in the corporate sector or a direct engagement in business may also be an avenue. States rich in natural resources may earn rents or royalties from their exploitation, while an attractive option for less developed states with limited resources may be to rely on foreign grants or concessional loans from international donor agencies. Each

Democratic accountability and public spending 53 of these modes of public resource mobilisation imposes a different set of accountability relationships on governments, which largely derives from: the nature of the actors who yield these resources; the implicit or explicit understanding between these actors and governments on the use of the resources; and the extent to which these actors can formally or informally induce governments to abide by their mutual understanding. From the perspective of the impact of public resource mobilisation on resource allocation, three modes appear to be the most significant: (i) taxation; (ii) rents or royalties from natural resources, particularly petroleum; and (iii) foreign aid. The accountability relationships produced by each of these modes is discussed below. Taxation Revenues generated through taxes can be expected to make governments more accountable to citizens than any other mode of public resource mobilisation for the reason that paying taxes not only tends to vest a right in the taxpayers to have a say in how the proceeds from the taxes are utilised, but also strengthens the right of the broader citizenry to demand answers from their governments. As Brautigam notes, ‘[w]hen government revenues and spending are dependent on successfully negotiating direct taxation of citizens, domestic pressure builds to enforce accountability for the use of those revenues’ (1992: 11). That taxation makes governments more accountable to those who yield resources and through them to the broader citizenry is a phenomenon that has unfolded over centuries. The most prominent historical example of this taxaccountability equation can be seen in the Magna Carta, whereby an absolute monarch, ruling by divine right, was forced to share his authority with, and become answerable to, the nobility in return for the resources he needed from them. The call to arms for the American War of Independence, no taxation without representation, echoes the same demand for the right to hold governments accountable in return for taxation. In fact, history is replete with instances where rulers have had to relinquish substantial parts of their exclusive authority over public policy to those groups that yielded tax revenues or those political actors whose consent was required to levy taxes. Schumpeter ([1918] 1954), for instance, citing the example of the Austrian principalities of the fourteenth to sixteenth centuries, relates that when traditional revenue forms and feudal rights became inadequate to sustain the protracted warfare against the Ottoman Turks, the princes were reduced to petitioning the estates for funding; and in lieu of the revenues that the estates consented to raise for them through new taxation, the princes were forced to concede to the estates a part of their authority over expenditures. Similarly, North and Weingast (1989) note that the ability of the English Crown to ignore the decisions of Parliament prior to the Glorious Revolution was derived primarily from the capability of the Crown to raise revenues independently of Parliament, and that, following the Revolution, Parliament was able to use the condition of its consent for new taxation to gain greater control over public expenditures. The historical relationship of representation with taxation

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holds true even in contemporary times. Ross (2004), for instance, reports that when governments underprovide public goods relative to taxation, the ensuing public reaction forces them to become more representative and democratic. The partial surrender of control over public spending policies by mediaeval and post-mediaeval rulers to representative bodies in exchange for authorisation to levy taxes may have actually been pragmatic transactions for the rulers rather than the disadvantageous compromises that the instances cited above may insinuate. As Henneman (1971) posits, since tax collection tends to be more convenient, and tax yields higher, when taxes are levied with the consent of taxpayers rather than without it, rulers preferred to obtain the consent of the prospective taxpayers. This was particularly true in the case of mobile assets, because they enabled their owners to avoid taxes through concealment or by moving out of high taxation jurisdictions (Mitchell, 1951; Willard, 1934). Furthermore, since it was impracticable or much too costly for rulers to obtain the consent of all prospective taxpayers, rulers preferred to negotiate and obtain authorisation for taxation from representative bodies, which led them to encourage the formation of representative institutions (Henneman, 1971; Mitchell, 1951). Nevertheless, even if the partial relinquishment of authority by rulers in return for taxation is viewed as their pragmatism rather than a compromise, the accountability implications remain the same. First, citizens or their representatives are not likely to consent to taxation in return for nothing; and second, since representative institutions are accountable to citizens, they will have strong incentives to obtain greater control over public policies on behalf of citizens in return for tax levies. Game theoretical models of consensual taxation presented by Bates and Lien (1985), for instance, provide support to this understanding. The tax–accountability relationship even finds support in the seminal work of Friedman (1978), who argues that higher taxes, even if levied to reduce budgetary deficits, generate pressures that lead to higher public spending. While advocating the rationalisation of government spending, Friedman (1978) does not explicitly focus on tax-generated accountability, but the mechanics of such a relationship appear embedded in his contention. Friedman’s (1978) argument has its detractors, such as Barro (1974, 1979), whose work implies that the question of taxation is settled once governments have determined their level of spending. The two processes may appear conflicting, but are, in fact, parallel and mostly contemporaneous. Taxes are evidently not the only potential influence on a government’s spending policies: this chapter has already highlighted the likely effects of democracy and high-quality institutions, while Chapter 2 indicated the many other factors that the existing scholarly research presents as possible determinants of public spending. Barro’s (1974, 1979) perspective – referred to as the spend–tax hypothesis in the literature – would be appropriately contextualised in terms of the influences other than taxation on spending policies; and on the other hand, Friedman’s (1978) perspective – described in the literature as the tax–spend hypothesis – is a reference to the effects of tax-generated revenues on public spending. The extensive empirical testing of the two hypotheses, as reviewed by Payne (2003), for instance, yields almost equal support for both

Democratic accountability and public spending 55 – which is not surprising. Rather, it provides empirical credence to the view that the spend–tax and tax–spend relationships operate simultaneously. Works such as Cheng (1999) that detect a feedback mechanism that creates bidirectional causality, that is, running from spending to taxation and from taxation to spending, provide even greater empirical support for this argument. Natural resources The accountability structures, and the incentives they create for public actors, produced by rents and royalties from natural resources tend to be very different from those created by taxing citizens. Resource-based accountability relationships can become very weak as the state becomes financially independent of the taxes generated by the other sectors of the economy (Anderson, 1987; Shambayati, 1994), or even warped, as in the case of a reliance on revenues generated by oil (Karl, 1997). In fact, states relying predominantly on rents and royalties are distinguishable from all other states as rentier states; and amongst rentier states, the petroleum-driven rentier state – or petro-state – epitomises the extreme lack of resource-based accountability to citizens (Karl, 1997; Shambayati, 1994). Since petro-states do not ordinarily rely on the productive processes of the domestic economy, they tend to neglect their productive sectors, with the result that not only do these sectors remain underdeveloped, but overall economic development is also stifled, along with the capacity for immediate and future taxation (Clark, 1997; Shambayati, 1994). The limited forward and backward linkages of the oil industry and international uncompetitiveness imposed by inflated domestic currencies, or the Dutch Disease, can further impede the development of domestic productive sectors (Karl, 1997). Oil dependence may even breed authoritarianism and opportunism (Clark, 1997), as well as clientelism created through the oligarchic distribution of rents (Shambayati, 1994). What is even more critical is that foreign interests, particularly oil companies, become intricately associated with domestic power structures, and begin to exert strong influence on public policies (Karl, 1997), thereby driving a wedge between citizens and governments. On the other hand, oil-dependent and other natural resource-rich states cannot claim credit for any achievement either; particularly not in the area of socioeconomic development, for such development frequently gets attributed to their rich resource base (Shambayati, 1994). This means that natural resourcerich states, at least in the absence of other political or institutional forces, tend to be confronted with neither negative nor positive accountability-based incentives to respond to citizens’ preferences or their wellbeing. This does not, however, imply that oil-dependent, or other natural resource-rich, rentier states will not spend on human development, for often the surplus wealth at the disposal of these states enables their governments to spend considerable amounts on education and health (Karl, 1997; Shambayati, 1994). Therefore, in the context of the argument on the relationship between democratic accountability and public spending for human development presented in this chapter, it is important to

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understand that governments in rentier states may spend on human development merely because of their surplus wealth and not because accountability to citizens gives them any incentive to do so. Or in other words, the relationship between democratic accountability and public spending may be altogether non-existent in rentier states. Foreign aid Even though foreign aid in the form of grants or concessionary loans may also constitute an external rent (Shambayati, 1994), it is different from other forms of external rents and nontax revenues in that it produces its own accountability relationships. The effectiveness of these relationships is, nevertheless, not unambiguous. One part of the equation is the relationship between donors and recipients, which tends to be particularly strong in states with large inflows of foreign aid. As Brautigam notes, ‘[w]hen aid transfers reach ten percent or more of total GNP … those with the loudest single voice on revenue and expenditure issues are international lending agencies’ (1992: 11). Although such accountability to donors, like rents, inserts a wedge between governments and citizens, it may often be to the advantage of the citizens of less developed states: since human development is now being increasingly emphasised by international development agencies, accountability to donors may actually lead to greater resources being allocated to education and health. But not always. Even though donors may grant sector-specific aid, recipient governments can frequently transfer these funds, as noted in Chapter 2, to other sectors by reducing their own funding to the sectors covered by aid (Feyzioglu et al., 1998). This fungibility of aid tends to depend both on the incentives faced by recipient states to provide greater resources to sectors other than the earmarked sectors (for instance, to the military at the cost of education) and on the ability of the donors to monitor and impose the conditions of aid. And not only is monitoring a complicated task (Feyzioglu et al., 1998; Smith, 2007), but in many cases the donors may themselves refrain from a strict imposition of such conditions (Collier, 2000, 2007; Easterly, 2003a). The second part of the accountability equation structured by foreign aid relates to the impact of aid on the accountability relationship between the recipient governments and their citizenry. Again, there are no clear answers in the research literature. On the one hand, as already alluded to above, accountability to donors may weaken the accountability of recipient governments to their citizens by making them less reliant on domestic taxation (Karl, 1997; Knack, 2001), and sometimes also by making the local political, bureaucratic and industrial elites beneficiaries of the foreign aid inflows (Brautigam, 1992). But on the other hand, recipient governments may never be able to evade completely accountability to the citizenry, not even for the revenues they receive in foreign aid, particularly in the case of democratic states. There are two basic reasons for this. First, donor conditions often include controlling budgetary deficits, which frequently entail higher taxation (Smith, 2007; World Bank, 2000,

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2003b), thereby rendering governments more accountable to citizens (Ross, 2004). Second, citizens have a vested interest in the proper utilisation of aid: they tend to understand that misappropriation or misallocation of foreign funds may lead to higher future taxation, a consideration that in many countries leads to protests against aid, donors and recipient governments. Third, the prospective beneficiaries of sectoral and programmatic aid have an interest in ensuring that the aid is utilised for its intended purpose, and tend to assist donors in monitoring and evaluation. In the context of the relationship between resource-driven accountability and public spending for human development, notwithstanding the complex accountability relationships that taxation, natural resources and foreign aid produce, it would be reasonable to expect that, since taxation tends to make governments more accountable to citizens, there should exist a positive relationship between taxation and public spending on human development. On balance, foreign aid can also be expected to enhance public spending on human development owing to the generally conducive accountability equations it produces between governments, on the one hand, and citizens and development partners, on the other. In the case of natural resource-rich states, however, no such a priori assumptions can be made since, even though natural resource-rich states usually have surplus resources to spend on human development, they may or may not have incentives to do so.

4. Public sector performance Compared to the private sector, the public sector is known for challenges in its productive inefficiency. The most important cause for this inefficiency is the lack of competition. As mentioned in Chapter 2, efforts have been made in more recent times, particularly under the influence of NPM (Considine, 2002), to compensate for the lack of competition and to improve PSE through the use of private sector inspired practices such as programme evaluation, cost-effectiveness analysis and benefit–cost analysis (Moore, 1995), as well as by focusing on outcomes, customer satisfaction, benchmarking, best practices and even performance audits (Behn, 2001; Jones, 2001). The new practices can certainly contribute towards improving PSP by providing accountability holders with additional tools to evaluate efficiency (Halligan, 2001; Moore, 1995), but subject to at least two limitations. The first of these limitations arises from the very nature of public sector production. For one, public sector inputs and outputs are often intangible, difficult to measure or even obscure, which makes precise quantification quite impossible (Colley, 2001; O’Faircheallaigh et al., 1999). Second, the public sector production process is rife with complexities: the collective efforts of many government departments and even non-governmental organisations may be contributing to outputs and outcomes; outputs may be indistinguishable from outcomes; processes may involve multiple inputs and outputs; outcomes may be mostly indivisible; and there may also be significant time lags between interventions and outcomes

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(Behn, 2001; Jones, 2001; Mandl et al., 2008; Moore, 1995). Third, as Osborne and Gaebler (1992) argue, performance failures may be driven by systemic failures. Thus, it may be very difficult, and occasionally not even meaningful, to relate outcomes with outputs, and outputs with inputs. The second limitation arises from the nature of the democratic accountability framework. First of all, the public sector is not held accountable for efficiency alone: public sector outcomes are evaluated against core public sector values such as ‘justice, fairness, [and] equity’ (Van Thiel and Leeuw, 2002: 277) as well as public sector standards of probity and procedural transparency (Considine and Painter, 1997). Second, notwithstanding the technical limitations of evaluation outlined above, the final arbiters of PSP cannot be quantitative analysis per se or customer assessments, but the satisfaction of the entire citizenry (Behn, 2001; Kearns, 1996). Consequently, the extent to which the new market-based evaluation techniques can be used to guide PSP will depend largely, as Moore (1995) suggests, on the strength of the traditional democratic accountability mechanisms. Behn’s understanding that ‘[w]hatever we mean today by the concept and process of accountability, it is – in practice – very linear, hierarchical, and unidirectional’ (2001: 196), therefore, comes as no surprise. This understanding relates to the US structure of accountability, but it is largely also true for all other states. For instance, even though Australia has adopted and institutionalised several NPM-driven measures of performance, their implementation mechanisms remain structured within the traditional hierarchy of political accountability (Jones, 2001), an arrangement that, in fact, tends to be necessary to maintain democratic accountability. Thus, both traditionally structured and NPM-reformed public sector organisations continue to work within, and are affected by, the overall democratic accountability environment, and PSP continues to depend on: how accountable public institutions are to citizens through their representatives; the extent to which internal institutional accountability mechanisms of public organisations can enforce standards, objectives and targets; and the degree to which taxpayers can demand proper utilisation of their contributions. Léautier summarises this phenomenon succinctly: ‘The incentives that motivate public servants and policy makers – the rewards and sanctions linked to results that help shape PSP – are rooted in a country’s accountability frameworks’ (2005: xi). What may explain the variation in the effectiveness of states in improving human development outcomes is, therefore, again the specific strength of their political, institutional and resource-based accountability structures. The stronger these structures, the better should be their human development outcomes.

5. Concluding comments This chapter has argued that the nature of the political regimes of states, the quality and strength of their administrative and judicial institutions, and their dominant mode of public resource mobilisation configure their democratic accountability framework. This in turn shapes the pattern of their public

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spending on human development as well as the effectiveness with which they utilise this spending. Democratic accountability, high-quality bureaucracies and judiciaries, and a reliance on taxation can be expected to create incentives for governments to allocate more resources for human development. On the other hand, autocratic regimes, low-quality administrative and judicial institutions and a dependence on nontax revenues can be expected to have the opposite effect. Foreign aid may, however, also promote public spending on human development under certain circumstances. As for performance outcomes, stronger democratic accountability can be expected to enhance government effectiveness, while weak democratic accountability can be expected to reduce it. In the next chapter, we explain the data and methods we employ to test empirically the relationships and arguments we have presented in this chapter.

Notes 1 Public value has a range of different interpretations in the literature, varying from objectively determined, to politically defined, to customer-oriented meanings (Moore, 1995). However, as opposed to private value, public value can be seen as value that ‘is consumed by the public collectively’ (Alford, 2001: 5). There also appears to be consensus amongst theorists that it is the citizenry who have the right to define public value. 2 The private value of a good or service can be explained as the benefits derived by individuals from the consumption of that good or service in their individual capacities; the public sector also produces private value, which is consumed by the customers or beneficiaries of government output in their individual capacities (Alford, 2001; Moore, 1995). 3 There are two main strands of NIE. The first derives from the transaction costs argument and has been popularised by theorists such as North (1990, 2005). The second is based on the imperfect information argument, propagated by scholars such as Stiglitz (1974, 1985). 4 Like neo-institutionalism in other disciplines, neo-institutionalism in political science is not a monolithic theoretical construct, but comprises several interwoven strands of argument held together by their common emphasis on the centrality of political institutions. 5 In terms of the principal–agent construct, the legislature is the principal and the cabinet is the agent. 6 In this case, the cabinet is the principal and the bureaucracy is the agent. 7 ‘Confidence’ if moved by the government; and ‘no confidence’ if moved by the opposition. 8 Customers are people who pay an organisation in return for the commodities produced by the organisation (Alford, 2002; Moore, 1995). 9 Clients are ‘the citizens the organization encounters at its “business end” through individual encounters or transactions’ (Moore, 1995: 37). 10 Beneficiaries are individuals who receive private value from the goods or services produced by an organisation without having to pay anything in return (Alford, 2002). 11 Obligatees are individuals who consume a negative private value from the activities of an organisation by being subjected to legal obligations. The service produced by an organisation in this case entails coercing the client against his or her will (Alford, 2002; Moore, 1995; Pegnato, 1997).

4

What really drives human development spending and outcomes? Regression analysis: methods and data

Drawing upon neo-institutionalist theory, we have, in the previous discussion, proposed a rationale to explain why states with stronger frameworks of democratic accountability can be expected to allocate more public resources for human development than states where such accountability is weak. The question before us now is to discover whether empirical evidence supports our arguments. Do the quality and strength of democracy and the mode of public resource mobilisation actually affect public spending on human development in the real world? And to what extent can the issue of causality, which often plagues investigations of this nature, be disentangled to show the direction of influence and thus the key drivers of better outcomes? To find answers to these questions, we adopt a twodimensional approach: regression analysis and case study. This chapter describes the methods and data that we employ for the regression analysis. In the context of public spending for human development, we have already explained why we need to focus on spending in the two areas of health and education across states. But, as noted earlier, to examine whether the impact of democratic accountability on public spending for human development is any different from its impact on public spending that does not always lead to greater human wellbeing, we also include data on military spending. Obviously this will allow us to distinguish between states with higher public spending on one but not the other. We use data on up to 119 states, covering the two decades from 1993 to 2012. Our three case studies also focus on public spending on health, education and the military, but over much broader time frames. On the other hand, to examine the impact of democratic accountability on human development outcomes, we again employ regression analysis and follow up the findings in our case studies. Because of inevitable data limitations, the empirical models for outcomes (or benefits) for individuals are based only on life expectancy at birth. The data cover the decade 2003–2012, albeit for a larger sample of 157 states. In the case studies, we consider a much broader range of education and health outcomes. This chapter is divided into three sections: section 1 details the regression methodology we employ and the data we use to analyse the impact of democratic accountability on public spending for human development across states; section 2 describes the regression methodology we adopt and the data we rely on to

What really drives human development spending and outcomes? 61 examine the relationship between democratic accountability and life expectancy outcomes; and section 3 offers some concluding comments.

1. Regression analysis: public spending on human development This section explains the regression methodology we employ to understand how democratic accountability influences the level of public spending on human development across different states. Section i describes the estimation method we use as well as our model; section ii explains how we meet the assumptions of the estimation method and model; sections iii–v describe, respectively, the dependent, explanatory and dummy (binary) variables along with their data sources; and section vi explains the sequence in which we fit the regression models. i. The estimation method and model We use the ordinary least squares (OLS) estimation method for our cross-country regression analysis, with the values of the dependent and explanatory variables averaged over the time periods we consider. Most of our explanatory variables are continuous, but in cases where these could not be quantified, we use binary values of 0 and 1 to produce dummy variables, which take the value of 1 when the attribute of interest is present and 0 when it is not. We adopt the classical normal linear regression model (CNLRM) specified by the following equation

=

+

+

+

where: Y stands for the dependent variable; the subscript i in Yit refers to the value of the variable in the ith case, and t indicates the time period over which the value of the variable has been averaged; α 0 stands for the intercept; α p represents the intercept values of the dummy groups as differentiated from the intercept value of the reference dummy group; Dp stands for the set of dummy variables, where subscript p ranges from 1 to v; the subscript i in Dpit refers to the value of the variable, that is, 0 or 1, in the ith case; and the subscript t in Dpit indicates the time period covered by the attribute represented by the dummy variable; βj represents the regression coefficients of the explanatory variables, Rj; Rj are the explanatory variables, where subscript j ranges from 1 to n; the subscript i in Rjit refers to the value of the variable in the ith case, and t indicates the time period over which the value of the variable has been averaged; and

62

What really drives human development spending and outcomes? µ is the disturbance or error term; the subscript i in µit refers to the value of the error term in the ith case, and t indicates the time period.

We give the precise specifications of our regression models in Chapter 5, but some detail on the period we study and our use of the averaged values of continuous explanatory variables is important at this stage. Data period While we consider the period 1993–2012 in our regression analysis, our data for the dependent variables, that is, for public spending on health, education and the military, covers the decade 2003–2012. We chose these years for several reasons. First, this is the most recent decade for which reliable data on public sector spending relevant to our study are available. Second, public spending data for this period are available for a much larger number of countries than are earlier data. Third, since most studies in the area have been carried out on the basis of data prior to 1990, this later period offered a fresh potential for research. And fourth, the post-Soviet era, as mentioned in the Preface, provided an opportunity to study the various influences on public spending decisions beyond the shadows of the Cold War, during which ideological rivalry of itself could lead governments to expand certain forms of public provision. On the other hand, we consider the values of the explanatory variables in two sets, that is, for the decades 1993–2002 and 2003–2012. The latter decade corresponds to the time frame used for the independent variables, while the former is the decade immediately preceding it, which helps in deciphering the direction of causality. Averaged values of variables From a theoretical perspective, averaging the annual values of variables over the periods of interest appeared to be a more logical approach for our study than using methods such as pooling data or using them in the form of panels. For one, marginal year-to-year changes in the value of explanatory variables such as democracy, for instance, cannot be expected to have any notable impact on the resources allocated to a particular sector. Existing budget commitments, for example, must often be honoured and new policymaking tends to be rigid and time consuming. Even in the case of the few states that, like Pakistan, experienced both military and civil governments over the period we consider, and as a result of which democracy ratings have swung like a pendulum, averaging remains the appropriate method as it may not be easy, or occasionally even possible, for a newly established military dictatorship or an elected government to modify, except gradually, path-dependent government institutions or to roll back ongoing development projects with large gestation periods. In the same way, it may be equally difficult to create new establishments and projects, or to reduce, over a short time span, the hidden momentum of past expenditure trends. This

What really drives human development spending and outcomes? 63 makes resource allocation, like other areas of public policy, rather rigid, with change coming somewhat incrementally. Consequently, periodic swings in the values of variables such as democracy may not correctly represent the enduring effects of democratic, or conversely autocratic, institutions. Similarly, changes in the strength of accountability mechanisms pegged to administrative and judicial institutions or greater taxation, or even foreign aid, may ordinarily be able to influence public policies only gradually, which makes their averaged values a better measure of their impact on public spending decisions. The same reasoning applies in the case of variables such as trade openness, ethnic fragmentation or per capita income that we include in our regression models. An added advantage of using averaged values is that it obviates the problem of serial correlation or autocorrelation1 in cross-country regression analysis. Related empirical studies, including many of those referred to in Chapter 2, also frequently use averaged values of variables in regression analysis. However, because of small sample sizes, research focusing only on the European or industrialised states mostly uses pooled or panel data, or values of variables averaged over several sub-periods of the time frame under study. Both methods yield more than one data point for each state, thereby compensating for the limited sample size, but they also lead to statistical complications. Hypothesis testing: statistical significance Following the convention in related earlier and contemporary research, we adopt the α-level of 0.05 in a two-tailed test as the standard for statistical significance and the rejection of the null hypothesis. But since some studies also report statistical significance at an α-level of 0.10 in addition to the 0.05 level, we use the 0.10 level to indicate instances of marginal statistical significance. ii. CNLRM and OLS assumptions The OLS is the best linear unbiased estimator (BLUE) for the CNLRM only when the Gauss–Markov assumptions and the normality condition are met. Where these requirements are not fulfilled, the OLS estimators may become inefficient or biased or both. While marginal deviations are typically disregarded or, depending on the case, some alternative assumption is made, serious violations necessitate corrective interventions. Some of the Gauss–Markov conditions are straightforward and can be easily verified to have been met by looking at the model specifications and data, but those relating to multicollinearity, homoscedasticity, the independence between disturbances and explanatory variables, autocorrelation and model linearity, as well as the normality condition, are critical and require appropriate scrutiny. Accordingly, we checked our regression models for potential problems in these areas. Most checks entailed post-regression analysis of residuals or formal tests, but we present our findings here pre-emptively so as to simplify the reporting of the regression results in Chapter 5.

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Multicollinearity In its extreme form, multicollinearity refers to the presence of an exact linear relationship between two or more explanatory variables in the regression model. In practice, however, the term means a high degree of, or near exact, linear relationship between the explanatory variables. High multicollinearity tends to inflate standard errors (and P-values), which can potentially bias hypothesis testing towards not rejecting the null hypothesis, or a type-II error. We checked for the classical symptoms of multicollinearity, that is, high values of R2 combined with regressor coefficients that are not statistically significant, or erratic changes in the values or signs in regressor coefficients when one or more of the suspected regressors is deleted from the model. These symptoms, however, did not appear; in particular, the P-value of none of our variables was affected by the addition or deletion of any one or more of these variables. Homoscedasticity The term refers to equal variance in the disturbance terms of explanatory variables, and the absence of this property produces the problem of heteroscedasticity. Heteroscedasticity renders OLS estimators inefficient and tends to bias the standard errors of regression coefficients downwards, thereby making t- and F-tests unreliable. There can be several reasons why disturbances exhibit unequal spreads, including: larger variances as the values of a variable become larger in the different observations in a sample; presence of outliers; incorrect data transformations; and model misspecifications. We therefore checked for heteroscedasticity through residual analysis as well as the Breusch– Pagan/Cook–Weisberg and White2 tests performed after running OLS regressions with conventional standard errors. Even though we could not reject the null hypothesis of homoscedasticity in any model, we follow the wider contemporary practice of relying on heteroscedasticity-corrected standard errors, more generally referred to as robust standard errors. Independence of disturbances from explanatory variables Since we use secondary data collected by international organisations and agencies, our explanatory variables cannot be expected to yield different values in repeated sampling, which means that they meet the condition of being nonstochastic. Nevertheless, we also checked for any correlation between residuals and explanatory variables. Outliers Outliers are observations with values that deviate unusually from the value of other observations in the sample, and can often be identified by their large positive or negative residuals. Outliers are important since they tend to present a

What really drives human development spending and outcomes? 65 methodological trade-off: if they are retained they may exert undue influence on the values of OLS estimators; and if they are removed, the authenticity of the regression analysis may itself become suspect, particularly where outliers actually belong to the population from which the sample has been taken and are not the result of any incorrect observations. In our analysis, two observations/states exhibit outlying values: Israel and Oman in the case of military spending. But preferring to err on the side of authenticity, we retain them. Nevertheless, we also fitted regression models without these outliers to compare the effects. Since their exclusion did not make any serious difference to the predictions of the model, we do not report them. Autocorrelation Autocorrelation, or serial correlation, occurs when the disturbances are correlated in a series of observations over time, or sometimes even space, so that they can no longer be assumed to be independent of one another. This is mostly a problem in time-series analysis. As in the case of heteroscedasticity, autocorrelation renders OLS estimators inefficient and frequently generates smaller standard errors of regression coefficients than may otherwise be the case. Autocorrelation would have, of course, been a serious consideration in our regression methodology if we were to, for instance, use pooled data rather than the average values that we employ. Nevertheless, even after averaging our data, which removes the a priori expectation of autocorrelation, we checked for it, but found no evidence of its existence. Linear model A specification of the model as linear, when it is actually not, can yield spurious regression estimates. Scrutiny of residuals plotted against fitted values of the dependent variable for distinctively curved patterns helps in identifying this problem. We checked for model misspecification accordingly, but found no evidence of any non-linear relationship. Normally distributed disturbances OLS estimators remain BLUE even if the residuals of the regression model are not normally distributed. However, hypothesis testing no longer remains possible since in the absence of a normal distribution of disturbances, we cannot assume that the OLS estimators of the regression coefficients are normally distributed, and it is the assumption of their being normally distributed that sustains the validity of the t- and F-tests, particularly in finite or small samples. Because of its critical importance, we tested the normality condition for each fitted regression model not only through residual analysis/normal probability plots, but also by running on residuals the Kolmogorov–Smirnov and Anderson–Darling tests for normality. The normality condition is met in all cases except where the two outliers,

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What really drives human development spending and outcomes?

Israel and Oman, are included in the military spending regression models, in which case the normal distribution of the residuals appears to be marginally affected. But this is not a cause for concern. The normal distribution of residuals is compromised not because of any inherent data characteristics, but by the presence (as their removal from the dataset demonstrated) of the two outliers with large residuals, which we have preferred to retain in the model rather than lose on authenticity. Such minor problems relating to normality, heteroscedasticity and outliers tend to be taken care of by the use of robust standard errors (Chen et al., 2003). Even if this were not the case, we could always rely on the asymptotic assumption of normality. Our smallest sample size in these models is 90, which is almost twice the size of the conservative lower limit of 50 recommended by authors such as Hill et al. (2001) and Thomas (1993) in order to make such an assumption, and thrice the size of the less restrictive lower limit of 30 recommended by many others. Similarly, the data we use meets the assumptions of nonstochasticity and homoscedasticity that are also required for the asymptotic assumption of normality. iii. Our dependent variables: public spending on human development Most related studies of the determinants of public spending consider such spending as a percentage of GDP. Accordingly, we also construct our dependent variables, that is, public spending on education, health and the military, as a percentage of GDP. This proportion tends to reflect appropriately the public sector potential to generate and allocate resources in terms of the size of the economy. A very important aspect of our methodology, as noted in the Preface, is that we use general government spending data (i.e. expenditures made by the national and all tiers of subnational government) to construct our dependent variables. This is a critical point since in many states, particularly those with federal systems, education and health are mostly the responsibility of subnational governments, and taking into account only central government spending, as do most related studies (since it is the most widely available data) can produce misleading results, as we show in Chapter 5. We source our data from the World Bank’s World Development Indicators (WDI) database and the International Monetary Fund’s (IMF) Government Finance Statistics (GFS) database. Both databases have limitations in terms of states and periods covered, but are the best available on general government spending and also the ones used most frequently in related research. Using general government data from the WDI database, we construct the following expenditure variables: • • •

public spending on health, coded Healthgdp; public spending on education, coded Educationgdp; and public spending on the military, coded Militarygdp.

We construct each of these variables by compiling the data for each country for each available year over the period 2003–2012 (both years inclusive), and then

What really drives human development spending and outcomes? 67 calculating the annual average for each country over this period. We also construct the same variables for the central government using data from the IMF’s GFS database. However, we use central government spending only to compare its results with the results produced by models based on general government spending. iv. Our explanatory variables We include two groups of explanatory variables in our regression models: •

•

Group-I: these variables operationalise our democratic accountability framework, presented in Chapter 3, and constitute the central focus of our study. Group-II: these variables operationalise the economic, societal and demographic influences that need to be controlled for when assessing the impact of democratic accountability on public spending for human development. We include these variables mostly on the basis of the findings of earlier research we reviewed in Chapter 2.

A description of the explanatory variables that we employ now follows. Group-I variables As we argued in Chapter 3, the strength of democratic accountability in any state depends on how democratic the state is, the quality and strength of its administrative and judicial institutions, and its dominant mode of public resource generation. In line with this argument, we use four continuous explanatory variables to operationalise our democratic accountability framework. DEMOCRACY

The first variable, which we code Dem, is an index for democracy. The proposition is that the higher the level of democracy, the greater would be a government’s accountability to citizens. We construct Dem in the form of a continuous variable by averaging two standard and well-recognised measures of democracy: (i) the Polity2 scores given to states under the Polity IV Project: Political Regime Characteristics and Transitions, 1800–2013;3 and (ii) the Gastil or Freedom in the World (FIW) ratings developed by Freedom House. Our decision to use a combination of these two datasets was guided by the consideration that the Polity2 measure reflects what Diamond (2008), for instance, refers to as democracy in its thin or minimalist sense, while the FIW ratings measure democracy in its thick sense. Combining the two measures yields a continuous measure of democratic accountability structured on both these aspects of democracy. To construct the variable, we first convert both the Polity2 scores and linearly transformed FIW ratings, separately, into percentages for each state for each year for the period 1993–2012 and then average both sets of percentages into a single

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What really drives human development spending and outcomes?

value, which produces an index, potentially ranging from 0 to 100, for each state for each year of that period. We then average these scores for each state for the periods 1993–2002 and 2003–2012 to produce each state’s Dem value for that particular period. Our conversion of Polity2 scores and FIW ratings into an index is similar to Mulligan et al.’s (2004) conversion of Polity’s democracy scores, and Barro’s (1994) conversion of FIW ratings, into indices. INSTITUTIONS

The second variable, coded Inst, is an index that measures the quality, strength and accountability of public institutions, or the institutional dimension of democratic accountability. The understanding is that the better the quality and greater the strength of administrative and judicial institutions, the more accountable will be the government, the bureaucracy and other public actors to citizens. We construct Inst from another widely used database, the Researcher’s Dataset: Table 3B, offered by the International Country Risk Guide (ICRG). To construct this variable, we use the ICRG’s ratings for: • •

•

Bureaucracy quality: ranging from 0 to 4, with higher scores showing better quality, more accountable, bureaucracies. Corruption: ranging from 0 to 6, with higher scores representing more accountable institutional structures. Since the role of judicial institutions is pivotal in curbing corrupt practices, the level of corruption is a good indicator of the quality not just of executive institutions, but also of judicial institutions. Law and order: ranging from 0 to 6, with higher scores reflecting healthier legal, judicial and public order environments and, thus, more certain accountability.

To construct Inst, we first convert the scores in each of the three areas into percentages for each state for each year of the period 1993–2012, and then calculate the average of the three sets of percentages for each state for each year. Each of the three areas has equal weight in this variable, and its value potentially ranges from 0 to 100, with higher values signifying higher quality, stronger and more accountable institutions. Again, as in the case of our measure for democracy, we average each state’s Inst values for the periods 1993–2002 and 2003–2012. TAXATION AND FOREIGN AID

The third variable, taxation, which we code as Tax, and the fourth variable, foreign aid, coded Aid, are our two measures for resource-driven accountability, produced by the level of taxation (including social security payments) and foreign aid respectively. As argued in Chapter 3, higher taxation could be expected to make governments more accountable to citizens, whereas higher levels of foreign aid are likely to make public actors more responsive to the requirements of

What really drives human development spending and outcomes? 69 donor agencies, which may often, as noted earlier, coincide with citizens’ socioeconomic needs and interests. We operationalise Tax as the percentage of total central government revenues yielded by taxation and social security contributions. We calculate this percentage for each state for each year of the period 1993–2012 (except for years with missing values) and then average these percentages for each state over the periods 1993–2002 and 2003–2012. We source the data on taxation, social security contributions and total revenues from the IMF’s GFS database. We use data for the central government, which covers the largest number of countries. Theoretically, our measure Tax ranges from 0 to 100, although no country exhibits these two extremes. We take taxes (a term we employ henceforth to also include social security contributions) as a percentage of total resources, rather than of GDP, as our measure of tax-driven accountability for the reason that taxes as a proportion of GDP tend to represent an absolute measure of resources from taxation in the sense that this proportion does not indicate the reliance of the state on nontax resources, whereas taxes as a proportion of total revenues reflect the relative significance of taxes and nontax resources. This difference is critical for our study since we require a variable that represents resource-based accountability, not the level of taxation per se. A state can have both a large tax to GDP ratio and a large nontax revenue to GDP ratio, which makes the tax to GDP ratio rather inappropriate as a measure of tax-driven accountability. Second, there may be a positive, or even a negative, relationship between democracy and higher taxation when taxation is taken as a percentage of GDP, as different studies suggest; but any such relationship does not appear to hold when taxation is considered as a proportion of total revenues since the latter measure tends to depend more on the level of natural resources available to a state. Furthermore, a state having a large tax to GDP ratio has the potential to allocate more resources to all sectors in any case, which again makes this proportion incapable of reflecting a tax-driven accountability relationship, as does the tax to total revenues ratio. We use central government data, rather than general government data, to build Tax because GFS general government data on taxation can be obtained for 95 states while central government taxation data is available for 163 states. A doubt may arise as to whether central government taxation truly reflects taxdriven accountability for the state as a whole rather than just for its central government. Fortunately, however, the percentage of total central government revenues yielded by taxation appears to be a very good proxy for the percentage of total general government revenues accruing from taxation: the correlation between the two in the case of the 95 states for which GFS general government taxation data is available is 0.9 (P-value < 0.001). Such a high correlation strongly supports the use of the central government tax proportions as a proxy for the general government tax proportions. On the other hand, we use the log of net official development assistance (ODA) per capita in current US dollars to operationalise foreign aid-driven accountability, which we code as Aid. We source data on ODA from the World

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Bank’s WDI database, and construct Aid by taking the log of per capita ODA for each state for each year of the period 1993–2012, and then average the values for the periods 1993–2002 and 2003–2012. We do not disaggregate aid on the basis of the purpose for which it may have been granted, not because not all aid is neatly classifiable by purpose, but because our objective is to operationalise the overall accountability implications of aid and to assess how it influences resource allocation, and not to evaluate the effects of aid itself as a resource available for a particular area of public spending. Group-II variables As noted earlier, these are the continuous explanatory variables we include in our regression analysis to control for the factors that in earlier research have been found to influence public spending. Group-II variables also include a new variable we employ to control for the impact of external conflict. We give below a brief description of these variables and how we source them. LEVEL OF ECONOMIC DEVELOPMENT

Following from Wagner’s Law and the logic of industrialism, as described in Chapter 2, the level of economic development has been found to influence public spending and has been operationalised in almost every related empirical study as the natural log of per capita income. Per capita income also needs to be controlled for because otherwise, as some studies report, democracy tends to pick up its effect, particularly in the case of the industrialised countries. Accordingly, we also include economic development in our models as the natural log of per capita income, which we code Dev. We source data on per capita income from the World Bank’s WDI database in current US dollars; and, as in the case of Group-I variables, we take the values for each state for each year over the period 1993– 2012, and then take the average value for each state for the periods 1993–2002 and 2003–2012. AGED POPULATION

The literature identifies aged population to be a salient influence on public spending, particularly spending on health and social protection. As noted in Chapter 2, the influence of the aged population also derives primarily from the logic of industrialism; but, as in the case of per capita income, the proportion of population over 65 years of age needs to be controlled for because otherwise, as also indicated in some related studies, democracy can pick up its effects. We therefore include this variable in our regression models. We source data from the World Bank’s WDI database, and adopt the same compilation and averaging procedures that we employ for other variables. We code this variable Aged.

What really drives human development spending and outcomes? 71 TRADE OPENNESS

Many related studies, as noted in Chapter 2, report trade openness, measured as the sum of the value of exports and imports as a ratio or percentage of GDP, to be an important influence on public sector spending. Accordingly, we also operationalise trade openness, which we code Open, as the sum of exports and imports as a percentage of GDP. We source data from the Penn World Tables (Feenstra et al., 2013). Our averaging procedures remain the same. ETHNIC FRAGMENTATION

As described in Chapter 2, societal fragmentation resulting from ethno-linguistic or racial friction can also affect the nature of public spending. We operationalise the possible effects of ethnic fragmentation with the ICRG’s measure Ethnic Tensions, which evaluates states on a scale from 0 to 6, with higher scores showing lower ethnic tensions. This measure is also a part of the ICRG’s Researcher’s Dataset: Table 3B. We convert it into an index ranging from 0 to 100, with higher values representing lower tensions, and apply our compiling and averaging procedures to produce our variable Ethnfrag. EXTERNAL CONFLICT

Outright war, higher levels of friction in foreign relations or the anticipation of war may cause states to spend more on the military, and consequently less on human development. In the tradition of empirical studies such as Ghobarah et al. (2004) and Mulligan et al. (2004), the influence of war or its apprehension on public spending therefore needs to be controlled for. External conflict, as we would now describe this influence, also serves as a proxy for the extent to which military spending can be considered necessary and, thereby, in the public interest. We therefore include the effect of external conflict in our analysis. We source data from the ICRG’s measure External Conflict, which is included in the Researcher’s Dataset: Table 3B on a scale from 0 to 6, with higher scores reflecting lower conflict levels. We convert the ICRG’s measure into a 0–100 point index and apply our compiling and averaging procedures to obtain our variable Extcon. v. Dummy variables We construct several binary or dummy variables to control for the influence of factors reported in the literature as potential determinants of public spending but which could not be operationalised as continuous variables and which have also been included in related empirical studies predominantly as dummy variables. A dummy variable can have only an absolute value of either 1 or 0 for the attribute it represents. If the attribute is present, the value is 1; if not, it is 0. Therefore, while constructing dummy variables, in the exceptional cases where the value,

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What really drives human development spending and outcomes?

1 or 0, changed for any state over the time period for which the values of the continuous variables included in the regression model have been averaged, we use the value that state took during most of the years over that period. The following are our dummy variables for the public spending models. Orientation dummy Left-wing regimes, as discussed in Chapter 2, appear to have had a significant impact on public spending. Although related research generally operationalises left-wing influences in the form of dummy variables that separate states with leftwing governments from those governed by right-wing regimes, in many studies the influence of the Left has also been operationalised as a continuous variable based on, for instance, union density or the strength of left-wing parties in the cabinet or legislature. However, most of this research covers the pre-1990 era, whereas our study focuses on the post-1990 years, a period in which the power resources of the Left appear to have largely dwindled. But the influence of the Left cannot be altogether ignored either. Accordingly, we operationalise the power resources of the Left in the form of a dummy variable to control for the continuing or residual impact of left-wing rule. We code this dummy variable Dleftwing and include in it all those states that have had predominantly left-oriented governments (including social democratic governments) over the relevant period; the reciprocal dummy category comprises the excluded right-wing and centrist states. We source data on orientation from the database assembled by Beck et al. ([2001] 2013). Political system dummy This dummy variable is intended to separate presidential from parliamentary regimes. However, since some states have characteristics of both, not all political systems can be neatly classified as presidential or parliamentary. We therefore use the database developed by Beck et al. ([2001] 2013) to construct a dummy specification for presidential systems, Dpres, which includes all those states that have had directly elected presidential systems for most of the years over the relevant period. The reciprocal category for this dummy group consists of all states that have had parliamentary systems or assembly-elected presidential systems over the same period. Electoral rule dummy As in the case of political systems, the many variations in electoral systems across states do not permit their precise categorisation as majoritarian (plurality) or proportional voting systems. Therefore, again drawing from Beck et al.’s ([2001] 2013) database, we create a dummy variable, Dmaj, which includes all states that have had majoritarian (plurality) voting systems for most of the years over the relevant period. The reciprocal category comprises states that have had purely proportional representation systems or mixed systems over the same period.

What really drives human development spending and outcomes? 73 Oil and natural resource dependence dummies As discussed in Chapters 2 and 3, oil revenues may have an impact on public spending beyond the proposed democratic accountability nexus. In line with related studies that operationalise the effects of oil-generated revenues through dummy variables, we construct a dummy specification, Doil, in which we include all those states that received average annual rents and royalties of 20 per cent or more of their GDP from oil extraction over the relevant period. However, to control more comprehensively for the effects of rents generated by oil as well as for the influence of other forms of natural wealth that can potentially affect – positively or negatively – public spending on human development as studies such as Gylfason (2001a, 2001b, 2007) and Stijns (2006) suggest, we also construct a broader dummy specification, Dnatres, which is exactly the same as Doil except that it takes into consideration average annual rents and royalties from all forms of natural resources, including oil, gas, coal, minerals and forests. We source data for both specifications from the World Bank’s WDI database. vi. Sequence of fitting regression models While regression analysis is a powerful tool to understand the association between the dependent and explanatory variables, it has some serious limitations. The most important, perhaps, is that it cannot decipher unambiguously the direction of causality. In fact, regression analysis may even become plagued by issues of reverse causality. For instance, a positive, statistically significant, coefficient yielded by regressing education spending on a measure of democracy could be quite validly used as evidence of the effect of democracy on education spending. But on the other hand, it could also be argued, and perhaps equally validly, that this coefficient has actually been produced by the ability of broader educational provision to make regimes more democratic! Both directions of causality are theoretically tenable. Therefore, to reduce such ambiguities on causality, we fit a series of regression models in which we first regress the dependent variables on the values of the explanatory variables averaged over the decade concurrent to the decade for which we average the values of the dependent variables, and then we regress the dependent variables on the values of the explanatory variables averaged over the preceding decade. The phases detailed below explain how we fit our regression models. It must be mentioned at the outset, however, that although our sequencing in Phase-I facilitates the deciphering of the direction of causality, given that the data is observational, causality can, strictly speaking, never be proven. Phase-I: basic subset In Phase-I, we take a basic subset of countries for which we have complete data on all three of the core dependent variables, that is, Healthgdp, Educationgdp and Militarygdp, as well as on all the explanatory variables, including the dummies.

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What really drives human development spending and outcomes?

For each of the core dependent variables, we fit a set of two regression models in the following sequence: 1

2

In the first model, we take the values of explanatory variables averaged over the same decade for which the values of the dependent variables have been averaged, that is, 2003–2012, both years inclusive. In the second model, we take the values of explanatory variables averaged over the preceding decade, that is, 1993–2002, both years inclusive.

Our objective behind using a basic country subset, common to all public spending categories, and uniform data periods is to add to the comparability of regression results across the three spending categories, particularly in terms of the implications this may have on the validity of our findings on causality. Phase-II: expanded subsets In Phase-II, we create larger subsets for each of the three public spending categories. In each subset we include states for which data on that particular spending category and all explanatory variables are available. Whereas a common country subset allows for more authentic comparisons across expenditure categories, more inclusive and expanded samples tend to add to the general integrity of the regression analysis. Phase-III: general government versus central government spending In Phase-III, in addition to general government spending, we use central government spending on health, education and the military as a percentage of GDP as our dependent variables. Our purpose in this phase is to examine the implications of taking into account central government spending (as most of the earlier studies have done) rather than general government spending.

2. Regression analysis: human development outcomes Even though quantifying PSP, as discussed in Chapters 2 and 3, is rather elusive, empirical analysis can add a degree of independence to qualitative evaluations. Therefore, prior to examining the implications of democratic accountability for human development outcomes through case studies, we use regression analysis to gain some insight into how democratic accountability affects human development outcomes produced by public spending. However, primarily because of data limitations, we focus only on life expectancy outcomes. We also do this rather simply by operationalising democratic accountability through dummy variables, while controlling for the level of development and public and private spending on health. Despite its simplicity, our approach is well suited to its objective, that is, to understand how different countries might have different human development outcomes depending on the differences in the strength of

What really drives human development spending and outcomes? 75 their accountability structures. Section i specifies the regression model; section ii describes the dependent variable; section iii details the continuous independent variables included in the model; section iv lists the dummy variables and explains their construction; and section v clarifies certain aspects relating to the model and data we use. i. The model and estimation method As in the case of public spending for human development, we use the CNLRM already described above and the OLS estimation method, with robust standard errors. ii. The dependent variable Life expectancy at birth (both sexes combined) in the year 2013, which we code Lifeexp, is the only dependent variable we employ. Life expectancy is not only an important variable in itself from the perspective of human development outcomes, but also proxies for many other outcomes in the area of health and overall wellbeing. It is probably for this reason that it is the only component used to incorporate the health dimension in the HDI. We source data on life expectancy from the UNDP database. iii. The continuous explanatory variables We use three continuous control variables in the outcomes model: per capita income adjusted for purchasing power parity (PPP); per capita public spending on health adjusted for PPP; and per capita private spending on health adjusted for PPP. We include private health expenditures, in addition to public health expenditures, since they also affect life expectancy and must be controlled for while assessing outcomes. Furthermore, we use PPP-adjusted per capita public and private health expenditures since they provide a fairly reliable measure to control for health-related inputs, that is, the per capita quantum of goods and services supplied by expenditures incurred on healthcare. These measures take into account not only the population dimension of a country, but also the relative purchasing power of a dollar in that country. This is important when spending is actually serving as a proxy to control for variations in health inputs. We source both expenditure sets from the data repository of the World Health Organization (WHO) for the decade 2003–2012 and apply our compiling and averaging procedures described earlier in section 1 to construct Exppublic and Expprivate, which, respectively, denote PPP-adjusted public and private per capita spending on health. Since we need to control for factors such as the level of development, technology and nutrition, which vary widely across states and which affect life expectancy outcomes, we also include in the model PPP-adjusted per capita income as a proxy, which we code as Income. We source data for this variable from the World

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Bank’s WDI database for the years 2003–2012 and construct it by applying our compiling and averaging procedures. A point requiring clarification at this stage is that since improvements in life expectancy usually occur incrementally over many years, the life expectancy levels in 2013 cannot be attributed merely to spending over the preceding decade, 2003–2012. However, we use data only for this decade owing both to data limitations and considerations of uniformity, while relying on the assumption that expenditure levels over this decade also broadly reflect historical trends, at least in the post-1990 period. Our assumption is not atypical either. Because of data limitations, Afonso et al. (2010), for instance, also use public spending over a short period of 1998–2003 to weight public performance outcomes. One of these outcomes is life expectancy in 2001, which is weighted by average health spending over 1998–2002. iv. Dummy variables To operationalise democratic accountability, we create a three-dimensional dummy set based on the nature of each state’s regimes, institutions and resource dependence. The following dummy specifications constitute the set: • • • • • • • • • • • •

Ddemstinsttax: democratic states with strong institutions, dependent on taxes. Ddemstinstntax: democratic states with strong institutions, dependent on nontax revenues. Ddemstinstaid: democratic states with strong institutions, dependent on foreign aid. Ddemwkinsttax: democratic states with weak institutions, dependent on taxes. Ddemwkinstntax: democratic states with weak institutions, dependent on nontax revenues. Ddemwkinstaid: democratic states with weak institutions, dependent on aid. Dautstinsttax: autocratic states with strong institutions, dependent on taxes. Dautstinstntax: autocratic states with strong institutions, dependent on nontax revenues. Dautstinstaid: autocratic states with strong institutions, dependent on aid. Dautwkinsttax: autocratic states with weak institutions, dependent on taxes. Dautwkinstntax: autocratic states with weak institutions, dependent on nontax revenues. Dautwkinstaid: autocratic states with weak institutions, dependent on aid.

We classify states as democratic or autocratic based on the value of our variable Dem, as described above, for that state. States with a score of 50 points or above for most of the years over the period 2003–2012 are classified as democracies and the remaining are classified as autocracies. In the same way, to classify states as institutionally strong or weak, we use the value of our variable, Inst. States with

What really drives human development spending and outcomes? 77 an Inst score of 50 or above for most of the years over the period in question are considered institutionally strong and the remaining are considered as institutionally weak. For states not covered by the ICRG dataset, we use the World Bank’s World Governance Indicators, classifying states as institutionally strong or weak on the basis of their scores in the areas of government effectiveness, control of corruption and rule of law, which are comparable to ICRG’s fields of bureaucracy, corruption, and law and order used in Inst. In the case of the resources dimension, states that on average received foreign aid equivalent to 5 per cent or more of their GNI per year over the decade under consideration are classified as aid-dependent states. States not included in the aid-dependent dummy but that on average received 75 per cent or more of their revenues in taxes (including social security contributions) per year over this period make up the tax-dependent states. The remaining states constitute the nontax-dependent category. v. Country sample and data checking We include in our dataset all states for which data on the variables included in the model are available. However, for obvious reasons, we exclude African states that have experienced a reversal in life expectancy over the 1980s and 1990s owing to the AIDS epidemic. This gives us a dataset of 157 states. We use averaged values for the continuous variables in the performance regression model for the same reasons we use them in the public spending regression models. Similarly, we checked for problems relating to normality, heteroscedasticity, multicollinearity, outliers and autocorrelation in the outcomes model in the same way that we did for the public spending models.

3. Concluding comments To successfully explain how certain forms of accountability drive governments towards better human development investments involves creating a detailed model and a credible set of testable propositions. An empirical analysis of public spending and its outcomes for human development in different countries and regimes across time is necessarily complex. This chapter has detailed our methodology and approach. It has described the general regression model we employ, the estimation method we rely on and the dependent and independent variables that we construct, as well as the data we use in their construction. We have also highlighted some common issues related to regression analysis and have clarified how we have attempted to resolve them. The next chapter presents the results yielded by fitting the regression models for public spending on human development, and Chapter 6 presents the results for human development outcomes.

Notes 1 For some econometricians the terms are not interchangeable, and autocorrelation is to be used for correlation in disturbances within the same series, whereas serial correlation

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is to be used for correlation in disturbances between two different series. However, we use the two terms interchangeably. 2 This is a generalised test for homoscedasticity that follows White (1980). 3 The Polity Project was initiated by Ted Robert Gurr, University of Maryland, and is now continued as the Polity IV Project by Monty G. Marshall, Societal-Systems Research Inc. Data is available from the Centre for Systemic Peace at www.systemicpeace.org/inscrdata.html.

5

Why governments differ in spending on human development

Is the pattern of public spending on human development any different in states with strong systems of democratic accountability when compared with states where these structures are weak? Does democracy affect the size of public spending on health and education? Does it affect the size of military spending? Do the quality and strength of administrative and judicial institutions have any impact on the patterns of public funding in these areas? Are government outlays for human development also affected by whether states receive their resources from taxation, foreign aid or rents generated by natural resources? And if we assume that greater public spending is at least the main precondition for improved human development outcomes, does democratic accountability matter? Flowing from the arguments we presented in Chapter 3, these are the central questions we seek to answer. These are also crucial issues that consume many analysts and policymakers as well as those who champion the democratic cause more generally. The research we reviewed in Chapter 2 provided some answers; but, as noted earlier, they are varied, at times even conflicting, and most relate to an age that ended with the collapse of the Berlin Wall. In our view, furthermore, the often ambiguous answers found in this literature are sometimes the result of incomplete operationalisation of the democratic accountability framework. In this chapter, using the methods described in section 1 of Chapter 4, we answer these questions by modelling democratic accountability structures holistically, while simultaneously controlling for the socioeconomic, political, ideological and demographic factors that the literature has identified as being significant influences on public spending. As we explained in Chapter 4, we conduct the regression analysis in phases. Section 1 of this chapter reports the findings of Phase-I, in which our sample is a subset of 112 states for which data on all three public spending categories is available along with data on all independent variables included in our regression model. Section 2 reports the findings of Phase-II, in which we expand the sample for each spending category by including all states for which data on that particular spending category and all other variables is available. In Section 3, reporting the findings of Phase-III, we illustrate the limitations of using central government data on public spending rather than general government data. And section 4 offers some concluding comments.

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Why governments differ in spending

1. Phase-I: basic subset of states In Phase-I our sample is the subset of countries for which data is available on health, education and military spending as well as on all the independent variables we include in our regression model. We fit this model for each spending category in sets of two, as explained in Chapter 4. In the first regression model, we consider the annual average values of the dependent and independent variables over the same decade: that is, 2003–2012. In the second regression model, we consider the annual average values of the dependent variables over the decade 2003–2012 but the annual average values of the independent variables for the preceding decade, 1993–2002. The states included in the basic subset are given in Appendix I. Models E5.1 and E5.2 specify the two regression models we run for each spending category. Pubspgdpit1 = α0 + α1Doilit1 + α2Dnatresit1 + α3Dleftwingit1 + α4Dmajit1 + α5Dpresit1 + β1Demit1 + β2Instit1 + β3Taxit1 + β4Aidit1 + β5Agedit1 + β6Extconit1 + β7Openit1 + β8Devit1 + β9Ethnfragit1 + μit1

E5.1

Pubspgdpit1 = α0 + α1Doilit2 + α2Dnatresit2 + α3Dleftwingit2 + α4Dmajit2 + α5Dpresit2 + β1Demit2 + β2Instit2 + β3Taxit2 + β4Aidit2 + β5Agedit2 + β6Extconit2 + β7Openit2 + β8Devit2 + β9Ethnfragit2 + μit2

E5.2

where: Pubspgdp represents, in various fitted regressions models, the dependent variables Healthgdp, Educationgdp and Militarygdp, that is, public spending as a percentage of GDP on health, education and the military, respectively, as described in Chapter 4; Doil, Dnatres, Dleftwing, Dmaj and Dpres are independent dummy variables for oil-dependent, natural resource-dependent, left-wing, majoritarian (plurality) and presidential states, respectively, as described in Chapter 4; Dem, Inst, Tax and Aid are, as explained in Chapter 4, continuous independent variables, respectively denoting democracy, institutions, taxation and foreign aid, which operationalise our democratic accountability framework; Aged, Extcon, Open, Dev and Ethnfrag are continuous independent variables, which we include in the model to control for the influence of the population aged 65 years and above, external conflict, openness, the level of development and ethnic fragmentation, respectively, as explained in Chapter 4; α 0 stands for the intercept coefficient; α 1 to α 5 denote the differential intercept coefficients for the dummy variables;

Why governments differ in spending

81

β 1 to β 9 denote the regression coefficients of the continuous independent variables; subscript i takes values 1–112, representing the states included in the Phase-I analysis; in subsequent phases, it takes values up to 119; subscript t1 refers to the period 2003–2012, both years inclusive; subscript t2 refers to the period 1993–2002, both years inclusive; and µ is the disturbance or error term. Health The output yielded by the fitted regression model E5.1 for general government spending on health, education and the military is summarised in Panel-I of Table 5.1. As the results reported in the first column show, when average general government spending on health for the years 2003–2012 is regressed on the values of the explanatory variables averaged for the same period, the estimated coefficients on the measures of democracy, institutions and foreign aid are positive as expected. They are also statistically significant at least at the 5 per cent level, which we use to reject the null hypothesis. Contrary to expectation, however, taxation produces a negative estimated coefficient, but it is very small and far removed from statistical significance, meaning thereby that there is not enough evidence to suggest that it is any different from a value of zero. Table 5.1 The empirics of public spending: basic subset of states Independent/ explanatory variables

Constant

Panel-I Model E5.1 Dependent variables: average values 2003–2012 Explanatory variables: average values 2003–2012

Model E5.2 Dependent variables: average values 2003–2012 Explanatory variables: average values 1993–2002

General government spending on

General government spending on

Health

Education

Military

Health

Education

Military

I

II

III

IV

V

VI

–2.762

1.115

(1.714)

(1.877)

Dummy variables Oil-rich states

Panel-II

3.885** –2.110 (1.688)

(1.557)

1.726 (1.508)

4.408*** (1.419)

Differential intercept coefficients –0.151

–0.280

–0.939

–0.738

0.391

0.932

(0.466)

(0.575)

(0.646)

(0.589)

(0.705)

(0.938) Continued

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Why governments differ in spending

Table 5.1 The empirics of public spending: basic subset of states, continued Natural resourcerich states Left-wing states

0.074

0.518

(0.378)

(0.378)

Taxation Foreign aid

Level of development Ethnic fragmentation F-statistic 2

R (%) States/ observations

(0.758)

0.021

0.031

0.072

0.218

(0.253)

(0.314)

(0.206)

0.322

–0.158

–0.354

0.273

0.131

(0.260)

(0.284)

(0.251)

(0.233)

(0.274)

(0.232)

–0.164

–0.261

0.435

0.155

0.078

0.048

(0.357)

(0.502)

(0.274)

(0.275)

(0.358)

(0.253)

Coefficients 0.023*** 0.017** –0.017** (0.008)

0.038*** 0.029**

(0.006) 0.009

(0.010)

(0.012)

(0.009)

–0.005

–0.009

(0.006)

(0.010)

0.523**

0.562** (0.262)

0.021*** 0.019** –0.011* (0.006) 0.028**

(0.006)

0.046*** 0.008 (0.014)

(0.012)

–0.027** –0.005

–0.012

–0.028***

(0.013)

(0.011)

(0.010)

0.645** (0.297)

(0.013)

(0.009)

(0.006) 0.530** (0.230)

0.494** (0.246)

0.537* (0.317)

Coefficients 0.131*** 0.030 (0.035)

Openness

(0.643)

(0.202)

Group-II variables

External conflict

(0.529)

0.307

(0.250)

Aged population

0.241

(0.319)

(0.006) Institutions

0.254

0.071

Group-I variables Democracy

(0.350)

0.517

(0.217) Majoritarian states –0.292 Presidential states

0.834**

(0.057)

0.007

0.009

(0.014)

(0.014)

0.046 (0.040)

0.186*** 0.041 (0.041)

(0.052)

(0.040)

0.011

–0.033**

(0.015)

(0.014)

(0.013)

(0.016)

–0.006** –0.002

–0.001

–0.005

–0.001

–0.002

(0.003)

(0.003)

(0.003)

(0.003)

(0.003)

(0.003)

0.451

0.080

0.552*

–0.586

(0.397)

(0.455)

(0.480)

(0.325)

(0.383)

(0.386)

0.004

–0.007

–0.015**

0.004

–0.003

–0.012

(0.007)

(0.008)

(0.006)

(0.007)

(0.008)

(0.008)

35.87*** 78.69 112

4.50*** 30.95 112

–0.040*** –0.003

0.062

1.104**

4.99*** 34.05*** 49.40 112

78.28 112

Robust standard errors in parentheses. Level of statistical significance: ***1 per cent; **5 per cent; *10 per cent.

5.10*** 34.02 112

0.786**

3.42*** 45.81 112

Why governments differ in spending

83

Amongst the Group-II variables that appear to influence public spending on health over the concurrent period are the proportion of the population that are aged and the level of openness. The estimated coefficient on aged population is positive, as expected, and comparatively large, while the estimated coefficient on openness is negative but fairly small. The estimated coefficients on (lower) external conflict, level of development and (lower) ethnic fragmentation are all positive, as could be expected, but they are not statistically significant, which means that they are more consistent with a value of zero. Similarly, none of the estimated differential intercept coefficients for the dummy variables – which measure the difference of the values for the respective dummy variables from the intercept coefficient – attains statistical significance, suggesting that being oil- or natural resource-rich, having majoritarian or presidential regimes or being led by left-wing governments does not, on average, have an effect on public spending on health. It needs to be clarified here that the size of the estimated coefficients on those continuous explanatory variables that are operationalised as 100-point indices or percentages may seem to be relatively small, which is because these coefficients measure, ceteris paribus, the change, on average, in general government health spending as a percentage of GDP resulting from a change of only one percentage point in the value of the explanatory variable in question. In terms of impact, however, these coefficients are considerably large. For instance, merely a one percentage point improvement in the level of democracy yields, on average, an estimated increase in general government health spending equal to 0.023 per cent of GDP, while a percentage point improvement in institutional quality produces an average increase of 0.038 per cent of GDP. The estimated coefficients on foreign aid and level of development, on the other hand, appear much larger in comparison since these variables, as explained in Chapter 4, have been operationalised as logs of per capita foreign aid and per capita GDP, respectively. When average general government spending on health during the period 2003–2012 is regressed on the average values of the explanatory variables over the antecedent period 1993–2002 (i.e. model E5.2), the positive estimated coefficients on democracy, institutions and foreign aid, as reported in the fourth column of Table 5.1, remain statistically significant at least at the 5 per cent level, which suggests a causal relationship running from greater democracy, better institutions and more foreign aid to higher public spending on health. Our finding on a plausible causal relationship between democracy and higher public spending on health is consistent with the prominent study by Lindert (2004a, 2004b), who finds democracy to be a fundamental causal factor in the original rise of social spending, including expenditures on health, in Europe and other OECD countries. Our finding is also broadly in conformity with studies such as Ghobarah et al. (2004), Haggard and Kaufman (2008), Huber et al. (2008), Kaufman and Segura-Ubiergo (2001), Przeworski et al. (2000) and SeguraUbiergo (2007), referred to in Chapter 2. The negative estimated coefficient on taxation, nevertheless, continues to be statistically not significant, meaning thereby that we cannot place any statistical confidence in it.

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Why governments differ in spending

With regard to the Group-II variables, the positive estimated coefficient on the proportion of aged population remains statistically significant. This, too, suggests a causal link running from larger aged populations to greater public spending on health, rather than merely from larger public spending on health to bigger aged populations. On the other hand, the negative estimated coefficient on openness loses statistical significance, while the positive estimated coefficient on the level of development attains marginal statistical significance, suggesting that past levels of openness may not influence health spending, but that it is quite possible that the level of development in any given period exerts some influence on future levels of public spending on health even if it does not have any immediate effect. Ethnic fragmentation and external conflict continue to yield estimated coefficients that are not statistically significant, with the estimated coefficient on external conflict also changing signs, which we believe reflects fragility in the direction of its impact. Education The output yielded by fitting regression models E5.1 and E5.2 for general government spending on education is reported in the second and fifth columns of Table 5.1. As these results show, democracy, institutions and foreign aid appear to influence public spending on education more or less in the same manner that they influence public spending on health. When average education spending for the period 2003–2012 is regressed on the values of the explanatory variables averaged over the same period (model E5.1), the estimated coefficients on all three variables are positive and statistically significant at the 5 per cent level. These outcomes remain unaltered even when average education spending for the period 2003–2012 is regressed on the values of the explanatory variables averaged over the preceding period 1993–2002 (model E5.2). Thus, as in the case of health spending, evidence suggests a direction of causality running from democracy, institutional quality and foreign aid to public spending on education. This, of course, does not mean that higher public spending on education will not often, over the long run, lead to improved levels of democracy or institutional quality, but at the same time – and this is the crucial point here – it means that their positive and significant effects on education spending are not being generated by reverse causality. The positive effect of democracy on education spending is consistent with Lindert’s (2004a, 2004b) findings with respect to democracy being a central cause for the expansion of public spending on education, in particular schooling. Even more importantly, Lindert’s (2004a, 2004b) inferences also support our findings on the question of reverse causality. Analysing data on mostly OECD countries, his studies show, through both empirical analysis and historical narrative, how the growth of democracy contributed more to the expansion in public schooling than the expansion in public schooling contributed to the growth of democracy.1 Our findings on the nexus between democracy and education are also largely consistent with the findings of scholars such as Avelino et al. (2005), Brown and Hunter (2004), Deacon (2009), Haggard and Kaufman (2008), Huber

Why governments differ in spending

85

et al. (2008), Kaufman and Segura-Ubiergo (2001), Segura-Ubiergo (2007) and Stasavage (2005), whose works we visited in Chapter 2. The estimated coefficient on taxation, as in the case of health, is negative, small and not statistically significant in both models. Similarly, none of the Group-II variables that we employ appear to influence public spending on education. We were expecting at least the level of development (i.e. log of per capita income) to have a positive, statistically significant, coefficient on education spending, but the estimated coefficients are remote from statistical significance in both periods and, contrary to expectation, the estimated coefficient is even negative for the preceding period 1993–2002. Nevertheless, these finding are not exceptional. Mulligan et al. (2004), for instance, find a negative, not statistically significant, coefficient on the log of per capita income in the case of education spending. Persson and Tabellini (1999), using a sample of democracies, also find a negative, not statistically significant, coefficient on the log of per capita income in the case of their measure of public goods, which includes education. And in his sample of over 100 countries, Rodrik (1998) finds a negative, almost statistically significant, relationship between the log of per capita income and government consumption. Any negative influence of the level of development on education spending could possibly be attributed to the general turn to neoliberalism since the 1980s, which appears to be more pronounced in the high-income states. However, a more compelling explanation appears to be that it has arisen not because states spend less on education as a percentage of their GDPs as they become more developed, but rather because when other influences are controlled for, the relationship between the level of development and public spending on education turns out to be negative without any implication of causality. The latter explanation appears to be plausible because once states have attained certain upper thresholds of public spending on education, any further increases in the level of development are not likely to induce higher spending in this area. The estimated coefficient on the proportion of aged population is positive for both periods, but far removed from statistical significance. This result is not surprising either: earlier studies present rather conflicting findings. Mulligan et al. (2004) find a positive, but not statistically significant, effect of the aged on education spending, just as Persson and Tabellini (1999) do in the case of public goods provision, which includes spending on education. Contrary to this, Lindert (1994) finds the aged to have had a negative influence on education spending in the industrialised countries, and Alesina et al. (1999), Grob and Wolter (2007) and Poterba (1997) find the aged to have a negative effect on spending on schooling in US cities, US states and Swiss cantons, respectively. As in the case of the level of development and aged population, the estimated coefficients on external conflict, ethnic fragmentation and openness attain statistical significance in neither model. The estimated differential intercept coefficients on all dummy variables remain far from statistical significance in both models, which, as in the case of public spending on health, suggests that on average public spending on education is no different in oil or natural resource-rich states, in states with presidential

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Why governments differ in spending

regimes or majoritarian voting rules or in states that have left-wing governments than in states that are not defined by these attributes. Military As summarised in the third and sixth columns of Table 5.1, the influence of the Group-I explanatory variables on military spending exhibits a pattern mostly opposite to their impact on health and education spending. The estimated coefficient on democracy is negative and statistically significant in the concurrent period 2003–2012, with marginal statistical significance in the preceding period 1993–2002, which suggests that while democracy leads to an increase in human development spending, it tends to reduce public spending in areas that may not necessarily be related to citizens’ wellbeing. The latter inference is all the more plausible because reverse causality – though it cannot be completely ruled out – is not very likely in the relationship between democracy and military spending. Our findings on the influence of democracy on military spending are consistent with the findings of studies such as Mulligan et al. (2004). Similarly, in contrast to its influence on public spending on health and education, institutional quality does not appear to influence military spending: while the estimated coefficient on institutions is positive, it is much removed from statistical significance. On the contrary, the estimated coefficient on taxation is negative, as could be expected, and also statistically significant in both models. Remarkably, the estimated coefficient on foreign aid is positive, statistically significant for the concurrent period and marginally statistically significant for the preceding period. This outcome suggests the fungibility of foreign aid or the ability of governments to indirectly transfer foreign aid to military uses by reducing the allocation of domestic resources to sectors that the aid has been disbursed for. Of the Group-II variables, external conflict, as was expected, surfaces as the most important determinant of military spending: the negative, statistically significant, estimated coefficients on external conflict in both models suggests that as the level of external conflict reduces, military spending also declines. This finding is consistent with the finding of Mulligan et al. (2004), who use the number of years at war since 1950 to operationalise the influence of external conflict on military spending. Similarly, improvement in contemporary levels of ethnic fragmentation also appears to reduce military spending, as its statistically significant negative estimated coefficient suggests. While it does not appear that aged population or openness affect military spending, the estimated coefficient on the level of development is, quite interestingly, positive and statistically significant in both periods, which implies that the availability of greater resources may encourage governments to build their defence capabilities. This inference is further supported by the fairly large, statistically significant, positive differential intercept coefficient on the natural resource-rich states’ dummy variable for the concurrent period. However, there is not enough evidence to suggest that states rich only in oil spend any more or any less on average on the military than do other states. Similarly, as in the case of public spending on health and education,

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87

states with majoritarian regimes do not appear to spend more on the military than do other states, just as do not, on average, states with presidential systems, or those with left-wing governments. Discussion We had argued in Chapter 3 from a neo-institutionalist perspective that the more democratically accountable governments are to their citizens, the more public resources they could be expected to allocate for human development and the less for uses that do not enhance citizens’ socioeconomic wellbeing. The empirical evidence yielded by the regression analysis in this section has provided persuasive validation for this argument. Democracy appears to have a plausible positive causal relationship with public spending on health and education, and an equally credible negative causal relationship with military spending, even when the level of external conflict – which reflects the extent to which military spending can be considered to be in the public interest – is fully accounted for. This is both an important and a reassuring finding. Within the same theoretical paradigm, we had also argued that high-quality, strong administrative and judicial institutions strengthen the overall framework of democratic accountability, which could be expected to lead to higher public spending on human development, but lower spending on uses that are not necessarily in the public interest. This prediction is also authenticated by the empirical findings reported in this section. Institutional strength appears to have a convincing positive causal association with public spending on health and education, but its coefficient on military spending, even though positive, is small and so far removed from statistical significance that it is more consistent with the inference that it has no effect. This evidence also provides some insight into the theory of public choice. Clearly, were self-interest the only motivation for public sector organisations and their bureaucracies in expanding their budgets, the positive estimated coefficient on institutional strength should also have been fairly large and statistically significant in the case of military spending as it is in the case of public spending on health and education. That it is not, substantiates our contention that accountable institutions are mindful of citizens’ wellbeing and protect the public interest. Taxation, however, appears to have a negative relationship with public spending on health and education as well as the military, which appears to be driven by contemporary neoliberal preferences for small government. But whereas the estimated coefficients of taxation for public spending on health and education are very small and far removed from statistical significance, indicating a value more consistent with zero, its negative estimated coefficient in the case of military spending is much larger and also statistically significant, which suggests that while tax-driven accountability, on average, does not cause reduced public spending on health and education, it does, ceteris paribus, lead to reduced military spending. This is easily explained. Referring back to our argument in Chapter 3, in order to raise resources to meet public spending requirements, governments may resort to

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Why governments differ in spending

higher taxation, thereby creating a case of reverse causality leading from higher spending to higher taxation. But in the very act of levying a tax, or even in the process of considering a prospective tax, an accountability relationship is created: representatives accountable to citizens will generally agree to taxation only when they consider it to be in the best interest of the citizenry, not otherwise. This is why higher taxation may be permitted by citizens for human development, but not for spending in areas such as the military without bona fide imperative. The impact of accountability of governments to donors’ conditions – which, as argued in Chapter 3, can overlap with citizens’ interests – generated by foreign aid on patterns of resource allocation is also evident. It clearly results in larger public funding for health and education. But at the same time, the indirect transfer of foreign aid to the military, as noted above, cannot be ruled out either, as the positive, statistically significant, estimated coefficient on foreign aid for military spending suggests. Amongst the potential determinants of public spending identified in the literature that we have operationalised through our Group-II continuous variables, the empirical evidence yielded by our regression models suggests that aged population has a positive, and openness a negative, effect on public spending on health. On the other hand, external conflict, ethnic fragmentation and higher levels of development lead to increased spending on the military. Interestingly, our finding on the relationship between development and military spending also lends some credence to the argument that military capability moves in tandem with economic power (e.g. Jacques, 2012). The level of development also appears to have some marginal impact on health spending. However, we do not find sufficient evidence to infer that any of these factors has any impact on public spending on education. Keeping in view the research referred to in Chapter 2, we had expected ethnic fragmentation to reduce public spending on health and education, just as it leads to increased military spending. But it does not appear to. Borrowing from Alesina et al. (1999, 2001), we also constructed another measure for ethnic fragmentation as the probability of two persons selected at random from within a given territorial unit not belonging to the same racial background. Higher values of this variable represented greater racial diversity. We obtained our data from the same sources that have been used by Alesina et al. (2001), that is, Levinson (1998) and Minority Rights Group International (1997), as well as information available online in the Encyclopaedia Britannica and from government websites in the case of certain states. But the estimated coefficients on this variable were not statistically significant in any of the models, either. Nevertheless, our findings on ethnic fragmentation are similar to those of other related studies. Milesi-Ferretti et al. (2002), for instance, do not find the effect of ethnolinguistic fractionalisation to be statistically significant either on the provision of public goods in Latin American countries or for transfer spending in the OECD countries; and Mulligan et al. (2010) do not find it to be statistically significant in the case of social security spending in their sample of 90 states. Following earlier studies that found more open countries to have larger human development spending, we had also expected the estimated coefficient on openness to be positive and statistically significant in both health and education spending rather than the negative obtained in both, even though it is statistically

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89

significant only in the case of health spending. To further investigate this outcome, we replaced our variable Open with the two variables based on inward and inward plus outward stocks of FDI employed by scholars such as Gemmell et al. (2008) referred to in Chapter 2, but the estimated coefficient on both variables (not reported here) remained very small and remote from statistical significance in all the three areas of public spending we consider. Again, our findings on the effects of openness presented in this section, even though unexpected, are not very dissimilar from those presented by several other studies. Milesi-Ferretti et al. (2002), for instance, also report openness to influence neither transfer spending in their OECD sample nor the provision of public goods in their Latin American sample. Similarly, Alesina et al. (2001) do not find the influence of openness to be statistically significant on either transfers or social spending. Even Kaufman and Segura-Ubiergo (2001) conclude that openness might have no effect on public spending on health and education. On the same plane, our findings on the inconsequential implications of the FDI-based measures of openness are comparable to those of Garrett and Mitchell (2001). As for the influence of factors identified in the literature that we include in our models through dummy variables, the evidence yielded by our regression models suggests that states with left-oriented governments, states with presidential systems and states with majoritarian voting regimes are, respectively, no different on average from states with right-wing or centrist governments, states with parliamentary regimes and states with proportional representation in terms of public spending on education, health or the military. These findings do not, however, imply that these factors may not have had any influence in the past or may not still be significant in any particular set of countries. Left-wing orientation, for instance, as many earlier studies have shown, may have had considerable influence on public sector spending prior to the 1990s, and more so in the European or developed world contexts. Similarly, parliamentary systems and proportional voting regimes may have more meaning when any particular group of states (e.g. advanced democracies) is considered, as has been done in earlier research. Our findings on the influence of the Left are also not entirely inconsistent with the findings of related empirical studies. With respect to the influence of left-wing traditions, Milesi-Ferretti et al. (2002), for instance, find the effect of having had left-wing regimes to be far from statistical significance in the case of transfer spending in OECD countries for the years 1991–1994; Rodrik (1998) does not find the effect of socialism on government consumption to be statistically significant; and Garrett and Mitchell (2001), Huber et al. (2008) and Wolf (2009) show that left-wing regimes may have little effect on the level of public spending in social sectors. Interestingly, Lindert’s (2004b) empirical approach is based on the premise that the influence of left-wing orientation – especially in the case of social democratic regimes and states with strong labour unions – on public spending is the consequence of a prior expansion of voting rights to the lower economic echelons of society. He therefore treats left-wing influences as endogenously determined intermediate variables in the causal chain that links democracy with higher social spending.

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Why governments differ in spending

With regard to the effects of presidential versus parliamentary systems and majoritarian versus proportional electoral rules on public spending, finer nuances notwithstanding, the theories developed in the literature, as reviewed in Chapter 2, anticipate that: (i) parliamentary regimes and proportional voting rules create incentives for higher spending on universal public goods benefitting majorities compared to narrowly targetable expenditures; and (ii) presidential regimes and majoritarian electoral rules lead to higher targetable provision and lower spending on universal public goods. From this vantage point, since public spending on health and education tends to possess both universalistic and targetable components, no distinctive impact of either regime type or of the two electoral rules could have been expected. This is just as we found the case to be. National defence, however, is a universal public good, which typically cannot be targeted towards any specific group. Thus, in the case of military spending, one could have expected the estimated differential intercept coefficients on both presidential regimes and majoritarian rules to be negative and statistically significant. But as given in Table 5.1, the estimated differential intercept coefficient on the presidential dummy variable is positive for both periods, while for the majoritarian dummy variable it is negative only in the contemporary period. However, being so remote from statistical significance, these estimated coefficients are consistent with a value of zero. Our findings on the effects of political systems and voting rules on public spending are quite similar to findings in some related studies. Persson and Tabellini (1999), for instance, do not find any significant difference between presidential and parliamentary systems in terms of their measure of universal public goods, which includes expenditures on order and safety, transport and education and, in a wider specification, also health. They do not, except in one of their several models, find majoritarian systems to be significantly different from proportional systems in terms of these expenditures either. Persson and Tabellini (2002) find the effect of presidential regimes on social security and welfare spending to be significant only in one of their many models, and the effect of majoritarian regimes to be significant at the conventional 5 per cent level in none of their specifications. Even the more rigorous modelling by Milesi-Ferretti et al. (2002) finds the effects of electoral systems on geographically targetable public goods to be statistically not significant. Furthermore, the fragility in the direction of the effect of political regimes and electoral systems on health, education and military spending that our regression results exhibit across the two periods is also not unprecedented. Persson and Tabellini (1999), for example, also find the impact of electoral rule differences to be negative or positive depending on the measure of public goods regressed and the model specification used. With reference to the influence of oil revenues on public spending on health, education and the military, the estimated differential intercept coefficients on the dummy variable for oil-rich states are fragile in terms of the direction of effect across the two models and also much remote from statistical significance, which suggests that resources generated by oil do not on average translate into higher public spending on health or education, nor do they appear to affect spending on the military. Our findings are similar to the findings of studies such as Rodrik

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(1998), which reports government consumption levels in oil-exporting countries to be no different than in others. However, the statistically significant positive differential intercept coefficient on natural resource-rich states – which includes oil-rich states – in the case of military spending does provide empirical support for the inference that natural resource-rich states do, on average, spend more on their militaries. That the natural resource-rich dummy variable does not produce a positive statistically significant differential intercept coefficient for public spending on health or education provides further support to our argument, presented in Chapter 3, that natural resource-rich states may have neither positive nor negative incentives to spend in areas that enhance citizens’ wellbeing.

2. Phase-II: expanded country subsets In this phase, we expand the number of states included in the analysis by including in the subset for each spending category all those states for which data on that particular spending category as well as all other explanatory variables we employ are available. We conduct the regression analysis for each spending category with our standard model specifications, E5.1 and E5.2. The output of our regression models in this phase, reported in Table 5.2, almost completely coincides with the output of the Phase-I models, which further validates the inferences we have drawn on the relationship between democratic accountability and public spending for human development based on the empirical evidence yielded by the Phase-I models. Table 5.2 The empirics of public spending: expanded subsets of states Independent/ explanatory variables

Constant

Panel-I Model E5.1 Dependent variables: average values 2003–2012 Explanatory variables: average values 2003–2012

Model E5.2 Dependent variables: average values 2003–2012 Explanatory variables: average values 1993–2002

General government spending on

General government spending on

Health

Education

Military

Health

Education

Military

I

II

III

IV

V

VI

–2.736

0.523

(1.672)

(1.722)

Dummy variables Oil-rich states

Panel-II

3.984** –1.586 (1.629)

(1.488)

1.642 (1.423)

4.598*** (1.405)

Differential intercept coefficients –0.342

–0.059

–0.941

–0.809

0.302

0.944

(0.465)

(0.635)

(0.636)

(0.533)

(0.696)

(0.931) Continued

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Why governments differ in spending

Table 5.2 The empirics of public spending: expanded subsets of states, continued Natural resourcerich states Left-wing states

0.329

0.242

(0.373)

(0.392)

(0.343)

Taxation Foreign aid

Level of development Ethnic fragmentation F-statistic 2

R (%) States/ observations

(0.744)

0.014

0.004

–0.009

0.220

(0.239)

(0.301)

(0.202)

0.298

–0.171

–0.270

0.273

0.152

(0.250)

(0.270)

(0.245)

(0.222)

(0.272)

(0.228)

–0.104

–0.163

0.396

0.194

0.134

0.048

(0.332)

(0.480)

(0.268)

(0.240)

(0.350)

(0.246)

Coefficients 0.022*** 0.017** –0.015** (0.008)

(0.006)

0.040*** 0.031*** 0.010

0.020*** 0.019** –0.012* (0.006) 0.029**

(0.006)

0.049*** 0.007

(0.011)

(0.009)

–0.004

–0.006

–0.027** –0.007

–0.011

–0.028***

(0.006)

(0.009)

(0.013)

(0.011)

(0.010)

0.467**

0.585** (0.250)

0.644** (0.288)

(0.012)

(0.008)

(0.009)

(0.006) 0.457** (0.211)

0.013

0.502** (0.234)

(0.012)

0.516* (0.311)

Coefficients 0.135*** 0.023 (0.033)

Openness

(0.625)

(0.198)

Group-II variables

External conflict

(0.437)

0.237

(0.226)

Aged population

0.198

(0.308)

(0.006) Institutions

0.231

0.066

Group-I variables Democracy

0.529

(0.206) Majoritarian states –0.253 Presidential states

0.858**

(0.056)

0.010

0.010

(0.013)

(0.014)

0.035 (0.038)

0.194*** 0.038 (0.039)

(0.051)

(0.038)

0.011

–0.034**

(0.015)

(0.013)

(0.013)

(0.015)

–0.006** –0.002

–0.001

–0.006*

–0.002

–0.002

(0.003)

(0.003)

(0.003)

(0.003)

(0.003)

(0.003)

0.359

0.162

0.501*

–0.571

(0.362)

(0.452)

(0.457)

(0.284)

(0.386)

(0.379)

0.001

–0.008

–0.017*** 0.001

–0.004

–0.013*

(0.007)

(0.008)

(0.006)

(0.008)

(0.007)

39.64*** 78.62 119

5.18*** 33.10 115

–0.040*** –0.003

0.059

1.117**

(0.007)

5.16*** 33.35*** 49.51 115

78.20 119

Robust standard errors in parentheses. Level of statistical significance: ***1 per cent; **5 per cent; *10 per cent.

6.07*** 36.35 115

0.827**

3.78*** 46.66 115

Why governments differ in spending

93

Health Data for general government spending on health and all continuous explanatory variables is available for the 119 states specified in Appendix I as the health subset. The first and fourth columns of Table 5.2 report the regression output for the expanded dataset generated by the model specifications E5.1 and E5.2. As these results illustrate, the positive causal influence of democracy, institutional quality and foreign aid on health spending that we found in section 1 is robust to the inclusion of the additional seven states in the regression models. The estimated coefficients on all three variables are positive and statistically significant in both time periods. With regard to the dummy and Group-II variables, only the estimated coefficients on the proportion of the aged population are positive and statistically significant at the 5 per cent level in both models, as in the case of the basic subset of states; whereas the estimated coefficient on openness, while remaining negative and statistically significant for the contemporary period, also attains marginal statistical significance for the preceding period, 1993–2002. The level of development continues to be positive and marginally statistically significant only for the preceding period. Education Data on public spending on education and all the explanatory variables are available for the 115 states given in Appendix I as the education subset. As in the case of public spending on health, we regress general government spending on education with model specifications E5.1 and E5.2 for the larger sample of states. The regression results are summarised in the second and fifth columns of Table 5.2. As these results depict, the influence of democracy, institutional quality and foreign aid on public spending on education is, as in the case of public spending on health, robust to the inclusion of new states in the regression models. The estimated coefficients on democracy, institutional quality and foreign aid remain positive and statistically significant in the larger education subset, while the estimated coefficient on taxation continues to be negative without being statistically significant. The estimated coefficients of the Group-II variables and the estimated differential intercept coefficients of dummy variables continue to be statistically not significant. Military Data for military spending and the explanatory variables are available for the 115 states shown as the military subset in Appendix I. Using the two models E5.1 and E5.2 for military spending, we report the regression output in the third and sixth columns of Table 5.2. As the statistically significant negative estimated coefficients on democracy in both columns show, the influence of democracy on military spending is robust to the increase in the number of states. The negative, statistically significant, estimated coefficient on taxation is also robust to the

94

Why governments differ in spending

inclusion of new states in the models, as is the statistically significant positive estimated coefficient on foreign aid for the contemporary period. The findings on the influence of factors operationalised through the dummy and Group-II variables are also robust to the inclusion of new states. The estimated differential intercept coefficient for resource-rich states remains positive and statistically significant in the contemporary period, just as does the estimated coefficient on the level of development in both periods. Similarly, the estimated coefficient on reduced levels of conflict remains negative and statistically significant in both periods. While the negative estimated coefficient on lesser ethnic fragmentation continues to be statistically significant for the concurrent period, it attains marginal statistical significance for the preceding period. Discussion In terms of public spending on health, education and the military, the overall inference that can be drawn from the evidence presented in this section is that our earlier conclusions concerning the effects of democracy, good institutions, taxation and foreign aid are robust to the inclusion of new states in the analysis. The regression results reported in this section also suggest that the findings of section 1 regarding the influence of factors operationalised through the dummy and Group-II continuous variables are also robust to the addition of new states in the regression models.

3. Phase-III: analysis with central government data In this phase, in addition to general government spending on health, education and the military, we also consider spending in these areas made only by the central governments. By employing model E5.1 in each case, we illustrate how using central government spending data instead of general government spending data, as has been done in most earlier studies, can lead to weak, or even misleading, deductions. Military spending, however, is an exception since it is predominantly made by central governments rather than subnational governments, as is mostly the case in health and education spending. To allow logical comparisons of the regression results yielded by general government spending with those yielded by central government spending, we fit regression models for each of the three public spending categories using country subsets for which both general and central government data are available for that particular spending category along with data on all explanatory variables. Country subsets are given in Appendix II. Central government spending data are sourced from the IMF’s GFS, while general government data are the same as have been used for earlier analysis. Panel-I of Table 5.3 summarises the regression output for general government spending, and Panel-II the output for central government spending.

Why governments differ in spending

95

Table 5.3 The empirics of public spending: general versus central government spending Independent/ explanatory variables

Constant

Panel-I Model E5.1 Dependent variables: average values 2003–2012 Explanatory variables: average values 2003–2012

Natural resourcerich states Left-wing states

Central government spending on

Health

Education

Military

Health

Education

Military

I

II

III

IV

V

VI

–5.161**

1.523

3.958*

–1.475

–1.848

3.648*

(2.120)

(2.216)

(2.201)

(1.962)

(2.535)

(2.013)

Differential intercept coefficients 0.554

–0.857

–1.377

0.990

–1.359

–0.680

(0.453)

(0.710)

(0.887)

(0.603)

(1.371)

(1.055)

0.132

0.995

0.495*

–0.303

1.763

0.607

(0.302)

(0.634)

(0.283)

(0.532)

(1.262)

(0.380)

0.185

0.121

0.015

0.561

–0.055

–0.078

(0.235)

(0.353)

(0.248)

(0.434)

(0.434)

(0.256)

Majoritarian states –0.148 Presidential states

0.209

–0.337

–0.320

0.541

–0.112

(0.293)

(0.343)

(0.312)

(0.376)

(0.423)

(0.351)

0.038

–0.160

0.509

–0.481

–0.337

0.248

(0.353)

(0.515)

(0.310)

(0.393)

(0.591)

(0.319)

0.022*

–0.017**

Group-I variables Democracy

Coefficients 0.018*** 0.027*** –0.021*** 0.013* (0.007)

Institutions Taxation Foreign aid

Model E5.1 Dependent variables: average values 2003–2012 Explanatory variables: average values 2003–2012

General government spending on

Dummy variables Oil-rich states

Panel-II

(0.010)

0.039*** 0.030**

(0.007)

(0.007)

(0.012)

(0.008)

0.002

0.020

0.008

0.015

(0.011)

(0.013)

(0.011)

(0.015)

(0.017)

(0.011)

0.010

–0.015

–0.036**

0.001

0.005

–0.030

(0.008)

(0.012)

(0.017)

(0.011)

(0.016)

(0.021)

0.657*** 0.601** (0.249)

(0.273)

0.826** (0.326)

0.487** (0.238)

1.201*** 1.073*** (0.292)

(0.351) Continued

96

Why governments differ in spending

Table 5.3 The empirics of public spending: general versus central government spending, continued Group-II variables Aged population External conflict Openness Level of development Ethnic fragmentation

Coefficients 0.158*** 0.011 (0.032)

(0.059)

0.008

0.008

(0.016)

(0.016)

0.032

0.030

–0.093

0.040

(0.040)

(0.065)

(0.058)

(0.049)

–0.043*** –0.003

–0.005

–0.035**

(0.016)

(0.018)

(0.017)

(0.019)

–0.006** –0.002

–0.001

0.002

0.004

–0.001

(0.003)

(0.003)

(0.002)

(0.004)

(0.004)

(0.003)

0.697

–0.038

0.399

0.893

1.629*** 0.137

(0.436)

(0.574)

(0.586)

(0.448)

(0.620)

(0.620)

0.000

–0.008

–0.017**

0.007

0.014

–0.010

(0.007)

(0.009)

(0.007)

(0.009)

(0.010)

(0.007)

F-statistic

42.26***

5.24***

5.89***

3.77***

2.46***

3.71***

R2 (%)

81.60

35.28

55.28

33.26

28.03

47.36

States/ observations

98

97

90

98

97

90

Robust standard errors in parentheses. Level of statistical significance: ***1 per cent; **5 per cent; *10 per cent.

Health Comparing the results for the Group-I variables reported for health spending in the first and fourth columns of Table 5.3 shows that while the positive estimated coefficient on democracy remains statistically significant at the 1 per cent level for general government spending, even in a smaller sample size of 98 for which data are available, it is only marginally statistically significant for central government health spending. Similarly, the positive estimated coefficient on institutions is rendered statistically not significant when we move from general government to central government spending. The positive estimated coefficients on foreign aid, however, remain statistically significant in either case, apparently because most aid is disbursed by donors to central government agencies, which are then responsible for its allocation. The estimated coefficients on taxation remain small and far removed from statistical significance, which makes them more consistent with a value of zero. It also needs to be noted here that the estimated coefficient on taxation for general government health spending, unlike in earlier models, now has a positive sign. This reversal in sign reflects the fragility of the direction of impact of taxation on health spending, which, when combined with the remoteness from statistical significance of the estimated coefficient on taxation for general government health spending in this and earlier models,

Why governments differ in spending

97

reinforces our understanding that taxation, on average, may not reduce public spending on health, despite the contemporary neoliberal perceptions on the role of government, as it does in the case of military spending. Findings for Group-II variables are quite similar to those for Group-I variables. The statistically significant positive estimated coefficient on aged population loses its statistical significance as we move from general to central government spending, while the negative estimated coefficient on openness not only loses its statistical significance, but also becomes positive and much smaller. However, the estimated coefficients on external conflict, ethnic fragmentation and the level of development remain statistically not significant in either column, just as do the estimated differential intercept coefficients on the dummy variables. Education Patterns similar to health spending emerge when we compare the regression results for general government education spending with those for spending on education by the central government in a reduced sample of 97 states. Moving from the second to the fifth column in Table 5.3, the statistically significant positive estimated coefficient on democracy is reduced to marginal statistical significance, whereas the statistically significant positive estimated coefficient on institutions becomes statistically not significant. The estimated coefficient on foreign aid remains statistically significant in both expenditure sets for the reason, as noted above, that foreign aid is transferred to central government agencies. With regard to taxation, as we move from general government to central government spending, the estimated coefficient continues to be statistically not significant, albeit with a reversed sign, which, as in the case of health spending, illustrates the fragility of the impact of taxation on education spending. The estimated coefficients on all Group-II variables and the estimated differential intercept coefficients on the dummy variables, as in earlier models, continue to be statistically not significant in both spending sets. Military As the regression output summarised in Table 5.3 depicts, the results yielded for Group-I variables by central government military spending are broadly compatible with the results obtained from general government military spending in the sample of 90 states for which data are available. The obvious reason for this, as noted earlier, is that unlike spending on health and education, military spending is the domain of central governments. The differences between the regression results produced by the two expenditure sets can be largely attributed to the differences in the sources for data used by the IMF and the Stockholm International Peace Research Institute (from which the World Bank obtains data on general government military spending) as well as to some differences in the criteria for classifying spending as military or non-military by the two agencies. Moreover, some spending classified as military also tends to be made by subnational

98

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governments – especially in states where ethnic distribution is geographically well defined – which is not reflected in central government spending. Comparing the third and sixth columns of Table 5.3, we find that the negative estimated coefficient on democracy and the positive estimated coefficient on foreign aid are statistically significant in both general and central government spending. The estimated coefficient on institutions is also compatible in not being statistically significant in either case. However, the negative coefficient on taxation, while statistically significant in the case of general government spending, becomes statistically not significant in the case of central government spending. Of the Group-II variables, external conflict produces the only statistically significant estimated coefficient on military spending in both expenditure sets, while the positive estimated coefficient on the level of development and the negative estimated coefficient on ethnic fragmentation lose their statistical significance as we move from general to central government spending. Amongst the dummy variables, natural resource-rich states produce a marginally statistically significant differential intercept coefficient for general government spending, which is statistically not significant for central government spending. It is noteworthy that in the case of general government military spending, natural resource dependence produced significant differential intercept coefficients for the period 2003–2012 in both Phase-I and Phase-II models, but its statistical significance becomes marginal in the smaller sample of states. Discussion This section has presented persuasive empirical support for our argument that using central government spending data in regression models can frequently lead to misleading or even incorrect conclusions. From the vantage point of our accountability framework, while we find strong empirical evidence that democracy and good institutions lead to higher public spending on health and education when we use general government data, the evidence becomes very weak when we use central government data in the same regression model. Similarly, while we can infer that higher taxation leads to reduced spending on the military when we use general government data, we cannot place statistical confidence in such an inference when we fit the regression model with central government data. At a subsidiary level, this section has also shown that the convincing empirical evidence produced by our regression models on the relationship between democratic accountability and public spending on human development in the Phase-I and Phase-II models does not lose its strength even in considerably smaller sample sizes.

4. Concluding comments The empirical evidence presented in this chapter provides answers for the central questions of this book. To recapitulate, we had, in Chapter 3, presented the core argument that democracy and high-quality administrative and judicial institutions

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could be expected to lead to comparatively high levels of public spending on human development. Democracy is seen to produce this result because it makes governments accountable to citizens. And good institutions do so because they create an overall environment of accountability to the citizens and a sense of responsibility to work towards the common good. The regression results reported in this chapter provide compelling evidence in support of these arguments. These results demonstrate that, ceteris paribus, greater levels of democracy drive higher public spending on both health and education, but lower spending on the military; and that good institutions also lead to higher allocations for health and education, but not for the military. The evidence also supports our contention that resource-based accountability to the citizens, or to lateral institutions such as international donor agencies, does affect how public resources are utilised. Greater tax-driven accountability appears to produce lower public spending for the military, but not for health or education. The evidence further suggests that foreign aid is associated with higher public spending on both health and education, even if some of it is indirectly transferred to the military. On the other hand, the regression analysis presented in this chapter has also provided empirical evidence on the influence of several other factors identified in the literature as potential determinants of public spending. The level of development, the proportion of aged population, degree of openness, external conflict and ethnic divisions all appear to influence public spending in one way or the other. However, our regression analysis does not yield enough evidence to suggest that public spending is affected by left-wing orientation or by differences between presidential and parliamentary regimes, nor between majoritarian and proportional voting systems. There is also insufficient evidence to suggest that oil-rich states are any different from other states in terms of public spending, even though revenues generated by natural resources on the whole, including oil, do appear to enhance military spending.

Note 1 Public spending on schooling is, of course, not the same as total spending on education, since the latter measure also includes expenditures on tertiary education. But there tends to be a large overlap in the two measures, with both usually moving in the same direction.

6

From increased democratic accountability to better human development outcomes

In this short chapter we show how democratic accountability drives the performance of public spending on human development. As noted in Chapter 4, we focus only on one outcome, life expectancy at birth, and construct a simple model comprising dummy variables that operationalise our democratic accountability framework. We control for per capita public and private health expenditures as well as the level of development, and allow the dummy variables to pick up performance differences in terms of life expectancy, which then reflect the relationship between democratic accountability and human development outcomes. Our dataset consists of the 157 states listed in Appendix III. Section 1 explains the model; section 2, reporting the regression output for the dummy variables, explains the relationship between our posited democratic accountability framework and life expectancy outcomes; section 3 describes the regression results for the remaining variables in the model; and section 4 offers some concluding comments.

1. The model Our model incorporates a set of three-dimensional intercept dummy variables that take into account a state’s level of democracy, institutional quality and strength, and its dominant mode of public resource generation. In all, there are 12 dummy variables in the set; but to avoid the dummy variable trap, we include only 11 at a time in a regression model. The dummy group omitted represents the reference group, and the differential intercept coefficients for the dummy groups included in the model are differential values with reference to the value for this omitted group, that is, the intercept coefficient or the constant term. Accordingly, we use model E6.1 specified below, which excludes one of the 12 dummy groups that we have constructed: Lifeexpit2

= α0 + α1Ddemstinstntaxit1 + α2Ddemstinstaidit1 + α3Ddemwkinsttaxit1 + α4Ddemwkinstntaxit1 + α5Ddemwkinstaidit1 + α6Dautstinsttaxit1 + α7Dautstinstntaxit1 + α8Dautstinstaidit1 + α9Dautwkinsttaxit1 + α10Dautwkinstntaxit1 + α11Dautwkinstaidit1 + β1Expprivateit1 + β2Exppublicit1 + β3Incomeit1 + μit1

E6.1

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where, as described in Chapter 4: Lifeexp is the dependent variable, denoting combined male and female life expectancy at birth; The independent dummy variable, Ddemstinstntax indicates democratic states with strong institutions, dependent on nontax revenues; Ddemstinstaid indicates democratic states with strong institutions, dependent on foreign aid; Ddemwkinsttax indicates democratic states with weak institutions, dependent on taxes; Ddemwkinstntax indicates democratic states with weak institutions, dependent on nontax revenues; Ddemwkinstaid indicates democratic states with weak institutions, dependent on aid; Dautstinsttax indicates autocratic states with strong institutions, dependent on taxes; Dautstinstntax indicates autocratic states with strong institutions, dependent on nontax revenues; Dautstinstaid indicates autocratic states with strong institutions, dependent on aid; Dautwkinsttax indicates autocratic states with weak institutions, dependent on taxes; Dautwkinstntax indicates autocratic states with weak institutions, dependent on nontax revenues; Dautwkinstaid indicates autocratic states with weak institutions, dependent on aid; [Ddemstinsttax is the omitted or reference category, indicating democratic states with strong institutions, dependent on taxes]; Expprivate, Exppublic and Income are continuous independent variables that we include in the model to control for the effects of private expenditures on health, public expenditures on health and the level of development, respectively, as described in Chapter 4; α 0 stands for the intercept coefficient; α 1 to α 11 denote the differential intercept coefficients for the dummy variables; β 1 to β 3 denote the regression coefficients of the continuous independent variables; subscript i takes values 1 to 157, representing the states included in the model, as specified in Appendix III; subscript t1 refers to the period 2003–2012, both years inclusive; subscript t2 refers to the year 2013; and µ is the disturbance or error term. This three-dimensional dummy model enables us to analyse the influence on life expectancy outcomes of: • • •

democracy, while holding constant the influence of institutional strength and modes of public resource mobilisation; institutional strength, while holding constant the influence of democracy and modes of public resource mobilisation; and modes of public resource mobilisation, while holding constant the influence of democracy and institutional strength.

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To compare the performance of democracies with autocracies, while holding constant the effect of institutions and modes of public resource generation, the estimated differential intercept coefficient on Dautstinsttax needs to be considered with reference to the estimated intercept coefficient on Ddemstinsttax, along with further similar comparisons between: Dautstinstntax and Ddemstinstntax; Dautstinstaid and Ddemstinstaid; Dautwkinsttax and Ddemwkinsttax; Dautwkinstntax and Ddemwkinstntax; and Dautwkinstaid and Ddemwkinstaid. In exactly the same way, to examine the efficiency effects of institutional quality and modes of public resource mobilisation, similar pairwise comparisons need to be made to isolate the effects of these dimensions of democratic accountability. Since the estimated differential intercept coefficient for a dummy group in a regression model can be considered, as already noted above, only with respect to the value of the intercept coefficient of the relevant dummy group (estimated by omitting it from the model), in order to create directly comparable dummy pairs, a series of regression models must be fitted, omitting each of the dummy groups at a time. The intercept coefficient for an omitted dummy group of states is, of course, not the average life expectancy in that group, but it does represent a baseline life expectancy value that can be used to compare outcomes between dummy groups. This is done by comparing with this value the estimated differential intercept coefficient of the relevant dummy group included in the regression model.

2. Democratic accountability and human development outcomes Following this technique, we fit a series of regression models, omitting one dummy group at a time and report in Tables 6.1–6.3 the estimated intercept coefficient for the omitted dummy group in each fitted regression model along with the estimated differential intercept coefficient for the relevant dummy group yielded in the same regression model. The effect of democracy Making pairwise comparisons of the intercept values for dummy groups in Rows 1–6 of Table 6.1 reflects the effects of democracy on life expectancy outcomes, holding constant the effects of institutions and the modes of public resource mobilisation. While the estimated differential intercept coefficients for all dummy groups in Panel-II are negative as expected, those for autocratic states that have strong institutions and that rely on tax or nontax resources are small and statistically not significant, implying that life expectancy outcomes in these states are, on average, no different than the life expectancy outcomes in their democratic counterparts (Rows 1 and 2). But those autocratic states that have weak institutions, irrespective of whether they rely on tax or nontax revenues have, on average, lower life expectancy outcomes, as their negative statistically significant estimated differential intercept coefficients show, when compared with democratic states in reciprocal categories (Rows 4 and 5). On the other

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Table 6.1 Life expectancy outcomes: democracy Model specification: E6.1 Dependent variable: life expectancy, both sexes, 2013 Dummy variables: based on average values for 2003–2012 Row

Omitted dummy group

Intercept coefficient/ constant

Included dummy group

Panel-I

Differential intercept coefficient

Panel-II

Pairwise comparisons of dummy groups to isolate the effect of democracy from autocracy 1.

Ddemstinsttax

2.

Ddemstinstntax

3.

Ddemstinstaid

4.

Ddemwkinsttax

5.

Ddemwkinstntax

6.

Ddemwkinstaid F-statistic: R2 (%): States/observations:

74.494*** (0.918) 73.022*** (0.735) 70.531*** (0.924) 72.480*** (0.681) 71.501*** (0.673) 62.120*** (1.605) 35.87*** 74.31

Dautstinsttax Dautstinstntax Dautstinstaid Dautwkinsttax Dautwkinstntax Dautwkinstaid

–0.166 (1.420) –0.401 (1.172) –7.631** (3.291) –3.741** (1.784) –5.017** (2.028) –6.305*** (2.048)

157

Robust standard errors in parentheses. Level of statistical significance: ***1 per cent; **5 per cent; *10 per cent.

hand, the negative estimated differential intercept coefficients on both dummies for autocratic states reliant on foreign aid are statistically significant, which suggests that foreign aid dependent autocratic states have, on average, lower life expectancy outcomes than democracies, irrespective of institutional quality (Rows 3 and 6). Thus, we find sufficient empirical evidence to conclude that accountability structures in democracies produce better performance outcomes than accountability structures in autocracies, except where high-quality administrative and judicial institutions compensate for the lack of democracy. However, aid-reliant states, where democracy seems to produce much better outcomes than autocracy even when institutions are strong, provide an exception to the balancing effect of institutions.

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The effect of institutions Pairwise comparison of estimated differential intercept coefficients of dummy groups included in models with estimated intercept coefficients of the omitted dummy groups across the two panels in Rows 1–6 of Table 6.2 illustrates the effect of the accountability structures created by strong institutions on life expectancy outcomes while holding constant the effect of regime type and nature of resource dependence. The estimated differential intercept coefficients on all dummy groups in Panel-II are negative, as expected, and are also statistically significant, which provides sufficient evidence to indicate that states with strong institutions have, on average, higher life expectancy outcomes among their citizens than states with weak institutions, irrespective of whether they are democracies or autocracies, and whether they rely on taxes, nontax revenues or foreign aid. On the whole, institutional quality appears to have a more distinct impact on human development outcomes than does democracy. Table 6.2 Life expectancy outcomes: institutions Model specification: E6.1 Dependent variable: life expectancy, both sexes, 2013 Dummy variables: based on average values for 2003–2012 Row

Omitted dummy group

Intercept coefficient/ constant

Included dummy group

Panel-I

Differential intercept coefficient

Panel-II

Pairwise comparisons of dummy groups to isolate the effect of strong institutions from weak institutions 1.

Ddemstinsttax

2.

Ddemstinstntax

3.

Ddemstinstaid

4.

Dautstinsttax

5.

Dautstinstntax

6.

Dautstinstaid F-statistic: R2 (%): States/observations:

74.494*** (0.918) 73.022*** (0.735) 70.531*** (0.924) 74.328*** (1.545) 72.621*** (1.754) 62.900*** (3.166) 35.87*** 74.31 157

Ddemwkinsttax Ddemwkinstntax Ddemwkinstaid Dautwkinsttax Dautwkinstntax Dautwkinstaid

Robust standard errors in parentheses. Level of statistical significance: ***1 per cent; **5 per cent; *10 per cent.

–2.014** (0.870) –1.522** (0.744) –8.410*** (1.844) –5.589*** (2.167) –6.137** (3.056) –7.085** (3.412)

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The effect of modes of public resource mobilisation The effects on life expectancy outcomes produced by tax-driven accountability, while holding constant the impact of regime type and institutional quality, can be seen by pairwise comparisons of the estimated differential intercept coefficients of the nontax-dependent states and aid-dependent states in Panel-II of Table 6.3 with the estimated intercept coefficients on tax-dependent states in Panel-I. This is done in Rows 1–8. The comparisons show that while aid-dependent states have lower life expectancy outcomes, on average, than tax-dependent states, as their negative statistically significant estimated differential intercept coefficients reflect, states dependent on nontax resources have, on average, the same performance outcomes when compared with tax-dependent states, except in the case of democratic states with strong institutions. Rows 9–12 of the table further compare the outcomes between states relying on nontax revenues and foreign aid. The negative statistically significant differential intercept coefficients on all four dummy groups show that life expectancy is lower in aid-dependent states than in nontax-dependent states, irrespective of whether they are democracies or autocracies, or whether their institutions are strong or weak. Table 6.3 Life expectancy outcomes: modes of public resource mobilisation Model specification: E6.1 Dependent variable: life expectancy, both sexes, 2013 Dummy variables: based on average values for 2003–2012 Row

Omitted dummy group

Intercept coefficient/ constant

Included dummy group

Panel-I

Differential intercept coefficient

Panel-II

Pairwise comparisons of dummy groups to isolate the effect of taxation from nontax and foreign aid reliance 1.

Ddemstinsttax

74.494*** (0.918)

Ddemstinstaid

2. 3.

Ddemwkinsttax

72.480*** (0.681)

6.

Ddemwkinstntax Ddemwkinstaid

4. 5.

Ddemstinstntax

Dautstinsttax

74.328*** (1.545)

Dautstinstntax Dautstinstaid

–1.472** (0.697) –3.964*** (1.163) –0.980 (0.813) –10.360*** (1.736) –1.707 (1.758) –11.428*** (3.496) Continued

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Table 6.3 Life expectancy outcomes: modes of public resource mobilisation, continued Model specification: E6.1 7.

Dautwkinsttax

68.740*** (1.721)

Dautwkinstntax Dautwkinstaid

8.

–2.256 (2.557) –12.924*** (2.133)

Pairwise dummy group comparisons to isolate the effect of nontax reliance from foreign aid reliance 9.

Ddemstinstntax

10.

Ddemwkinstntax

11.

Dautstinstntax

12.

Dautwkinstntax F-statistic: R2 (%): States/observations:

73.022*** (0.735) 71.501*** (0.673) 72.621*** (1.754) 66.484*** (1.784) 35.87*** 74.31 157

Ddemstinstaid Ddemwkinstaid Dautstinstaid Dautwkinstaid

–2.492** (1.083) –9.380*** (1.735) –9.721*** (3.558) –10.669*** (2.209)

Robust standard errors in parentheses. Level of statistical significance: ***1 per cent; **5 per cent; *10 per cent.

Discussion Broadly, pairwise comparisons of intercept values made in Tables 6.1–6.3 support the predictions that strong accountability structures created by democracy, highquality administrative and judicial institutions, and a reliance on taxes enhance human development outcomes. The empirical evidence we have presented clearly demonstrates the positive effect of strong, accountable institutions on human development, as measured by life expectancy outcomes. There is also sufficient evidence to suggest that democracy enhances human development outcomes, in particular where administrative and judicial institutions are weak. And where democracy is weak, strong institutions appear to compensate for it in most instances. On the other hand, tax-driven accountability appears to have a substantial effect on performance outcomes in democratic states with high-quality institutions. The weakest performance outcomes, however, are shown by states reliant on foreign aid: a finding that is all the more plausible considering that both public and private spending on health has been controlled for in our model along with the level of development. In fact, the empirical evidence we have presented here is further reinforced by our case study of Argentina in Chapter 9, which shows that even though aid-dependent states spend as much on human development as do tax-dependent states on average, their human development

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outcomes are much lower. This leads us to further conclude that foreign aid may enhance spending on human development, but the wedge that accountability to donor agencies drives between governments and citizens can generate performance deficits.

3. Spending on health and the level of development As explained in Chapter 4, our regression model incorporates per capita public and private expenditures on health adjusted for PPP to control for the effects of spending on health, whereas PPP-adjusted per capita GDP has been included to control for the effects of several other influences on life expectancy outcomes, including nutrition and technological advancement. Even though the primary purpose for the inclusion of these variables is to control for the impact of the factors they represent, the regression coefficients on these variables, reported in Table 6.4, present some interesting findings. The estimated coefficients for public and private spending on health are rather small since they measure the change in life expectancy resulting, on average, from one more dollar spent per capita on health. Both are positive as could be expected, but only the estimated coefficient for public spending on health, which is also almost twice the size of the estimated coefficient for private spending, is statistically significant. Thus, while we do find enough empirical support to suggest that public spending on health leads to increases in life expectancy, there is not enough evidence to infer that private spending also results in its increase. On the other hand, the coefficient on the level of development is even smaller and not statistically significant either, although it is positive, as expected. This implies that when the performance effect associated with democratic accountability – operationalised through the dummy variables – is taken into account and expenditures on health are also controlled for, the level of development of a state does not, on average, make any difference to outcomes. In the context of our finding on the ineffectuality of private health spending in improving life expectancy outcomes, an argument could be made that the model we have used does not segregate the effects of private sector efficiency from PSP and that the dummy variables may also be picking up some effects of private sector performance. However, the segregation of two effects is not very meaningful for several reasons. First, high levels of democratic accountability not only make the public sector more productive, but also make the private sector more accountable and efficient. Since the performance effects in both sectors tend to move in the same direction, not isolating the public sector effects does not detract from the main argument that greater democratic accountability improves PSP. Second, since it is public provision that usually benefits non-elite masses in sectors such as education and health, outcome differences in these areas often reflect the performance of the public sector (Afonso and St Aubyn, 2005). Or as Afonso et al. (2005) suggest, outcomes such as infant mortality or life expectancy in the health sector, for instance, are the closest possible reflections of the outcomes of public policies. Our findings of a larger, statistically significant effect of per capita public health spending on life expectancy compared with the smaller,

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Table 6.4 Life expectancy outcomes: spending on health and level of development Model specification: E6.1 Dependent variable: life expectancy, both sexes, 2013 Continuous explanatory variables: 2003–2012; averaged values Continuous variables Variable Public spending on health

Coefficient 0.00142** (0.00067)

Private spending on health

0.00087 (0.00145)

Income

0.00004 (0.00006)

F-statistic:

35.87***

R2 (%):

74.31

States/observations:

157

Robust standard errors in parentheses. Level of statistical significance: ***1 per cent; **5 per cent; *10 per cent.

not statistically significant, effect of private per capita health expenditures tends to support this contention by Afonso et al. (2005). Probably, it is for these and other related reasons that studies that evaluate PSP in terms of broad socioeconomic outcomes, while acknowledging that these outcomes cannot be attributed to public spending alone, typically do not segregate private sector effects, or even the influence of other non-financial factors, from the public sector effects. Reverse causality Reverse causality does not appear to be a problem in the regression findings presented above. From a theoretical perspective, it is difficult to conceive of a causal chain running from higher life expectancy to higher levels of democracy, greater institutional quality or enhanced taxation. But from the perspective of empirical methodology, it does need to be questioned whether the influence of any missing variable (confounding factor) is driving the outcomes. The most obvious candidate would have been per capita income, which can potentially generate a spurious relationship between higher life expectancy and the three dimensions of accountability that we have operationalised. But per capita income has already been included in the model and its estimated coefficient found to be not

From increased democratic accountability 109 statistically significant. Hence there should not be much cause for concern on account of our findings being driven by any spurious relationships either.

4. Concluding comments The empirical evidence presented in this chapter provides important insights into the performance differences between states that arise from differences in their overall accountability frameworks. As these findings have illustrated, human development outcomes tend to depend on whether states are democratic or autocratic, whether they have strong or weak institutions, and whether their most significant resource base is taxes, nontax revenues or foreign aid. The institutional dimension of democratic accountability, however, appears to be the most crucial influence on outcomes. To the extent that the empirical evidence yielded by our model depicts a positive association between democracy and life expectancy, our findings are consistent with the findings of earlier studies such as Baum and Lake (2003), Besley and Kudamatsu (2006) and Franco et al. (2004), which find a positive correlation between democracy and human development outcomes. Nevertheless, our findings add to earlier research by explicating the greater significance of the institutional dimension of democratic accountability for human development outcomes. The model we use is necessarily quite basic, and the assumptions a little testing; but even so, the regression results serve to indicate a distinct relationship between human development outcomes and democratic accountability. Having concluded the regression analysis on public spending for human development and its outcomes, in the next chapter we present our first case study: a comparative historical examination of public spending on human development and its outcomes in Pakistan and India.

7

Pakistan and India Of military ballads and popular ballots

At the time of independence from British rule in 1947, Pakistan and India inherited the same constitutional framework, the same political institutions, and the same administrative and judicial structures. They had shared a long history, had extensive social and cultural similarities (Candland, 2007) and, while India had a stronger industrial base, both countries relied heavily on agricultural production, with land taxes constituting a major source of government revenues (Clark and Wolcott, 2003). However, despite these deep-rooted institutional, economic, social, cultural and historical similarities, the pattern of public resources allocated to health and education over the past 67 years in the two countries has been very different. As a proportion of GDP, India has been spending significantly more than Pakistan on the provision of healthcare and education, but less on the military. This difference is all the more remarkable given that the level of real per capita income of the two countries has, until recently, been more or less the same, with comparable secular growth trends. In terms of ethnic fractionalisation, India is no better than Pakistan. On the other hand, it is not possible to attribute the disparities in the public spending patterns between the two states to any significant differences in their dominant sociopolitical ideologies, either. Gandhi was admittedly influenced by Marxism, even if he reinterpreted it through historical Hindu tradition. But it was not Gandhian Marxism, but rather Nehru’s brand of Fabian socialism – which was more of a third way lying between US capitalism and Russian socialism adapted to Indian needs1 – that came to dominate India (Frankel, 1978: 3). Almost in parallel, left-leaning parties have also governed Pakistan for half of the time it has been under democratic rule, while right-leaning parties have governed it over the other half of these remaining periods. The differences in the resource allocation patterns between Pakistan and India are, nevertheless, fairly easy to explain. A distinct advantage of a comparative study of the two countries, as Candland suggests, is that the ‘combination of deep similarities – cultural, colonial, administrative, legal, historical, and economic – and of stark differences in political regime type’ (2007: 2) between them permit a high level of abstraction while studying the effect of political regimes on a range of political economy aspects, including human development outcomes. In fact, the different patterns of public resource allocation for human development and the military between the two countries appear to be a consequence not of any

Pakistan and India 111 institutional, social, cultural or economic factors, but primarily of the difference in the nature of their political regimes, that is to say, democracy. The inherited constitutional structure of both countries was quasi-democratic with a limited franchise. Their public administrations were somewhat elitist and they relied predominantly on a feudally organised agriculture sector. But soon after independence, Indian governments became increasingly accountable to citizens and more responsive to their wellbeing. It would, of course, be erroneous to think of Indian democracy as being similar to the most mature democracies with tested democratic traditions. Far from it, Indian democracy continues to have serious problems including political corruption, clientelism and patronage relationships, which detract from democratic accountability to citizens. In addition ethnolinguistic fragmentation and social divisions along caste lines militate against the democratic spirit, and state institutions that sustain democracy are often both weak and inefficient (Bueno de Mesquita and Root, 2000; DeLong, 2003; Drèze and Sen, 2013; Jalal, 1995; Malik et al., 2009). But what is significant is that elections have been held regularly and one elected government has taken over from another without interruption since independence. Thus, even if only in a minimal sense, a notion of democratic accountability has influenced the incentive structures faced by public actors and moulded their relationships with citizens. In fact, Malik et al. capture an important truth when they argue that Indian citizens are quite ‘capable of penalizing politicians and the parties for their high-handedness and insensitivity toward the people’ (2009: 40). In contrast to this, governments in Pakistan have remained largely unaccountable and detached from citizens’ welfare. Pakistan’s history is a narrative of martial law regimes, and even the intermittent episodes of democratic rule were but indirect extensions of military autocracy, where the elected executives often had neither the authority nor the incentive to defy the country’s powerful military establishment. The series of military dictatorships created symbiotic bonds between the army, the political elite, the judiciary and the bureaucracy, which rendered democratic accountability in Pakistan very military-centric rather than citizen-centric. In fact, after 1958, when the first martial law was imposed in Pakistan, the army became the most important, if not the only, political constituency of both military and civil rulers of the country. On the other hand, Indian democracy, even if perforated, was able to make governments broadly accountable to citizens and responsive to their wellbeing. And this difference between the two countries is clearly reflected in their patterns of public spending on human development as well as their human development attainments. By comparing public spending on education, health and the military in Pakistan with that in India, this chapter studies the impact of democracy on public spending for human development compared with spending on the military. Our approach is to examine the political economy in Pakistan and to refer to India mostly as a control. Within this analysis, we focus more extensively on the developments during the Ayubian era, for this is the period, as Jalal notes, that ‘stands out as a watershed in defining relations between state and society in Pakistan’ (1995: 55). In fact, the social, political, economic and judicial legacies

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of the Ayubian regime continue up to today. We deal with the succeeding periods in Pakistan’s history in somewhat lesser detail in order to show the overall pattern of effects. We must also note here that while defence is the responsibility of central governments both in Pakistan and India, health and education fall predominantly in the jurisdiction of provincial or state governments,2 and to some extent in the domain of local government establishments. In Pakistan, the role of local governments in these areas was somewhat strengthened after the decentralisation policy was implemented in 2001. However, while we consider general government spending (i.e. aggregated spending by national and subnational governments) in these areas, we focus only on the political developments – and their accountability implications – at the centre, and not in the constituent provinces or states, or local governments. There are several reasons for this. First, the nature of the regime at the centre has tended to determine the nature of subnational regimes. For instance, whenever martial law has been imposed in Pakistan, military officers or their nominees have assumed legislative and executive authority at the federal, provincial and even local levels simultaneously. And even when elected governments were permitted in the aftermath of military coups, army generals would continue as presidents for protracted periods and the apparently democratic regime would be in the nature of a front run more by the corps commanders and their lower formations than by citizens’ representatives. In India, on the other hand, democracy remained the norm both at the national and the subnational levels. Second, in both Pakistan and India, there is often effective policy coordination between the centre and provinces. Third, in both countries subnational governments rely on federal government funding because of strong structures of fiscal federalism. And finally, in both states mostly federal government officers serve in the key bureaucratic positions in subnational governments. In the case of India, since not all states have exactly the same democratic traditions and culture, we also briefly look at the case of Kerala, where greater democratic accountability appears to have led to visibly better outcomes than other parts of India. The remainder of this chapter is organised as follows: section 1 compares political developments and patterns of public spending in Pakistan with India since independence; section 2 compares education and health outcomes between the two states; and section 3 offers some concluding comments.

1. Autocracy and democracy: public spending on education and health in Pakistan and India The formative phase: 1947–1971 Constituting what can be termed as the formative phase for Pakistan, the years 1947–1971 mark a crucial period in the history of the country. These years saw the extirpation of democracy in Pakistan, the legitimisation of military despotism by the judiciary, the creation of an oligarchy of core state institutions, the shaping of a culture of opportunism amongst the political elite and the truncation of

Pakistan and India 113 East Pakistan without any individual or institution ever being held accountable for it. And these are the developments that continue to shape, in one way or another, the pattern of Pakistan’s politics, governance and public policy. The Government of India Act 1935 provided the last constitutional framework for colonial India. Under this Act, India was a federation of British Indian provinces and autonomous princely states; the centre had a bicameral legislature consisting of the Council of State and the Federal Assembly; about two-thirds of the members of each house were elected by the provincial legislatures and the remainder were nominated by rulers of the princely states. Both houses had a significant role in legislation, but the viceroy remained the ultimate political and administrative authority. More importantly, under a system of diarchy certain sensitive areas of public policy such as defence and external affairs were retained under the viceroy, beyond the legislatures’ purview. The provinces had unicameral legislatures, elected by a suffrage limited by property or taxpaying qualifications that allowed only about one-sixth of India’s adult population to vote (Spear, 1965). Again, the governors – the viceroy’s provincial counterparts – held overriding legislative and administrative powers. In short, British India had at its best been a colonial quasi-democracy where the vast majority of disenfranchised citizens (or rather subjects) had no political rights or voice in governance and, therefore, could not expect to hold rulers, or even political representatives, accountable for their actions. On the other hand, the internal affairs of the Indian princely states, where a large proportion of the Indian population lived, were administered largely by autocratic decree. After independence, Pakistan continued to be governed under the quasidemocratic constitutional arrangements of the Act of 1935 as slightly modified by the Indian Independence Act 1947. The eleven years intervening between 1947 and 1958 (i.e. the year in which army rule was imposed for the first time) were a period of serious administrative and political difficulty arising both from the turmoil let loose by Partition and the lack of a democratic culture. Feudal and tribal societal structures further exacerbated the situation. Politics and governance became unsettled, prime ministers and cabinets changed rapidly, and the formulation of the constitution was delayed. Furthermore, the military and the bureaucracy – the two institutions that had never considered themselves accountable to the political governments – became even more strongly entrenched. During this period, spending on health and education was not a priority for the government. Of course, the post-Partition difficulties, especially the massive problem of settling the refugees, a war over Kashmir and deteriorating relations with India were partly the cause. But equally important was that political and administrative institutions were unaccountable to citizens and had no incentives to improve their socioeconomic conditions. The first constitution of Pakistan was promulgated in 1956. Providing for a federal state structure, parliamentary democracy in the centre and provinces and universal adult suffrage, it inspired citizens with hopes for a new era of democratic governance in the country. But all these hopes were shattered when, in October 1958, General Ayub Khan, the commander-in-chief of Pakistan’s army,

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in connivance with the country’s president, Iskander Mirza, imposed martial law in the country, abrogated the constitution, dismissed the central and provincial legislatures along with the governments, and placed a prohibition on both politics and political parties (Burki, 1999; Khan, 2001). Within three weeks of the coup d’état, Ayub Khan also removed Iskander Mirza, and himself assumed the office of the president. The explanation offered for the imposition of martial law was maladministration and political instability, but the real reasons were very different. For one, the army had felt threatened by the growing leftist and communist elements in the country, especially when it was not only dependent on the West for its hardware and training requirements, but was also well aligned with the US’ capitalist ideology (Jeffery, 1977; Zaidi, 1988). The second factor was a surging Bengali nationalism. In fact, were democracy allowed to function properly, East Pakistan could easily have become the dominant wing of the country (as the Bengalis constituted the majority of Pakistan’s population) while the army was drawn almost entirely from West Pakistan, especially from the Punjab. There was, in fact, an interesting intertwining of the two factors: the most popular Bengali leaders such as Huseyn Shaheed Suhrawardy, Sheikh Mujibur Rahman and Maulana Abdul Hamid Khan Bhashani, and the Awami League, which they led, had strong left-wing tendencies. Thus, with the Bengalis in power, there was also a clear possibility of Pakistan’s travelling down the socialist path. Such an outcome was unacceptable to the army, not just in view of its own Punjab-centric interests, but also in consideration of Pakistan’s geopolitical position as an anticommunist wedge3 between the USSR and the warm waters of the Arabian Gulf. Command over these waters would have allowed the USSR to extend its power into the entire region, particularly when Afghanistan and India already leaned towards the USSR. A third factor behind the imposition of martial law appears to have been the belief of the army high command, in particular of Ayub Khan, that the people of Pakistan were not ready for democracy, and that the politicians were merely parasites feeding on the state (Malik et al., 2009; Ziring, 2003). Irrespective, however, of the validity of the real or putative reasons behind the imposition of martial law, the other element of the episode that is central to the argument of this book is that the Supreme Court of Pakistan legitimised it by declaring that a successful revolution was a legal way of changing a constitution, and that the legality of such a revolution was to be judged not against any criteria of the annulled constitution, but in terms of its own success.4 In its judgment, the Supreme Court had drawn primarily from Kelsen’s (1946) arguments, but as Khan notes, the importation of a new and untried theory by an obscure scholar to justify martial law and military dictatorship is beyond explanation … [and that] … [i]n their unholy haste to legitimise the martial law, the Supreme Court Judges not only undid the writ jurisdiction of the High Courts but stripped the citizens of their fundamental rights, only to appease the new masters of the country. (2001: 214)

Pakistan and India 115 Interestingly, even if Kelsen (1946) had not been an obscure scholar, the Supreme Court’s interpretation of his argument appears to have been out of context (Omar, 2002), if not entirely warped, for Kelsen (1946) had never intended to validate despotism (Khan, 2001). This judgment by the highest judicial authority in Pakistan was a serious blow to democratic accountability in the country. Not only did it undermine the concept of the political accountability of state actors and institutions to the people through their elected representatives at a time when democracy was nascent and the various actors – citizens, their representatives and state institutions – were trying to acclimatise to it, but it also legitimised the right of the army to rule and hold all other state actors accountable. Furthermore, the judgment undermined the moral strength of the structure of legal accountability in the country, with the Supreme Court at the centre, thereby distorting the incentives that state and societal actors faced in terms of their accountability to law. After this judgment, no prime minister of Pakistan could govern without the army’s consent: not even Zulfikar Ali Bhutto, with his inundating populism. If Aziz (2008) is right in claiming that the repeated imposition of martial law in Pakistan was not the outcome of any truly extraordinary political or socioeconomic circumstances in the country, but actually the result of the army’s path-dependent predisposition to usurp power, then this was the judgment that constituted Collier and Collier’s (1991) critical juncture, where Pakistan branched off from democracy and the principle of democratic accountability on to a trajectory of martial laws. Khan (2001) rightly asserts that had it not been for this judgment, the constitutional history of Pakistan would have been different. Unfortunately, the new martial law regime of Ayub Khan found an enthusiastic ally in the bureaucracy. The bureaucracy that Pakistan inherited – that is, the Indian Civil Service, renamed as the Civil Service of Pakistan (CSP) – was formed from classical Weberian standards amongst the best anywhere in the world at that time. It was an elite cadre of generalists, recruited on merit and promoted on the basis of seniority, educated in the liberal tradition, well trained and deeply committed to its professional ethics of integrity, neutrality and efficiency (Chowdhury, 1988; Woodruff, 1954). But it had one serious drawback. It was unaccustomed to the notion of a democratic accountability running from state institutions to the citizens through their elected political representatives (Khan, 2001). Admittedly, the bureaucracy was imbued with the ethic of public service, but this was more in the nature of paternalism and working for the commonweal, like Plato’s guardians, within a framework established by rules and regulations (Woodruff, 1954), than in any sense of being responsive to citizens’ aspirations and being accountable to them for its actions (Chowdhury, 1988). During the colonial period, this bureaucratic structure functioned rather well for both the state and the people of India. For the colonial state it meant public order and an uninterrupted stream of revenues, and for the people it meant most of all the rule of law, a fair and consistent administration and the protection of personal and property rights (Chowdhury, 1988; Shafqat, 2002; Woodruff, 1954).

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Given this background, the new arrangements of a military dictatorship suited the bureaucracy rather well. Men in uniform were more welcome than politicians for they shared the bureaucracy’s elitist culture, westernised perceptions, paternalistic inclinations, distrust of democracy and democratic representation, and contempt for popular accountability. During the Raj the bureaucrats had never been accountable to citizens’ representatives, and the very notion of such accountability disturbed them. And now even the judiciary had sanctioned an autocratic elitist rule, and by doing so had removed any reservations or qualms – if there were any – on the part of the bureaucracy, or any other state institution, in succouring a military dictatorship. More gravely, however, judicial sanction by the apex court established a precedent that in the years to come was to both encourage the army, as noted above, to take over the instruments of state power at lower and lower thresholds of provocation, and provide the judiciary with a legal framework to validate each violation of democracy by the army. The martial law imposed by Ayub Khan, even though it had the semblance of benevolence in the beginning and had even been initially welcomed by the people, was nevertheless a dictatorship that soon degenerated into a corrupt and exploitative oligarchy (Burki, 1999; Khan, 2001). The legitimisation of the martial law regime by the Supreme Court created a symbiotic consensus between the army, the superior judiciary and the bureaucracy, the three central institutions of the state; and under the umbrella of this consensus, with the deterrent effect of democratic accountability having been conveniently removed, the public policies that the new regime introduced were also elitist and narrow, and aimed largely at sustaining this consensus. The government’s economic policies centred on operationalising the savings–investment equation embodied in Lewis’s (1955) model of economic growth, but without any regard for the overall welfare of the masses or broader human and social development through public provision in the crucial areas of education and health (Burki, 1999; Easterly, 2003b). Industrialisation became the vehicle; functional inequality in the distribution of income was encouraged as a doctrine to create a class of rich capitalists who would have the potential to save and invest (Ahmed and Amjad, 1984; Sayeed, 1980); expenditures on the military and physical infrastructure took precedence over schooling and healthcare; and the citizens were left at the mercy of a trickledown effect that never materialised. There was perhaps nothing inherently wrong with following a savings– investment path to development, but a democratically accountable government would have at least ensured more balanced socioeconomic development through supplementary public interventions, including the provision of education and healthcare. But ‘[a]s Pakistan’s economic policy makers worked under an authoritarian political regime, they did not propose policies with a view to elections’ (Candland, 2007: 82). Consequently, the main outcome of these policies, in an environment of undemocratic governance, was that growth benefitted only a very few people: mainly the financial, commercial, trading and industrial conglomerates. More specifically, these conglomerates were owned by the infamous 22 families who, according to Mahbub ul Haq, the then chief economist of

Pakistan and India 117 Pakistan, had been the principal beneficiaries of economic growth during that period (Burki, 1999). Even the benefits that accrued in the agriculture sector from the provision of subsidised agricultural inputs – ranging from basics such as seed and fertiliser to advanced machinery such as tube wells, tractors and harvesters – were also very narrowly distributed under the military regime’s Green Revolution programme. This was mainly because land ownership was (as it is to some extent even now) highly concentrated, and most peasants could either not access or could not afford the mechanical inputs even when subsidised. Consequently, only the large, or at best the medium-sized, landowners benefitted from the initiative (Husain, 1999; Sayeed, 1980). Admittedly, the Ayub Khan regime also introduced land ownership reforms (i.e. the imposition of a limit on the ownership of land by individuals), but on a very limited scale, and the vast majority of the landlords evaded even these (Kukreja, 2005). In fact, the large feudal landlords, particularly in Sind and the Punjab, were a serious obstacle to democratic governance in Pakistan. They had almost complete control over the lives of tenants, including their votes, just as tribal leaders exerted powerful influence over the social order in the North West Frontier Province (now Khyber Pakhtunkhwa) and Balochistan. And since more than 80 per cent of Pakistan’s population at that time lived in the rural areas, landlords and tribal leaders dominated the politics of the country (Burki, 1999; Chowdhury, 1988; Kukreja, 2005; Shafqat, 2002). These feudal political elites had joined the ruling oligarchy of Ayub Khan, and by doing so they not only reinforced the regime’s unaccountability to citizens, but also obstructed public programmes for the provision of schooling, and even healthcare, in their areas of ownership and influence. In particular, they feared schooling since an educated peasantry, being more aware of its legal and fundamental rights, was likely to disrupt the social order of the agrarian economy, where the production process was mostly driven by the exploitation of the landless masses by the landowners. In many instances, culture and religion were used by these political elites to mask the real issues. In fact, in many ways the opposition of Pakistani landowners to mass public education mirrors the resistance of the Tories to the provision of public schooling in the UK in the early nineteenth century. The Tories, too, rightly feared that mass education would erode the social order (Lindert, 2004a). The aversion of the feudal political elite to mass education also suited their military partners since an educated citizenry, aware of its political and civil rights, would threaten the military’s dictatorship. The reasons for low public spending on health were not very different. As Jeffery notes rather unhappily in his case study of Pakistan: In a country where the supply of labour is abundant and the democratic pressures are weak … there is little reason for powerful groups to spend much on health, even if there are economic arguments that it will increase a [sic] national rate of growth. (1977: 451)

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It also needs to be noted that the feudal–military alliance was not a phenomenon unique to the Ayub Khan regime. Feudal political elites quickly developed a rapprochement with all military dictators in Pakistan, from Ayub Khan to Zia-ulHaq to Musharraf, since they tended to be the main beneficiaries under systems of controlled democracy allowed by military regimes, that is, the legislatures and cabinets during 1962–1969 under Ayub Khan, 1985–1988 under Zia-ul-Haq and 2002–2008 under Pervez Musharraf. By sitting in what are often referred to as puppet or rubber-stamp legislatures and governments, these elites were, nevertheless, able to protect their vital social and economic interests in return for their support for the military regime. Moreover, despite many political crises and development failures over Pakistan’s history, feudal landlords and tribal leaders have also continued to dominate political governments and legislatures even during democratic interludes when the army is not directly in power, while the middle classes tend to be under-represented (Easterly, 2003b; Lafrance, 2002; Shafqat, 2002). And because of these serious accountability deficits – even during these periods of more democratic regimes – the political influence wielded by these landlords and tribal leaders is seldom used to promote the welfare of the wider population. As Husain notes, ‘[t]he ruling elites … found it convenient to perpetuate low literacy rates. The lower the proportion of educated and literate people, the lower the probability that the ruling alliance could be displaced’ (1999: 359). In this environment created by exploitative oligarchies, citizens could not hold state functionaries accountable, nor could state institutions be responsive to their interests. Consequently, education and health remained low priority areas in Pakistan. For instance, during the formative period of 1947–1971, the average annual public spending in Pakistan was, as Table 7.1 shows, only 1.12 per cent of GDP on education; for health it was as low as 0.42 per cent of GDP; but for the military, it stood at 5.01 per cent of GDP. Table 7.1 Average annual public spending as a percentage of GDP in Pakistan and India (all government levels combined) Period

Education

Health

Military

Pakistan

India

Pakistan

India

Pakistan

India

1947–1971

1.12

2.16

0.42

0.64

5.01

2.60

1971–1977

1.92

2.52

0.57

0.88

5.30

2.90

1977–1988

2.11

3.05

0.70

0.97

6.38

3.03

1988–1999

2.44

3.78

0.78

0.98

6.35

2.91

1999–2008 2008–2013

2.30 2.40

3.61 3.23

0.71 0.92

1.01 1.14

4.06 3.18

2.75 2.63

Sources: Ahmed and Amjad (1984); Economic Survey of Pakistan (various issues); Kukreja (2005); Siddiqa (2005); SIPRI Yearbook ([Stockholm International Peace Research Institute] various issues); UNESCO Institute for Statistics (UIS); UNESCO Statistical Yearbook ([United Nations Educational, Scientific and Cultural Organization] various issues); United Nations Statistical Yearbook (various issues); WDI.

Pakistan and India 119 Moreover, even when, under pressure from international donor agencies, resources have been allocated to education and health, they were often wasted. Gazdar (2000), for instance, reports how landlords occupy school buildings for their personal use, prevent the children of peasants from attending schools and ensure the selection of their relatives or supporters as schoolteachers, which leads to both the recruitment of low-quality teachers and teacher absenteeism. Rural healthcare provision has often met the same fate: for instance, it is not just low pay structures that create disincentives for qualified doctors to serve in rural areas, but also the debilitative domination of public service provision in rural communities by the feudal elite. It is rather unsurprising that doctor and staff absenteeism in rural areas should be a chronic problem in Pakistan. Easterly very rightly considers military rule and the feudal–tribal structures to be the primary cause behind Pakistan’s experience of ‘growth without development’ (2003b: 439). On the other hand, not only have public allocations for education been small in Pakistan, but they have also had an elitist bias in the sense that there is greater emphasis on tertiary education than there is on schooling (Behrman and Schneider, 1994; Burki, 1999; Husain, 1999). Educational provision during the British period conformed largely to Macaulay’s vision of creating a loyal ruling ‘class of persons, Indian in blood and colour, but English in taste, in opinions, in morals, and in intellect’ ([1835] 1972: 249), and was thereby focused more on providing intermediate- and university-level education for this select class than on basic education for all. In keeping with this elitist tradition, Pakistan’s military– feudal alliance also preferred higher public provision of tertiary education relative to primary or secondary schooling. This was a predilection that the industrial and commercial classes also shared. The reasons are clear enough: while mass public schooling benefits the lower economic classes, tertiary education benefits mostly the upper economic echelons and tends to further entrench, at public expense, their socioeconomic privileges and superiority over the lower classes, who very frequently cannot bear the opportunity costs of schooling their children, let alone sending them to university. Lindert (2004b) identifies Pakistan as one of the countries with elitist fingerprints in education because: •

•

as compared with other typical countries with the same or lower income levels, Pakistan has a lower primary-school support ratio, that is, as a proportion of its per capita GDP, Pakistan’s public spending on primary education per primary-school-age child has been lower than such countries; and as compared with other countries at the same or higher income levels, Pakistan has a higher relative support ratio for higher education, that is, as a proportion of its public spending on primary education per primary-schoolage child, Pakistan’s public spending on tertiary education per pupil has been higher than such countries.

Both these characteristics indicate a greater benefit of public education spending for the upper economic classes rather than the lower. Lindert’s (2004b) measures

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could, of course, be questioned on the grounds that a certain level of public spending on tertiary education (for instance, tertiary spending on training teachers) will always be necessary even for an expansion in primary education.5 But it must be kept in mind that Lindert’s (2004b) measures are relative ratios between primary- and tertiary-level spending taken for countries at similar levels of development, and therefore provide fairly accurate assessments of the implications of democracy in the context of elitism. Furthermore, not only are such elitist tendencies visible in Pakistan’s education sector, but they are also prevalent in its health sector. Despite the fact that more than 80 per cent of Pakistanis lived in villages in 1947 and about 62 per cent live in them even now, priority continues to be given to tertiary, predominantly curative, healthcare provision based in urban centres, to the neglect of primary, and in particular preventive, healthcare provision that is needed more urgently in rural areas. This imbalance has resulted in much greater benefit to upper classes at the cost of poorer segments of the society, especially in rural areas (Burki, 1999; Jeffery, 1993; Zaidi, 1985). Like education, healthcare during the British period was elitist in that it preferred curative provision over preventive provision and was designed primarily to meet the needs of the colonising civil and military bureaucracies, or the upper echelons of society, which were largely supportive of the colonial regime (Banerji, 1996; Berman, 1996; Deodhar, 1982; Jeffery, 1977, 1991). But this imbalance has continued inexorably even after independence, and the emphasis continues to be on tertiary healthcare. State-of-the-art hospitals have been established in the major urban areas, furnished with the latest equipment, and supported by an equally elitist structure of medical education aimed at producing doctors well trained in the urban-centric curative tradition, whereas rural primary and preventive healthcare has been disregarded.6 It is mostly the urban elite who benefit from their services, while the rural poor shy away even when in dire need, sometimes because they cannot afford the ancillary costs of medication or even the costs of travel. Of course, the urban poor also occasionally take advantage of the public tertiary health facilities, but, to borrow from Zaidi, merely as ‘an externality from the rich’ (1988: 17). In any case, the associated costs of treatment could be prohibitively high for these urban poor. This unabashed neglect of the rural poor has been made possible by their lack of voice and their inability to hold the ruling elite accountable, while the emphasis on sophisticated tertiary healthcare reflects the influence of the urban elite – mostly the industrial and commercial classes – in the ruling oligarchies. On the other hand, with rare exception, the feudal elite (who, as mentioned earlier, tend to dominate the legislatures when they exist and become a part of the martial law regimes when the army is in power) have also been living in urban centres since pre-independence times and are, therefore, at no disadvantage. Moreover, since these feudal elite are unaccustomed to being held accountable by the people – elections being more an exception than a certainty – they have little incentive to take care of the healthcare needs of their rural electorates. Owing to this policy capture by the urban and feudal elite,

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Pakistani governments appear to have had no real interest in making broadbased investments in the education and health sectors despite commitments in formal plans and policy documents (Easterly, 2003b; Jeffery, 1977; Zaidi, 1988). As Burki notes succinctly: The established groups that held sway over the formal political structure adopted a perverse set of policies that discriminated against less advantaged groups. This contributed to a serious slowdown in the delivery of social services such as basic education and primary health care to a large number of people. (1999: 169–170) Returning to Ayub Khan’s defining period in Pakistan’s history, if the economic policies of his regime were narrow and elitist, so were the political structures it imposed on the nation. The Constitution of 1962 was the practical manifestation of Ayub Khan’s unyielding opinion that the Pakistani nation was not ready for democracy. The constitution created a mirage: a form of democracy sans democratic accountability to citizens. It did provide for federal and provincial legislatures, but ones that were elected indirectly through a very small number of electors7 consisting of members of the new local municipal bodies set up under Ayub Khan’s system of so-called basic democracy. Real administrative and legislative powers were in any case vested in the president, who was also elected by the same small electoral college. The municipal bodies were granted very little authority, and that too was limited to local development. But in a society where people had not been allowed any voice in governance for centuries and who had consequently come to value privilege very highly, even this trivial authority was enough to create powerful incentives for the members of the electoral college to support the military regime. This devolved authority provided the military regime with a tool to manipulate the beneficiaries. And this was the equation that Ayub Khan exploited in the presidential elections of 1965 when almost the entire nation appeared to support Fatima Jinnah, but he still won by a large margin. Perhaps the most harmful outcome of the military regime’s oligarchic policies was the corruption of the bureaucracy, despite some half-hearted efforts of the Ayub Khan regime to control it. This was a very serious development, for until now – and despite some malpractices by individual civil servants even during British rule – the integrity of the civil service as an institution had been well respected, and it was recognised to be the guardian of the public interest. Even if this paternalistic guardianship tended to be democratically unaccountable, it was inconceivable that it would be exploited for personal aggrandisement. But this is precisely what happened. The bureaucracy was accustomed to working in an environment of legal accountability, sustained by an upright and effective judiciary. In fact, being a Weberian legal–rational institution, legal accountability was the only form of external accountability that it was familiar with and respected. Admittedly, the bureaucracy was governed by strong hierarchical accountability

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mechanisms and also adhered to a stringent professional honour code, but internal accountability was in many ways linked with the external environment of legal accountability, especially when the honour code was not formally enforceable. Consequently, the erosion in the framework of legal accountability in the wake of military coups, coupled with the expanded potential for graft created by state-sponsored industrialisation as well as by the large-scale infrastructure projects that were a part of the new economic policies, led many a civil servant astray. For policymaking, this was a tragic outcome. A bureaucracy with deteriorating integrity found an advantage in supporting a growth model that enriched it, rather than a broader paradigm of socioeconomic development built upon the public provision of education and healthcare that would have involved numerous small actors in the equation of service delivery and thereby would have reduced both the opportunities and the scale of graft. Moreover, the bureaucracy also supported the elitist policies of the military–feudal–industrialist alliance against schooling, since, like the other elites, it saw ignorant masses as a lesser threat to its established power than a more aware citizenry, and therefore had little incentive to work for mass education. Pakistan came under army rule for the second time in 1969 when a mass movement erupted against the Ayubian regime because of the political and economic policies it had pursued since 1958. Rather than a balanced socioeconomic development that democratic and accountable governance might have ensured, the country faced rising disparities in the distribution of income and wealth, impoverishment of the middle classes and serious poverty amongst urban labourers and the peasantry. For both of these groups the state failed to provide any safety net. The country’s intelligentsia had also become frustrated, and in the case of East Pakistan, an additional grievance was the putative economic exploitation by West Pakistan. Ayub Khan, fearing that it might not be possible to control the mass uprisings in the country without military intervention, invited General Yahya Khan, the commander-in-chief of the Pakistan army, to take over. And Yahya Khan did so willingly. He abrogated the Constitution of 1962, dissolved the federal and provincial legislatures and executives, and himself assumed the office of the president.8 This time round, the martial law culminated in the truncation of Pakistan. Although the superior judiciary did not have an opportunity to sit in judgment on the martial law imposed by Yahya Khan during the pendency of the martial law, it had occasion do so three months after its termination, when it declared that Yahya Khan had illegally usurped power.9 Interestingly, the Supreme Court also ruled that the earlier validation of the martial law imposed by Ayub Khan was unjustified. As much as this judgment may appear a step in the right direction, it could neither restore the credibility of the judiciary nor repair the damage that had been caused to the framework of democratic and legal accountability in the country. For one, as Khan notes, ‘it was given after the overthrow of the usurper, [whereas] [t]he real test of independence of the Supreme Court would have been if the judgment had been made while Yahya was still in power’ (2001: 446). Second, the formal criticism of the earlier judgment handed down by the

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Supreme Court in Ayub Khan’s case confirmed the Supreme Court’s lack of independence and objectivity in having passed that judgment, which until then had only been alleged by commentators. Consequently, remaining unable to trust the judiciary for protection against any future military despotism, the political elite and executive institutions continued to rely on the consent of the army, and democratic accountability to citizens figured nowhere in the incentive structures that they faced. If the years 1947–1971 defined the path that Pakistan was to take, they also defined the direction for India. The two trajectories were almost diametrically opposed. While in Pakistan this period saw the consolidation of autocracy, in India it saw the consolidation of democracy and democratic accountability of state actors and institutions to citizens. The Indian constitution was promulgated in early 1950, and ever since then it has remained in force without interruption.10 Jawaharlal Nehru remained prime minister from 1947 to 1964, the period that essentially constitutes the formative phase of the nascent Indian state. Nehru’s respect for democratic norms and democratic institutions laid a solid foundation for state actors to be responsible and accountable to citizens. However, equally important was the part that the Indian higher judiciary played in strengthening Indian democracy. The judicial system in India tends to suffer from a number of grave problems including inefficiency, inaccessibility, partiality, opaqueness and exploitation by the elite (Drèze and Sen, 2002), and in that sense shares many common features with Pakistan’s judicial system. But, by rigorously upholding the basic rights and civil liberties of citizens, and in particular by protecting the public interest through judicial activism and public interest litigation (Malik et al., 2009; Mendelsohn, 2000), the higher judiciary in India – that is, the Indian High Courts and Supreme Court – ensured that state actors and institutions remained accountable to citizens and responsive to their interests. Two examples stand out in this context: first the disqualification of Indira Gandhi in 1975; and, second, the prosecution of Narasimha Rao in 1996. These actions were taken while both prime ministers were in office, and did not, as in the case of Pakistan, constitute a ‘victor’s justice after a change of Government’ (Mendelsohn, 2000: 104). India inherited the same elitist, paternalistic and politically unaccountable bureaucracy that Pakistan inherited. But the democratic traditions created in India led Indian bureaucrats to largely recognise and accept, and perhaps also to become comfortable with, the notion of their being accountable to citizens through their elected representatives (Jalal, 1995; Malik et al., 2009). Tensions have always existed between the Indian politician and the Indian bureaucrat, and Indian bureaucracy also appears to have never been any better than its Pakistani counterpart in terms of either competence or integrity (Jain, 2001; Malik et al., 2009); but the crucial difference is that in India the real powers in policymaking were exercised by the elected representatives of citizens, not by any military dictator. Another important factor that contributed to the survival of Indian democracy, and the consequent higher provision of education and healthcare in India than in Pakistan, is that land ownership reforms in India were more effective than they were in Pakistan. Though perhaps not completely successful in reducing

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the size of holdings or redistributing land amongst the peasantry to the extent intended, the Indian reforms effectively undermined the political domination of the bigger landlords by abolishing the zamindari – a form of absentee landlordism – in the early 1950s (Jalal, 1995). Consequently, while the feudal elite were able to block education and healthcare provision for the masses in Pakistan because of their political clout, there was no class of similarly dominant landlords to oppose this in India. It was because of the overall environment of accountability that, although prior to the 1990s India, like Pakistan, pursued a savings–investment path to economic growth (which in India was further reinforced by inward-looking policies and serious trade restrictions), the Indian government could not neglect social development or disregard the importance of an equitable distribution of income and wealth. Indeed, Indian democracy, as noted earlier, has important weaknesses. But in terms of spending on human development, even a far from perfect chain of democratic accountability running from politicians to citizens has proved to be better than none at all. The latter contention is vindicated when we compare India’s allocation for human development with Pakistan’s. Over 1947– 1971, India on average spent 2.16 per cent of GDP on education, 0.64 per cent on health and 2.60 per cent on the military. While these figures may not appear very impressive in comparison with the advanced Western democracies or even some underdeveloped democracies of comparative economic status such as Sri Lanka or Botswana, they compare very favourably with Pakistan’s 1.12 per cent, 0.42 per cent and 5.01 per cent of GDP on education, health and the military, respectively, over the same period. Since democracy appears to be the only real difference between the two countries over the period in question, it is to this difference that we can attribute the contrast in the pattern of resource allocation between the two states. Interestingly, Lindert (2004b) also finds elitist fingerprints in the case of public spending on education in India, which he attributes to the limitations of the Indian democracy and restricted political voice of the masses despite universal adult suffrage. However, as he has calculated, although India’s relative support ratio for higher education is higher than Pakistan’s by about 15.7 per cent, it also has a primary school support ratio higher than Pakistan’s by about 35 per cent. This means that even if India spends more on tertiary education than on primary education as compared with Pakistan, in terms of primary education alone it spends more, and is less elitist, than Pakistan. Findings of a study by Behrman and Schneider (1994) bring the latter difference between the two countries into even sharper focus. Using data on an international sample of countries for the years 1965 and 1987, the authors regress primary school enrolment rates – their proxy for investments in primary schooling – on per capita income. In both instances, they find Pakistan below, and India above, the regression lines, which shows that Pakistan spends below and India above the average spending on primary schooling for their level of per capita income. Initially, as in the case of Pakistan, India’s healthcare provision also favoured curative rather than preventive healthcare because of the colonial legacy (Banerji,

Pakistan and India 125 1996; Berman, 1996; Deodhar, 1982; Jeffery, 1991). But unlike Pakistan, soon after independence Indian governments began allocating more resources for preventive services than curative services, and also concentrated on training more paramedical staff than doctors (Jeffery, 1996). The fundamental force behind the increasing provision of primary healthcare compared with tertiary provision in India was democratic accountability, with the poorest segments of society being the greatest beneficiaries (Banerji, 1996; Nag, 1990). Furthermore, soon after independence, the focus shifted to the rural areas: home to more than 80 per cent of the Indian population in 1947 and to around 68 per cent even today. Not only were special programmes launched at the national level against communicable diseases affecting in particular the poorer social strata, but a comprehensive network of primary health centres (PHCs) was also initiated in 1952 to meet the basic healthcare needs of the rural poor. Though understaffed and even undersupplied at many places, the PHCs have effectively provided crucial health services to the rural Indian populace (Jeffery, 1991, 1996), and, in fact, could be seen as the keystone of mass public healthcare provision in India. As Banerji notes, the PHC network provides evidence of ‘how the democratic aspirations of the people can impel a ruling elite to make services available to them’ (1996: 306). Over time, rural healthcare provision became more robust: further medical facilities were added on to the PHC network, and the community was afforded a greater role in healthcare through community health volunteers chosen by the villagers (Banerji, 1996; Deodhar, 1982). A similar network of rural healthcare was introduced in Pakistan in the 1960s and 1970s, which comprised basic health units (BHUs) and rural health centres (RHCs). But whereas democratic accountability to the people in the case of the Indian network has led to the success of the PHCs in India, the BHU and RHC establishments in Pakistan failed to deliver services because of elite domination and the lack of accountability of governments to citizens. Doctor and staff absenteeism as well as drug pilferage became endemic, and most establishments are now dysfunctional (Memon, 2006; Siddiqi et al., 2001). In the context of democratic accountability, Jeffery perhaps best explains the underlying reason for the differences between public healthcare provision in Pakistan and India: Pakistani health policies were set in a forthright framework of the creation of a capitalist society, managed by a military and commercial elite with strong roots in a landed aristocracy. Demands for social services were weakly expressed. Not surprisingly, then, health services had low priority. When they were given attention, it was to meet the needs of the newly powerful urban classes (the bureaucracy, a petty bourgeoisie, and the military) and little emphasis was given to the needs of the rural peasantry. While similar social forces also exist in India, their operation was constrained by the existence of a political party system which articulated demands for social services. (1993: 221)

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Demand for social services has been weakly expressed in Pakistan not because of the absence of demand itself; for indeed demand for both education and health services has been strong in the country (e.g. Alderman et al., 2001, 2003; Bergmann, 1996; Talati and Pappas, 2006). It has been weakly expressed because – using Hirschman’s (1970) construction – the political institutions of state that could have conveyed the voice of the people, as well as those that could have responded to such a voice, were absent in the country over the long periods of military dictatorships. Even when such institutions were allowed to exist by the army, there was no binding incentive for them to heed the people’s voice. Thus, the people of Pakistan did not have effective voice; more lamentably, the poorest amongst them did not even have the option of exit, for they could hardly afford the costs of private education or healthcare. While assessing the impact of democracy on education and health spending in the context of Pakistan and India, it is important to pause and note at this juncture that education and health provision and performance has not been uniform in all Indian states and that states with stronger traditions of democratic accountability have achieved much better outcomes than other parts of India. Kerala is a much studied and often cited case in the literature. Amusingly referred to as a Third World Scandinavia by Törnquist (2000), Kerala has achieved education and health outcomes that are not only better than anywhere else in India, but are comparable to some of the most advanced states in the world, and a lively debate has grown around the reasons behind this success. A number of interesting explanations are offered, ranging from the emancipation and autonomy of women, the influence of the Left and administrative decentralisation to geography, historical determinism and pre-existing socioeconomic advantages at the time of independence (Caldwell, 1986). However, as Drèze and Sen inform, ‘much of the great achievements of Kerala that are so admired now are the results of postindependence public policies’ (2002: 101). That the Malabar region was able to completely catch up with the rest of Kerala, despite being much behind it in education and health outcomes when it was merged with the state after independence, vindicates this stance of the authors. But why were public policies any different in Kerala than the other Indian states? Keefer and Khemani (2003) offer a convincing explanation by comparing Kerala’s experience with that of another Indian state, Uttar Pradesh. Comparing the average per capita spending on education and health between the two states, the authors argue that although the two states have identical political and legal structures, since the 1960s Kerala has been spending twice as much as Uttar Pradesh in the two areas on a real per capita basis because voters in Kerala are much more politically active, have greater voice and can hold politicians accountable, thereby forcing them to make and keep credible promises. This explanation is in congruence with Lindert’s (2004a, 2004b) findings that democracy led to increased public spending in the nineteenth and twentieth centuries in Europe initially through extension in the legal franchise and later through expansion in the electoral participation of citizens, or the voter turnout. Democratic institutions, when introduced, appear to have made governments

Pakistan and India 127 much more accountable to citizens in Kerala than in other parts of India, largely because of the greater awareness of citizens with respect to their basic rights as well as certain other interrelated social factors such as the lower influence of the landowners on politics (Nag, 1983) and, consequently, the lesser opportunities for clientelism and patronage politics. The influence of the Left, however, does not seem to be a significant factor in the case of Kerala, considering that states such as Bihar and West Bengal have had equally strong traditions of leftist governments, but their education and health outcomes have not been as impressive as Kerala’s. Drawing from elaborate studies such as Drèze and Sen (1997), Keefer and Khemani (2003) further posit that the political voice of the voters in Kerala led to higher quality and effective public provisioning of education and health services, while its absence in Uttar Pradesh made state agencies complacent. Elected despotism: Bhutto’s democracy, 1971–1977 Occasional episodes of political democracy are not likely to make states or state actors and institutions democratic. Democratic accountability may be important as a process leading to nemesis, but its ability to align governmental action with public aspirations tends to lie in the perception of its being imminent, which in turn derives predominantly from continuous answerability to the citizenry through a sustained election process. It is this certainty of future democratic accountability that tends to ensure the responsiveness of state actors and institutions to citizens’ wellbeing, or using Keefer’s construction, persuades ‘political competitors to make credible promises to voters’ (2005: 1). Otherwise, under isolated episodes of democracy, even elected regimes can sometimes – like Orwell’s (1945) Napoleon – assume the characteristics of former masters. This is perhaps what happened during the first democratic intermission of 1971–1977. Admittedly, an enduring political contribution of Bhutto is the Constitution of 1973, which attempted to construct a strong form of parliamentary democracy and to make political and administrative actors and institutions, particularly the bureaucracy, accountable to citizens. It also sought to protect against military inroads by equating abrogation of the constitution to an act of high treason, punishable by death. In terms of socioeconomic development, however, Bhutto’s policies were far less spectacular. Education and healthcare remained underprovided during his tenure, and military expenditures continued to rise. These outcomes are rather unsurprising. Although Bhutto’s government was democratically elected, democratic traditions and democratic accountability were missing. In spirit, Bhutto’s regime was, therefore, more populist or, as Sayeed (1980) calls it, Bonapartist, than it was democratic. It was probably also for this lack of democratic accountability that Bhutto never sought to fully implement the far-reaching land reforms he had legislated, and the large landowners continued to surround him (Burki, 1999; Kukreja, 2005) as much as the labour and peasantry supported him for his promise of a new social order, which he had labelled Islamic Socialism (Jalal, 1995; Sayeed, 1980). During this period, many honourable individual exceptions notwithstanding, the bureaucracy was

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politicised and rendered even more corrupt. There were several reasons for this deterioration. The constitutional guarantees for the bureaucracy were withdrawn, allowing politicians to dispense with merit as the criterion for appointing and promoting civil servants. On the other hand, the bureaucracy hardly faced any accountability either from the citizens or from the courts, and thereby had no incentive to remain neutral or honest except, perhaps, for personal scruples. Professional accountability to the service cadre in terms of an honour code was also severely eroded when Bhutto restructured the CSP to reduce its elitist position. To make matters worse, the real value of salaries had already fallen sharply because of the inflation generated by the war against India in 1971. Bureaucratic input into public policy, therefore, became increasingly targeted towards expanding rent-seeking opportunities, and areas such as education and health, which figured low in this scale, were bound to suffer. If Bhutto’s regime in Pakistan over 1971–1977 was Bonapartist, Indira Ghandi’s rule in India had, incidentally, also assumed certain despotic tendencies. But whereas in Pakistan the ensuing crisis was resolved by a military takeover, the crisis in India was resolved through democratic processes, and even Indira Ghandi was not able to evade democratic accountability to the people. In 1975, mass protests broke out against her for the government’s economic failure and corruption, growing unemployment and escalating inflation. During this time, when called to adjudicate upon Ghandi’s alleged violation of election laws, the Allahabad High Court convicted the all-powerful prime minister, depriving her of her seat, merely on account of having used the services of public officials in an election campaign. The Indian Supreme Court later reversed the sentence of the High Court for the violations were but minor, but even so the judgment of the Allahabad High Court not only established the independence of the judiciary in the face of a transgressing executive, but also confirmed it as a reliable guardian of the rule of law. The street violence against the government, however, continued and Ghandi retaliated with the imposition of national emergency in the country. This was a time of grave political deadlock, very similar to the one Bhutto was to face in 1977, but the Indian army remained out of the arena, allowing democracy to take its course and letting people decide the matter, which they did in the 1977 elections. Not forgiving Gandhi for her high-handedness, the people inflicted a humiliating defeat on her party, with Ghandi not even being able to make it into the parliament. This was perhaps democratic accountability at its strongest in India. Once again, the crucial difference between Indian and Pakistani regimes during the years 1971–1977 appears to be the complex quality of democracy – imperfections and deficits of the Indian democracy notwithstanding. And once again, the difference in the expenditure pattern of the two states reflects this difference. As Table 7.1 depicts, India’s average annual public spending on education and health over this period stood at 2.52 per cent and 0.88 per cent of GDP as compared with Pakistan’s 1.92 per cent and 0.57 per cent, while its military expenditures were 2.90 per cent of GDP compared with Pakistan’s 5.30 per cent. Admittedly, the continuing hostility between Pakistan and India over Kashmir

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has contributed to high military spending in Pakistan. But whether a bona fide threat perception has led to these high levels of military expenditures in Pakistan or whether the high expenditures dictated by the military have been justified by exaggerating the threat, remains debatable. The question as to whether military expenditures would have been as high, and expenditures on education and health as low, were Pakistan a stable democracy may not be very difficult to answer. Democratic accountability to citizens ensures the citizens’ wellbeing, not that of self-aggrandising state institutions. Expenditures on the military can be considered in citizens’ interest, as mentioned earlier, only to the extent that they are necessary for their defence, but in Pakistan military expenditures have been expanding even during times when there was no apparent increase in external threat (Siddiqa, 2005). An argument is also often made that Pakistan has needed to match – to the extent it can – the military strength of India, but since it has a much smaller GDP than India’s, its military expenditures, though much lower than India’s in absolute terms, work out to be a higher proportion of GDP. Whereas this contention may be mathematically correct, it is misleading in terms of public policy. After all, democracies, as Elman (1997) suggests, may be more inclined to maintain peace. India, for instance, has not displayed any belligerence towards China despite its humiliating defeat at the hands of the People’s Liberation Army in 1962. Similarly, democratic governments, if allowed to continue in Pakistan, may have sought to resolve the Kashmir dispute with India amicably. The rapprochement between prime ministers Nawaz Sharif and Atal Bihari Vajpayee in 1999 gives much credence to such an assumption. The third martial law regime, 1977–1988 Only five years after Bhutto’s assumption of Pakistan’s leadership, General Ziaul-Haq, the Chief of Army Staff, imposed the country’s third martial law, held the constitution in abeyance and dismissed the central and provincial legislatures and executives. The pretext for Zia’s martial law was the countrywide unrest and political turmoil generated by Bhutto’s engineering of the general elections; but, interestingly, it was imposed just when Bhutto appeared to be ready for a rapprochement with the opposition. The democratic process was once again derailed; and once again the Supreme Court legitimised it, albeit by resorting to the doctrine of state necessity.11 Surprisingly, the court also explicitly allowed the martial law regime to exercise all executive and legislative powers that fell within the scope of the law of necessity, including making constitutional amendments. With this judgment, democratic accountability to citizens became even more irrelevant for state actors and institutions. A wholesale induction of army officers into the civil service along with the posting of serving soldiers on policymaking and executive positions in the civil government both destabilised and further corrupted the administrative structures. Incentives for personal aggrandisement became all the stronger in the absence of accountability. The military regime and its civil functionaries were unaccountable to the citizens (owing to elite capture even when elected

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legislatures12 existed), and they were unaccountable to the courts because of the subservience of the judiciary. Consequently, neither the policy input by bureaucrats nor the policy decisions taken by the military or political elite were aimed at citizens’ wellbeing. In India, the years 1977–1988 saw considerable political instability, but no interruption in the democratic processes. Indira Ghandi’s opposition soon collapsed and the elections of 1980 brought her back into power. She was, however, assassinated in 1984 and her son, Rajiv Gandhi, succeeded her. The Indian people expected much from Rajiv but, when he failed to deliver, he was ousted by the electorate in 1989. Interestingly, despite the political instability over the 1977–1988 period, along with rising political and bureaucratic corruption, Indian expenditures on education and health remained higher than a more politically stable, albeit autocratic, Pakistan. Table 7.1 reports the expenditures for this period. Compared with Pakistan’s average annual public expenditures of 2.11 per cent and 0.70 per cent of GDP on education and health respectively, India spent 3.05 per cent and 0.97 per cent of GDP, but spent 3.03 per cent13 of GDP on the military as compared with Pakistan’s 6.38 per cent. The democratic interregnum, 1988–1999 The decade or so after Zia-ul-Haq’s death – that is, 1988–1999 – is often referred to as Pakistan’s democratic interregnum. During this period there were four general elections and as many governments, not including the caretaker cabinets in between. Twice was Benazir Bhutto, leader of the left-leaning Pakistan Peoples Party, elected as prime minister of the country (1988 and 1993) and twice was her government dismissed, along with the legislatures, by presidents on charges of mismanagement and corruption. Twice also did Nawaz Sharif, the leader of the right-leaning Muslim League, come to power (1990 and 1997) and twice also was the tenure of his government cut short: once by the president and the second time by the army coup d’état of 1999. The democratic interregnum was a time, on the one hand, of great hope and, on the other, of great disappointment. Democracy had been allowed in the country after a long time and citizens expected the elected leaders to be more responsive to their needs and their wellbeing than were military dictators, but each time their expectations were frustrated. Political leaders were untrained in democratic traditions because of the repeated martial laws, and exhibited serious political myopia generated by both lack of experience and fears of military takeover. More importantly, however, the military remained effectively in control of the government through a troika arrangement under which the prime minister and president could take certain decisions only after having conferred with the Chief of Army Staff. Besides, whenever the military found its writ being threatened, it orchestrated the dismissals of the elected governments and legislatures. For instance, as Burki (1999) informs us, in 1993 it was the then Chief of Army Staff who ordered both the prime minister and the president out of office.

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The democratic interregnum was, in fact, a decade of illiberal democracy or a democratic illusion (Shafqat, 2002). It was the outcome not only of missing democratic structures, but also of weakly developed local forms of democratic thought, tradition and culture (Ziring, 2003). Again, this was not an environment in which civil governments could be expected to be significantly more accountable to citizens or responsive to their needs than when the army was directly in power. A comparison of the public spending on education, health and the military between Pakistan and India over this period broadly reflects previous trends. As reported in Table 7.1, Pakistan’s average annual public spending on education and health, that is, 2.44 per cent and 0.78 per cent of GDP, respectively, continued to be less than India’s average annual spending of 3.78 per cent and 0.98 per cent, while it continued to spend more on the military, that is, 6.35 per cent of GDP compared with India’s 2.91 per cent. In the context of this low provision of broad-based public goods such as education over Pakistan’s democratic interregnum, Keefer and Khemani (2003) argue that, despite competitive elections, the past experience of having had their tenures cut short, and the consequent awareness of their inability to make credible long-term promises, led political competitors to focus on the provision of targetable goods that could be immediately supplied to narrow groups of political clients. This argument is indeed compelling, and underscores further the centrality of democratic accountability – created through continuous democratic processes – to public spending on education and health. The fourth martial law and Musharraf’s presidency, 1999–2008 Pakistan came under army rule for the fourth time in 1999 when the elected prime minister of the country, Nawaz Sharif, attempted to replace the Chief of Army Staff, General Pervez Musharraf. Ironically this was done to forestall a military coup d’état that had become increasingly imminent in the wake of the retreat from Kargil. Musharraf was, however, prepared. Swiftly incarcerating the prime minister, he issued a proclamation of emergency, which, although not worded as such, was in effect an imposition of martial law. The legislatures were dissolved and the governments dismissed, and Musharraf assumed power as the Chief Executive of Pakistan rather than under the hitherto used title of Chief Martial Law Administrator. Unsurprisingly, the Supreme Court legitimised the army takeover on the clichéd grounds of state necessity and granted the military regime virtually unlimited executive and legislative authority, including the power to amend the constitution.14 This judgment was a grim reminder of Burki’s lamentation that: [T]he systems to ensure accountability … became increasingly dysfunctional over time. The legislative system was either not allowed to develop or remained under the control of vested interests … The judicial system became, for the most part, the handmaiden of the executive. (1999: 178)

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Even the federal and provincial legislatures and civil governments that came into existence under Musharraf’s presidency in 2002 and 2008 were hardly representative or democratically accountable. They comprised members approved by the military elite and continued to support Musharraf’s rule. Evidently, there could be no change in patronage politics or concentration on the provision of targetable goods to small client groups. India, however, continued on the path of democracy. With the death of Rajiv Gandhi, the political domination of Nehru’s family over the Indian National Congress appeared to have ended. The domination of Nehru’s Fabian socialism over the Congress’s economic policy also came to an end. Although Rajiv had taken some measures to deregulate the economy, it was during Narasimha Rao’s premiership that India adopted significant outward-looking policies, opened up to foreign trade and investment, became more market-oriented, and vigorously pursued liberalisation and privatisation. These reforms, by expanding India’s integration with the international community (which, after the disintegration of the USSR, is, of course, much more democratic) appear to have further strengthened democracy in the country, creating stronger incentives for Indian governments to be responsive to their citizens’ interests. Yet again, the difference in the democratic accountability to citizens between Indian and Pakistani governments is portrayed in their public expenditure patterns over the period 1999–2008. As presented in Table 7.1, on average India spent 3.61 per cent of its GDP annually on education as compared with Pakistan’s 2.30 per cent, 1.01 per cent on health as compared with Pakistan’s 0.71 per cent, but 2.75 per cent on its military as opposed to Pakistan’s 4.06 per cent. Interestingly, Pakistan’s military expenditures over this period appear to have fallen from over 6 per cent to about 4 per cent of GDP. However, while further expansion in military spending was somewhat curtailed owing to pressure exerted by international donor agencies such as the World Bank and the IMF, the decrease is rather misleading because the military spending figures after 2000–2001 do not include military pensions, which, following India’s example, were shifted to the non-military budget. Splendid oblivion: the Zardari presidency, 2008–2013 Musharraf was, of course, forced out of office by mass pressure, but, as argued in Chapter 3, elections must be regular, and democratic processes continuous, before public leaders begin to develop a sense of being democratically accountable to citizens. Just moving out of the long shadow of a nine-year army rule, it was quite natural for President Zardari and the two prime ministers who led Pakistan during the period 2008–2013 to not be sure what to expect: another election or another coup d’état. With this kind of incentive structure, the corruption, personal aggrandisement, neglect of the economy and disregard of public interest that defines the governance of this period is consistent with our general account of the role of institutional accountability. Despite this weakness in sustained democratic accountability, however, there was sufficient consideration for the demands of citizens by the elected government for public spending on human development to have risen above its

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levels during the Musharraf regime. As Table 7.1 shows, average annual general government spending on education and health rose to 2.40 per cent and 0.92 per cent of GDP, respectively, during 2008–2013 from their levels of 2.30 per cent and 0.71 per cent over the period 1999–2008. Military spending, on the other hand, dropped from 4.06 per cent of GDP to 3.18 per cent during the same period. It is also quite noteworthy that, in contrast to this pattern, public spending on health and education had declined, as is visible in Table 7.1, during the Musharraf regime from its levels over the democratic interregnum of 1988–1999. Nevertheless, despite higher public spending on human development in Pakistan during the years 2008–2013, these levels, as is clear from Table 7.1, were still lower than India’s spending on human development over the same period under a stable electoral democracy. Similarly, as the same table shows, military spending also continued to be higher than in India, albeit with a converging trend towards the Indian levels. Realisation of democratic accountability: the first eighteen months of the Sharif government The elections of 2013 were the first in Pakistan’s history to be held after an elected government was allowed to complete its tenure in office without a general sitting in the presidency. The manner in which the government led by Zardari’s Pakistan Peoples Party was ousted from office by the electorate made not only the political elite, but also the citizens themselves, realise their ability to punish governments for not keeping their commitments. This realisation is clear in the discourse of the new government led by Nawaz Sharif as it struggles to find solutions to the myriad socioeconomic, structural and security-related problems that the country confronts. Even though it has not been able to make any noteworthy progress towards longawaited and much-needed reform owing to institutional rigidities, there are now frequent references to the responsibility of the government towards the people, to electoral commitments, to notions of citizens’ welfare, to institution-building and to the necessity of achieving at least the basic standards of good governance and establishing the rule of law. Most importantly, the governing elite appear more convinced than ever of the ability of the electorate to decide their future. In fact, in every decision taken by the government there seems to be an expectation that the electorate will hold it accountable in the 2018 election and that it is eventually the government’s performance that will decide whether the electorate will punish it or reward it. This is, indeed, something in sharp contrast to what Shafqat had to say about the democratic interregnum: ‘both [Benazir Bhutto and Nawaz Sharif] showed strong, autocratic tendencies as soon as they assumed power. Instead of upholding the rule of law, both flouted it, showed little respect for minority rights and views, suppressed dissent and restricted opposition’ (2002: 223). Certainly, these are the first signs of a culture of democratic accountability becoming established in Pakistan. The new Sharif-led government is concentrating most of all on improving the fragile security situation, dealing with the energy deficits suffocating the

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economy, and providing the much needed infrastructure for economic growth, which is understandable from an accountability point of view, since, combined with widespread mismanagement and graft, failure in these areas were the primary reasons for the Pakistan Peoples Party’s ouster from office. However, accountability to citizens has sensitised the Sharif government enough to the need for human development for it to also commit an increase in public spending on education from the current level of a little over 2 per cent to 4 per cent of GDP. Preliminary work has also begun on a comprehensive government-sponsored health insurance policy to provide cover to almost a hundred million people living below the two-dollar-a-day poverty line, which again appears to be a response to the stronger democratic incentive structure. Before moving on to the next section, it would be insightful to note here that, even though democracy was much flawed during the periods of controlled democracy and democratic interludes, and in many ways these periods were but extensions of the military rule, there were subtle differences between the responsiveness of governments to citizens’ needs during these periods and the periods when the army was directly in power. It was over the democratic interludes that some noteworthy efforts were made to improve the wellbeing of citizens by enhancing public spending on education and health. For instance, although Ayub Khan significantly expanded and improved the health facilities available to the military (Jeffery, 1977), rural health remained a low priority, and any serious initiatives to strengthen rural health facilities were taken only during the Bhutto regime, even if they could not be fully implemented (Zaidi, 1988). Similarly, a levy on imports was introduced by Muhammad Khan Junejo, Pakistan’s prime minister from 1985 to 1988 during General Zia’s presidency, to finance basic education projects. It was also during this short three-year period that rural health received renewed attention, which was expanded further by Benazir Bhutto (Jeffery, 1993). The Social Action Programme, focusing on social provision, in particular basic education and primary healthcare, was launched in 1993 during the democratic interregnum. In the same way, a limited system of means-tested health insurance and cash support for primary education, as well as Pakistan’s first ever law for the provision of free and compulsory education by the state to all children aged five to 16 years, were introduced during the Zardari presidency. In contrast to this, the expansion in public provision of education that took place during the Musharraf years was almost entirely in the tertiary sector.

2. Education and health outcomes in Pakistan and India It may not, of course, be possible to isolate the effects of public education and health spending on outcomes in these two areas of human development from the impact of private sector expenditures in these areas or from the effects of efficiency. This becomes particularly true, for instance, when democracy tends to

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produce, as the regression analyses in Chapters 5 and 6 show, both higher allocations and higher efficiency. Nor may it be possible to segregate the influence of the numerous other social, economic, cultural and environmental factors that tend to affect education and health outcomes. But, as already noted in Chapter 6, in spite of the many external factors, broad educational and health outcomes tend to be the most reasonable approximations of the effects of public programmes (Afonso et al., 2005). A comparison of the education and health outcomes in Pakistan and India, presented in Table 7.2, is, in fact, a good reflection of the differences between public spending on education and health in the two countries. This comparison becomes all the more meaningful considering that, with the exception of democracy, most other influences are more or less common between them. As the figures in Table 7.2 show, India has considerably higher literacy rates than Pakistan, in the case of both males and females and adult and youth populations. Similarly, primary school enrolment rates are higher by about one-quarter and secondary enrolment rates are almost twice as high in India than in Pakistan. Primary and lower secondary completion rates show much the same pattern. On the other hand, tertiary enrolment rates in Pakistan are almost three time those in India. Table 7.2 Basic education and health outcomes in Pakistan and India Indicator

Year*

Pakistan

India

Literacy rate, adult female (%; ages 15 and above)

2006

39.61

50.82

Literacy rate, adult male (%; ages 15 and above) 2006

67.65

75.19

Literacy rate, adult total (%; ages 15 and above) 2006

54.15

62.75

Literacy rate, youth female (%; ages 15–24)

2006

58.37

74.36

Literacy rate, youth male (%; ages 15–24)

2006

79.10

88.41

Literacy rate, youth total (%; ages 15–24)

2006

69.17

81.13

School enrolment, primary, female (% net)

2012

67.32

n.a.

School enrolment, primary, male (% net)

2012

77.19

n.a.

School enrolment, primary (% net)

2011

71.98

93.34

School enrolment, primary, female (% gross)

2011

85.07

113.94

School enrolment, primary, male (% gross)

2011

98.92

111.38

School enrolment, primary (% gross)

2011

92.29

112.60

School enrolment, secondary, female (% net)

2012

30.59

n.a.

School enrolment, secondary, male (% net)

2012

41.32

n.a.

School enrolment, secondary (% net)

2012

36.15

n.a. Continued

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Table 7.2 Basic education and health outcomes in Pakistan and India, continued Indicator

Year*

Pakistan

India

School enrolment, secondary, female (% gross) 2011

29.87

66.29

School enrolment, secondary, male (% gross)

2011

39.68

70.52

School enrolment, secondary (% gross)

2011

34.94

68.51

School enrolment, tertiary, female (% gross)

2011

7.96

20.31

School enrolment, tertiary, male (% gross)

2011

8.65

25.99

School enrolment, tertiary (% gross)

2011

8.31

23.27

Primary completion rate, female (% of relevant age group)

2011

60.11

96.59

Primary completion rate, male (% of relevant age group)

2011

72.67

96.34

Primary completion rate, total (% of relevant age group)

2011

66.64

96.46

Lower secondary completion rate, female (% of relevant age group)

2011

35.90

76.00

Lower secondary completion rate, male (% of relevant age group)

2011

44.56

77.91

Lower secondary completion rate, total (% of relevant age group)

2011

40.41

77.01

Life expectancy at birth, total (years)

2012

65.7

65.8

Mortality rate, neonatal (per 1,000 live births)

2012

42.20

30.90

Mortality rate, infant (per 1,000 live births)

2012

69.30

43.80

Mortality rate, under-five (per 1,000 live births) 2012

85.90

56.30

Births attended by skilled health staff (% of total)

38.00

52.30

2008

Nurses and midwives (per 1,000 people)

2010

0.57

1.00

Physicians (per 1,000 people)

2010

0.83

0.65

Pregnant women receiving prenatal care (%)

2008

56.00

75.20

* Latest year for which data are available for both countries; where data are not available for India, the latest year is for Pakistan. Sources: HDI data; UNDP; UIS; WDI.

School enrolment rates are much lower, and tertiary enrolment rates much higher, in Pakistan than in India, reflecting a clear elitist bias in Pakistan’s educational structure. The Indian quest for mass literacy and education for all has also faced some serious issues. Both widespread poverty and problems relating to caste and ethnic divisions and social constructions of gender roles were – and to an extent still are – amongst the more significant obstacles to achieving higher enrolment and lower dropout rates (Chauhan, 1990, 2009). But where a

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persevering democratic commitment to citizens’ wellbeing has helped to largely overcome these obstacles in India, the absence of such a commitment in Pakistan has resulted in poor mass education outcomes. In the case of health outcomes, even though there does not appear to be any difference between the two countries in terms of total life expectancy, India has much lower neonatal, infant and under-five mortality rates than Pakistan. There are fewer doctors in India but more nurses and midwives on a per capita basis, and a higher proportion of women receive prenatal care and attendance by skilled staff at the time of birth in India than they do in Pakistan. Again, as in the case of education, this is a pattern that portrays the relative non-elitist focus of India’s healthcare provision compared with Pakistan. In terms of public spending on education and health or the outcomes in the two areas, India may not compare very favourably with other democratic polities such as Thailand or South Korea, for instance, which were socioeconomically fairly similar to India at the time of Indian independence in 1947, but the argument we have presented in this chapter is that Indian democracy, despite its many shortcomings, has led to better human development outcomes than a mostly autocratic Pakistan. That a comparison between the two countries permits a convenient, even if quite broad, ceteris paribus assumption, adds to the validity of this argument.

3. Concluding comments The comparative case study of Pakistan and India presented in this chapter unbundles the effects of democratic accountability on public spending for human development and its outcomes. With the convenience of being able to abstract from most other potential determinants of public spending, comparing Pakistan with India shows how democracy can make a significant difference in the areas of health and education, and thereby to the broader wellbeing of citizens, their capabilities and freedoms, and the choices they can make. Our next case study is of Botswana, in which we examine how high-quality administrative and judicial institutions affect the level and outcomes of public spending for human development.

Notes 1 Nehru himself argued that the two mutually exclusive ideologies of Capitalism or Capitalist Democracy on the one hand, and Communism, on the other, do not have any monopoly of approach to the main issues of production and distribution. There is a third way which takes the best from all existing systems – the Russian, the American and others – and seeks to create something suited to one’s own history and philosophy. (Karanjia, 1960: 100, original emphasis) 2 The federating units are known as provinces in Pakistan, and states in India. 3 Pakistan was then a member of both the Central Treaty Organisation (CENTO) and the Southeast Asia Treaty Organisation (SEATO).

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4 The Supreme Court handed down this judgment in State v. Dosso (1958). 5 A similar argument could be made for the health sector, where tertiary spending on training nurses and doctors is a prerequisite for primary healthcare provision. 6 Zaidi (1988: 31) notes a typical example of Pakistan’s public healthcare bias: the third five-year plan (1965–1970) allocated Rs. 43.5 million for a metropolitan medical centre, but only Rs. 16.5 million for the country’s rural health centres. 7 Originally they were 80,000 in total for both wings of the country, but this was later increased to 120,000 (Malik, 2008). 8 He initially took over as Chief Martial Law Administrator, but within a week also assumed the office of president. 9 The Supreme Court gave this judgment in Asma Jilani v. Government of the Punjab (1972). 10 Although certain articles of the Indian constitution relating to individual rights were suspended during the state of emergency (i.e. 1962–1968 and 1971–1977), this was done in accordance with constitutional provisions, and the constitution itself remained operative along with the system of parliamentary democracy that it creates. Even the severely restrictive internal emergency imposed by Indira Gandhi during 1975–1977 was not ultra vires of the constitution. 11 The Supreme Court handed down this judgment in the case entitled Nusrat Bhutto v. Chief of Army Staff (1977). 12 During 1977–1980, there was no representative body; a federal assembly was elected on a non-party basis in 1981, but it had only very limited, non-binding, advisory powers; during 1985–1988, representative federal and provincial legislatures existed, but again they had been elected on a non-party basis and real authority was vested in the president, i.e. General Zia-ul-Haq. 13 While comparing India’s military spending with Pakistan’s, it needs to be kept in mind that India shifted its military pensions to the civil budget in 1985, while Pakistan did the same in 2000–2001, as mentioned later in the chapter. As such, for the period 1985–2000, India’s military spending is underestimated relative to Pakistan’s to the extent of military pensions. This factor, however, does not detract from the argument because, even after excluding military pensions in the post-2000 period, Pakistan’s military spending has been higher than India’s as a percentage of GDP. 14 Passed by the Supreme Court in Syed Zafar Ali Shah v. General Pervez Musharraf (2000).

8

Botswana A miracle of institutions

Having explained the effects of democracy on public spending for human development and its outcomes in the previous chapter, we now focus on the impact of high-quality, strong and accountable institutions, in particular of bureaucracies, on the pattern and performance of public spending on education and health. To illustrate these effects we have chosen Botswana, a state that shares certain historical and political features with India such as a legacy of British colonisation and sustained democracy since its independence. Botswana’s democracy may appear to have its weaknesses, particularly when judged from the democratic standards set by the advanced Western democracies. And to this extent Botswana may seem to resemble India. But Botswana is also very different from India. For one, unlike India, it thrives on a historically embedded democratic culture. More importantly, however, it is sustained by much stronger and accountable administrative institutions; especially, a more professional, competent and generally uncorrupted bureaucracy (Acemoglu et al., 2003; Gulhati, 1990; Raphaeli et al., 1984). It also has a more independent and efficient judicial system and greater rule of law (Acemoglu et al., 2003; Sullivan, 1991; World Justice Project, 2014). From this perspective, in studying the impact of administrative institutions on the patterns of public spending and performance outcomes, this chapter builds upon the findings of the previous chapter. Botswana is frequently cited as an African economic miracle. Having suffered extreme socioeconomic neglect at the hands of a colonial administration that was neither responsible nor accountable to the citizens, the country’s future was in serious doubt at the time of its independence in 1966. It had a per capita income that was amongst the lowest in the world, with an overwhelming majority of the population living in extreme poverty. As accounts such as Colclough and McCarthy (1980), Harvey and Lewis (1990), Molutsi (2004) and Parson (1984) inform us, the economy was based on cattle raising, a weak and unreliable agriculture sector engaged over 90 per cent of the economically active population,1 food imports were large and industry was virtually non-existent. Financially, Botswana was dependent on British grants for all of its development needs and half of its recurrent spending requirements. Politically, it was fragile, facing both external hostility and prospects of internal instability. Botswana’s education and health services were also in an ‘appalling state’ (Halpern, 1965:

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294). Only 100 Batswana had graduated from secondary school and 22 from university (Acemoglu et al., 2003). An estimate put infant mortality at half of all children born, with a third of those who survived dying before their first birthday (Halpern, 1965). There were also only 12 kilometres of paved roads (Acemoglu et al., 2003) in an area equivalent to the size of France. Within a few decades, however, Botswana had achieved amongst the highest per capita incomes in sub-Saharan Africa, graduating under the World Bank’s classification from a low to middle income country (Molutsi, 2004); currently, it lies in the upper middle income group. Since independence, it has also maintained one of the highest average rates of growth in the world. But what is of central importance to our argument is that as a percentage of GDP, Botswana has been spending much higher on education and health than most other sub-Saharan African countries. Its spending levels on education are, in fact, higher than the levels in OECD countries. Education and health outcomes in Botswana are also by far better than sub-Saharan averages, except that the AIDS epidemic has reversed outcomes in terms of life expectancy. Continued democracy and democratic accountability of the political elite to citizens helps explain Botswana’s spending levels on health and education. But more crucial to a fuller explanation are the country’s administrative institutions, in particular its professional and neutrally competent bureaucracy, which has played a very significant role in shaping its public policies and programmes (Somolekae, 1993). Perhaps the most critical element in the whole explanation is that both political and bureaucratic actors in Botswana have operated under – as works such as Du Toit (1995), Holm and Molutsi (1989), Picard (1985a, 1987) and Samatar (1999) illustrate – a sociopolitical construction produced by traditional Tswana institutions that emphasised participation, consultation, consensus-based decision-making, the protection of the public interest and the accountability of the governing elite to the people. At the core of Botswana’s citizen-centricity is the enduring legacy of the kgotla, a public assembly held in an open ground in which the kgosi (chief or king of a Tswana tribe) and other tribal leaders have been required since pre-colonial times to consult the morafe (tribe), seek consent and develop some form of consensus before taking any decision on matters affecting the tribe (Ashton, 1947; Ngcongco, 1989; Raphaeli et al., 1984). Referred to as ‘an authentic and centuries old voice’ (Odell, 1985: 83), the institution of the kgotla has endured through the colonial period into modern Botswana largely intact (Acemoglu et al., 2003; Mgadla and Campbell, 1989; Molutsi, 2004), and continues to shape the relationship between citizens and the governing elite. Most importantly, it diffused the traditional Tswana culture of ‘consent, consensus, participation, and consultation’ (Du Toit, 1995: 46) into Botswana’s modern policymaking institutions, and in many ways has made politicians and bureaucrats sensitive to, and accountable for, the welfare of the people in a manner similar to that in which it made chiefs responsive and answerable to their morafes (Healey, 1995; Liphuko, 1989). The great strength of Botswana’s administrative institutions, in fact, appears to lie in their being a harmonious blend of the deeply embedded traditional

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governance arrangements, some colonial innovations, and the more recent postindependence modern political structures. To understand the synergies between political and bureaucratic actors in Botswana, the nature of their accountability to citizens, their responsiveness to the public interest and the policy consensus that favoured higher public spending on education and health, it is first necessary to understand the continuity of traditional Tswana institutions in the country’s modern political and administrative structures. For this, it becomes essential to first of all review the governance, politics and society of pre-independence Botswana, in particular those legacies that have shaped the institutions and institutional culture of modern Botswana. This is the subject of section 1 of this chapter. Building on this narrative, section 2 studies the two most important sources of institutional strength in modern Botswana: its kgotla-based democratic culture and its bureaucracy. Section 3 reviews Botswana’s public spending on education, health and the military, and explores the extent to which the pattern can be attributed to the bureaucracy. Section 4 takes a brief look at human development spending in a broader sub-Saharan context in order to gain some insight into the relative importance of political regimes and administrative institutions for public spending decisions. Since Botswana is rich in diamond deposits, the impact of diamond-generated wealth on public spending decisions is briefly discussed in section 5. Section 6 presents performance outcomes in Botswana and compares them with sub-Saharan and OECD averages. Finally, section 7 offers some concluding comments.

1. Society, politics and governance in Botswana Prior to 1885, when the Tswana tribes were formally given external protection by the British against the Boers and Germans, the area constituting modern Botswana was neither a state nor even a political entity (Molutsi, 2004). It was a region inhabited by eight major Tswana tribes and some minority groups (Colclough and McCarthy, 1980; Picard, 1987). The ancestors of the Tswana, who constitute the majority of Botswana’s population, had migrated to this region in various groups, beginning around the sixth century or possibly even earlier. Their first polities appeared during the fifteenth century, and the last Tswana arrivals occurred in the late eighteenth and early nineteenth centuries when they were pushed out of the eastern regions by the warring Zulu, Kololo and Ndebele tribes (Du Toit, 1995; Parsons, 1973; Picard, 1985b, 1987). As detailed works such as Hailey ([1938] 1957), Picard (1985a, 1987), Samatar (1999), Schapera (1937), Schapera and Comaroff, (1991) and Tlou (1974) document, the society, culture and patterns of governance that the Tswana tribal structures produced over time possessed both autocratic and democratic attributes. At the pinnacle of each of the eight Tswana tribal pyramids in pre-colonial Botswana was the hereditary kgosi of the morafe; each morafe was further divided into villages and villages into kgoros (wards) comprising family groups. Each ward had a hereditary kgosana (headman) who was responsible for administration, implementation of the law and the maintenance of order in his jurisdiction on

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behalf of the kgosi. Although as the representative of the kgosi, the ward headman had vast powers, he could not exercise them arbitrarily. Rather, he was required to conduct all public business in the kgotla in consultation with, and in full view of, the people of the ward. With jurisdiction over the entire morafe, the high office of the kgosi combined in him all functions of government: executive, legislative and judicial. He had a responsibility to formulate and implement all domestic and external policies affecting his tribe, implement law and customs, adjudicate disputes, parcel out grazing land for the use of individual members and provide for the sustenance of the destitute (Mgadla and Campbell, 1989; Picard, 1987; Schapera and Comaroff, 1991). But even the kgosi’s authority was not absolute (Du Toit, 1995; Tlou, 1974), and ‘was always qualified by what his people wanted’ (Ngcongco, 1989: 44). He faced several checks and balances that both placed limits on his powers and made him accountable to the morafe. The first check came from the Bagakolodi, or trusted elders of the tribe, who were responsible to advise the kgosi on public matters, and were expected by tribal convention to uphold the interest of the morafe and to restrain the kgosi from any unreasonable behaviour. The kgosi was required to consult his advisers on all important matters not only because custom necessitated it, but also because without their assistance and support he was unlikely to be able to govern the tribe effectively (Ashton, 1947; Du Toit, 1995; Mgadla and Campbell, 1989; Tlou, 1974). Similarly, a second check came from the headmen who formed an advisory council for the kgosi. This body was of particular importance for the kgosi both because he needed the support of the headmen (Ashton, 1947) and because they were his nerve centres to gauge public sentiment, or the likely public response to any policy or decision that he might have in mind (Du Toit, 1995; Ngcongco, 1989; Tlou, 1974). A third check on the kgosi came from the ‘highly developed practice of traditional law’, for which the Tswana had great respect, and which no kgosi could violate without undermining the legitimacy of his own authority (Holm, 1988: 182). But the most important check came from the kgotla itself. Again, as the detailed works of Picard (1985a, 1987), Samatar (1999), Schapera and Comaroff (1991) and Tlou (1974) inform us, the kgotla was open to all male members of the tribe and all those who had attained adulthood were entitled to voice their opinions; the kgotla could criticise, make recommendations for amendments or even reject any proposals made by the chief; and therefore, to avoid any serious embarrassment before his people, the kgosi would often modify his plans and proposals to suit public opinion before presenting them in the kgotla. As the research literature further details, the kgotla also constituted precolonial Botswana’s judicial system: it was in kgotlas that the headmen and the kgosi adjudicated civil and criminal matters and handed down their decisions in consultation with the kgotla. Under this system, the ward kgotlas constituted the trial courts of original jurisdiction, whereas the kgosi’s kgotla acted as the court of appeal, except in certain important matters or inter-ward cases where it would be the court of original jurisdiction. Law was unwritten and mainly comprised

Botswana 143 tribal customs. But the most significant aspect of the kgotla-based judicial system was that adjudication was carried out in full public view and was, therefore, fully transparent. It was not the headmen or kgosi who interpreted tribal customs, but the elders of the ward or tribe, and all those attending the kgotla were permitted to voice their opinions and ask questions. These aspects both added to the legitimacy of the adjudication process and rendered the verdict a dispensation by the tribe – or an extended jury – rather than by any individual. The kgotla indeed had its weaknesses in terms of the representation given to, for instance, women and minorities; but what is of essence to the understanding of the democratic traditions and accountability structures amongst the Tswana tribes is that despite its shortcomings, the kgotla tended to make the kgosi and the headmen accountable to their people and responsive to their interests and wellbeing. As Odell suggests, the kgotla reflects the ‘well-known Tswana proverb “kgosi ke kgosi ka batho”, or “The Chief is the Chief by virtue of the people”’ (1985: 61). For Colclough and McCarthy, this dictum implied not only that ‘the tribe could if necessary remove the chief’, but also that ‘[i]n practice this meant that the chief had to govern with the consent of the kgotla’ (1980: 36). British colonisation caused little disturbance to the institution of the kgotla; rather, it endured as a central element in the governance structures of colonial Botswana. Despite the administrative changes introduced by the British, the colonial system consisted essentially of continuing, largely autonomous, Tswana tribal political structures layered over very thinly by the British colonial administration. In certain ways, the colonial administration itself became a part of the indigenous governance paradigm grounded in the kgotla. For instance, district officers ‘frequently spent hours in the kgotla (sometimes camping where it was held) dealing with administrative matters that concerned the chief’s authority’ (Picard, 1987: 75) or ‘attend[ed] meetings in the Chief’s kgotla whenever necessary to explain matters of policy, &c. [sic]’ (Ashton, 1947: 244). The colonial administration also appears to have consulted the kgotla on key policy issues. Heussler (1963), for instance, reports that before introducing the system of indirect rule in Botswana, resident magistrates were required under orders from the resident commissioner to bring up the matter in kgotlas throughout Bechuanaland. Even when the British colonial policy shifted towards greater centralisation of authority during the mid-1930s, the kgotla did not lose its significance. In fact, it attained a more formally embedded, albeit marginally altered, role in the new political structures (Mgadla and Campbell, 1989). We now discuss these aspects in some detail. Benign neglect is the euphemistic term often used in the literature for the British colonial policy towards the Bechuanaland Protectorate and parallel rule or dual rule are the descriptions given to the administrative arrangements for the protectorate up till 1934. Benign neglect meant that not only did the British not interfere in the internal affairs of the Tswana, but also they took no interest in the social, economic or political development of Bechuanaland as they did in those colonies that had significant revenue potential. This has led authors such as Colclough and McCarthy to comment rather sarcastically that ‘[t]he Batswana had gained the protection that they wanted. Nevertheless, they gained very little

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else’ (1980: 33). Indeed, neglecting socioeconomic development in the protectorate suited the interests of a mostly unaccountable colonial administration both in the context of keeping it politically dependent on the British (Picard, 1987) and in maintaining it as a reservoir of cheap labour for South African farms, factories and mines (Alverson, 1978; Parson, 1977, 1984). Parallel rule, on the other hand, refers to the two different, mutually exclusive, administrative structures introduced in the protectorate: one for the Europeans, the other for Africans. The British assumed control over external affairs, trade and matters relating to the Europeans living in the protectorate, but largely allowed the Africans to manage their own affairs under their kgosis as long as this did not adversely affect British interests (Du Toit, 1995; Hailey, [1938] 1957; Picard, 1987; Samatar, 1999). The latter part of this arrangement is sometimes also referred to as indirect rule: that is, administration of the tribes through the kgosis (Colclough and McCarthy, 1980; Mgadla and Campbell, 1989; Samatar, 1999). An important outcome of the systems of dual rule was that the kgosis generally retained their pre-colonial tribal sovereignty even during the colonial period (Du Toit, 1995; Jones, 1983; Picard, 1987; Samatar, 1999). For administrative convenience, the territories of the protectorate were divided into three categories: tribal reserves exclusive to Africans, with boundaries corresponding to the distribution patterns of the major Tswana populations; demarcated areas that had been settled by Europeans; and tracts of crown land (Molutsi, 2004; Picard, 1987). The administrative structure introduced in Bechuanaland was parsimonious, and patterned after the system prevalent in Cape Colony. It largely combined executive and judicial powers in district officers, known initially as resident magistrates and later as district commissioners. In the European areas, these officers were directly responsible under a system of Roman–Dutch law for all matters, civil and criminal, but excluding murder. They were also responsible for matters pertaining to Europeans in the reserve areas. However, they were responsible for the Africans in the reserves only indirectly through the chiefs, who continued to govern indigenous populations and to act as the local judiciary in these areas under their own system of customary law (Du Toit, 1995; Mgadla and Campbell, 1989; Picard, 1987). The resident magistrates worked under the supervision of a resident commissioner, who in turn reported to the British high commissioner in Cape Colony2 in the latter’s capacity as high commissioner for Bechuanaland. The high commissioner was ultimately responsible to the British parliament through the secretary of state for dominion affairs3 in London (Du Toit, 1995; Mgadla and Campbell, 1989; Morton and Ramsay, 1987). The British high commissioner for the protectorate was vested with legislative powers, but was required to respect local laws and customs (Du Toit, 1995; Mgadla and Campbell, 1989). Nevertheless, to make the administration effective, the British did need some measure of authority over the kgosi. Initially, this was done by empowering the high commissioner in 1891 with the authority of fining, suspending or deposing a kgosi for recalcitrance. Mgadla and Campbell (1989) cite several instances where the colonial administration used these powers, but only after British officers had consulted the tribal kgotla and had found popular support for action against a

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kgosi. The administration desisted from punitive action in cases where the kgotla did not support it. On the other hand, several changes introduced by the colonial administration actually enhanced the authority of the kgotla and also made it a part of the formal institutional structures of the protectorate. One such innovation was the establishment of the Native Advisory Council in 1919, which comprised not only the kgosis, but also members elected by the kgotla. Another example is provided by the proclamations of 1943 and 1954, which in addition to institutionalising trial by kgotla, required the kgosi to formulate laws, and the high commissioner to depose the kgosi, only with the consent of the kgotla (Mgadla and Campbell, 1989; Picard, 1987). At independence, Botswana was, as noted at the beginning of this chapter, amongst the economically poorest and socially most underdeveloped states, with formal democratic institutions that were only a year old. But independent Botswana had two great strengths. The first, as described above, was a culture driven by the kgotla, which valued participation, consultation, consensus-building, mutual consent and accountability as the most essential elements of social and political organisation (Du Toit, 1995). Botswana’s second strength lay in its neutral and professionally competent bureaucracy. These two strengths are the subject matter of the next section.

2. Independence: the kgotla, democracy and the bureaucracy There are several remarkable features of Botswana’s independence that were not shared by most other movements for freedom in sub-Saharan Africa. For one, in a region seething with violent African nationalism directed against white racist governments, Botswana achieved its independence peacefully with complete cooperation between the British government, the protectorate administration and the political elite, in particular Seretse Khama, Botswana’s first president, and his Botswana Democratic Party (Colclough and McCarthy, 1980; Good and Taylor, 2008; Picard, 1987; Samatar, 1999). In fact, in one of his independence speeches, Seretse Khama expressed, as he had often done earlier, ‘the great gratitude of [his] people for the protection and assistance … given to Botswana by the United Kingdom during the long period of [their] dependence’ (Fawcus, 2000: 207). Second, the constitutional framework of parliamentary democracy, in which tribal chiefs had only an advisory role, was not imposed by a departing colonial power, but was, in the main, negotiated by the political elites amongst themselves during a constitutional consultation process – initiated in 1963 with a conference at Lobatse – to prepare for self-rule and subsequent independence (Colclough and McCarthy, 1980; Picard, 1987; Samatar, 1999; Selolwane, 2007). That the British had not needed to adopt any divisive tribal policies to strengthen their rule over the Tswana also appears to have helped. All these factors contributed – within the framework of historically embedded Tswana institutions and values – towards determining the political and administrative culture in modern Botswana, especially the synergetic citizen-centric policymaking alliance between the political and bureaucratic elites, which will be discussed in section 3.

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Following the constitutional consultation, general elections for Botswana’s legislative assembly were held in 1965 under universal adult suffrage, and the current modern democratic political structures were formally adopted upon independence a year later. The Constitution of 1966, which continues to be in force with only minor amendments since its promulgation, provides for: a bicameral legislature comprising an advisory upper house consisting of hereditary chiefs and an empowered lower house elected4 through universal adult suffrage; an executive president elected by and responsible to the lower house;5 and a cabinet appointed by the president from amongst members of the lower house. This political structure has both presidential and parliamentary attributes, but since the president is elected by the legislature and is accountable to it, the system is classified as a parliamentary democracy. Botswana’s formal democratic structures are further supported by a framework of fundamental human rights and freedoms protected by the constitution and enforceable by the superior judiciary (Du Toit, 1995; Sullivan, 1991, 1996). The parliamentary democracy introduced by the Constitution of 1966 may appear to have been an innovation in Botswana, but the Tswana, mostly because of the institution of the kgotla, were not unfamiliar with the basic norms and values of democratic governance and accountability. Rather, the new structure of liberal democracy found ‘support and continuity in the foundations of the traditional political system’ (Somolekae, 1989: 75). Since the new framework of political structures did not replace the pre-existing political organisation and practices of the Tswana, but absorbed and built on them (Du Toit, 1995; Somolekae, 1989), the new formal institutions of state, in addition to being answerable to the people through the new structures of representative democracy, also continued to be accountable to them through the traditional modes. For one, the kgotla remained an effective way for citizens in post-independence Botswana to make their governing elite more accountable (Acemoglu et al., 2003). This conventional form of accountability appears to have been particularly crucial during the early decades after independence when the levels of education and political awareness were very low, and the formal institutions of modern democracy rather novel (Parson, 1977; Somolekae, 1989). But even today, the kgotla remains important as a mechanism of accountability, with members of parliament being required to hold frequent kgotla meetings to consult people, seek consent and build consensus on proposed public policies (Alexander and Kaboyakgosi, 2012; Molutsi and Holm, 1990; Sebudubudu and Osei-Hwedie, 2006). The kgotla, as a mechanism, has certainly played a critical part in maintaining the democratic accountability of the ruling elite to citizens. But more importantly the spirit, tradition and imperative of consultation and consensus-based decision-making that the kgotla created amongst the tribally governed Tswana has permeated into the political and administrative structures of modern Botswana (Harvey and Lewis, 1990; Healey, 1995; Leith, 2005; Maundeni, 2004; Raphaeli et al., 1984). This historically embedded character of modern Botswana’s sociopolitical organisation ‘promotes “mutual criticism in each other’s presence”’ (Maundeni, 2004: 619) and serves to reinforce mutual reliance and reciprocal

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accountability, both vertical and horizontal, amongst state actors, societal institutions and citizens. Healey describes this phenomenon as a: ‘[C]onsensus’ culture with features which strengthen political accountability: the willingness to listen to the views of others, to take time over decisions by seeking compromise, and to stand by collective decisions. In the public administration, officials spend much time seeking inter-department consensus … Politicians tend to seek consensus either by compromise or by the lapse of time … Differences within the cabinet have occasionally been put to the vote. Ministers often explain their proposals to the public through kgotla meetings to gain support before seeking Cabinet approval. (1995: 26–27) Botswana’s second most crucial institutional strength is its professionally competent and accountable bureaucracy (Charlton, 1991; Gulhati, 1990; Picard, 1987; Raphaeli et al., 1984; Somolekae, 1993). Interestingly, however, the origins of this bureaucracy were quite unspectacular. It began as a small body of colonial officers primarily responsible for administering the area, collecting taxes and maintaining public order, and even by the time of independence its numbers were much too small to cater adequately for the heavy socioeconomic development requirements of post-colonial Botswana (Harvey and Lewis, 1990; Parson, 1984). But with its well-considered and sagacious policies towards the bureaucracy, Botswana’s government, as Acemoglu et al. note, ‘sustained the minimal public service structure that it inherited from the British and developed it into a meritocratic, relatively non-corrupt and efficient bureaucracy’ (2003: 83). A brief review of how this bureaucracy grew into a meritocracy will help us make the case for its crucial role in the formulation of public policies in modern Botswana. During the first few years of the Bechuanaland Protectorate, missionaries were appointed to administrative posts to represent the British high commissioner in the newly colonised Tswana territories. But with the introduction of formal magisterial administration in 1891,6 serving officers in Cape Colony were transferred to these posts or English-speaking South Africans of European descent who had experience in clerical or police work were recruited. The procedure for these recruitments was, nevertheless, informal and mostly based on friendships or family connections in the service. The educational qualifications of candidates were not an important criterion; training was also minimal and comprised mainly apprenticeship under senior district officers (Picard, 1985b, 1987). This arrangement for appointments in the protectorate’s administration continued until 1935, after which the British government attempted to improve the quality of Bechuanaland’s administration and bring it on par with the administrative services in other British colonies by restructuring it along the imperial model and inducting British graduates from the universities of Oxford and Cambridge for service in the protectorate within the overall framework of the elite Colonial Administrative Service (Picard, 1985b, 1987).

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An important consideration behind the British government’s decision was that the more institutionalised indirect rule being implemented at that time required officers who could guide and lead (Du Toit, 1995), and the Colonial Administrative Service seemed the most appropriate choice since it ‘was an elitist corps made up of men with certain qualities of character and personality who lived by a code of paternalism’ (Picard, 1987: 78). The civil service reforms were very significant in that they transformed the protectorate’s rather ad hoc administrative arrangements into a professional, efficient and powerful bureaucracy, structured in the classical Weberian tradition (Du Toit, 1995). Further improvements in service conditions were made during 1955–1959, and a number of young capable expatriate officers were inducted, who brought with them ‘a fresh and progressive approach’ (Hermans, 1974: 94). A defining feature of Bechuanaland’s civil service structure was, however, that recruitment was, in effect, restricted to Europeans. Although racial discrimination could not be completely ruled out, the main reason for the European predominance was the lack of suitably educated African candidates (Picard, 1987). It was not until 1951 that the first African was appointed as an assistant district officer, with a second being appointed only in 1959 (Picard, 1987). Even by 1965 there were only 24 Africans amongst the 184 officers in the administrative and professional cadres, 251 amongst the 801 technical and executive cadre officers, and only one amongst the 38 officers in superscale or the highest rank (Harvey and Lewis, 1990). African officers in the protectorate’s bureaucracy, nevertheless, had always been uncomfortable with the domination of senior positions by British and other European officers, and they had been constantly struggling to neutralise the British policy of preferring Europeans over Africans in recruitment (Picard, 1987). Bechuanaland’s independence from colonial rule provided them an opportunity to work for the complete localisation of the public services. But Seretse Khama was wary of the administrative problems and the obstacles to development that policies of rapid and thoughtless indigenisation had created in other African countries by depriving their inexperienced governments of well-trained and efficient public servants at a time when they needed them the most (Samatar, 1999). Thus, not willing to localise at a pace faster than that at which properly qualified locals became available for recruitment (Charlton, 1991), Seretse Khama stated his intention unreservedly in his first presidential address in 1966 to the national assembly: ‘My Government is deeply conscious of the dangers inherent in localising the Public Service too quickly. Precipitate or reckless action in this field could have disastrous effects on the whole programme of services and development of the Government’ (quoted in Parsons et al., 1995: 253). What seems to have further facilitated the retention of the expatriate civil servants was their broad acceptance and respect amongst the local populace, which itself was largely the outcome of British interference having been minimal over the colonial period and of independence having been achieved peacefully (Raphaeli et al., 1984; Somolekae, 1993, 1998a). The policy that the government pursued thereafter was, in fact, not just to localise only very gradually, but to further encourage the recruitment of expatriate European officers leaving

Botswana

149

other African countries (Du Toit, 1995; Picard, 1987) along with expatriate technical experts under foreign assistance programmes (Molutsi, 1993; Raphaeli et al., 1984). Retaining expatriate officers of the protectorate and absorbing competent expatriate officers from other African states until suitable locals became available appears to have been a prudent decision for Botswana since it ensured that the country’s expanding establishment was staffed with the best available officers in terms of expertise and professionalism. Even though the total number of expatriates working for Botswana’s government rose rapidly after independence, the number of expatriates as a proportion of the total establishment continued to fall over the years with the increasing availability of educated Africans. But even so, since expatriate officers continued to staff mostly middle and senior positions in government, and mostly in the professional and technical cadres, they remained the single most influential group in Botswana’s bureaucracy (Picard, 1987; Raphaeli et al., 1984; Samatar, 1999). The government of post-independence Botswana also attempted to develop a particular set of values and service ethics in the bureaucracy. Expatriates were employed on temporary contracts (Du Toit, 1995) and largely denied prospects of citizenship (Molokomme, 1989). Recruitment, assignments and promotions were based on expertise and merit; and while the political leadership allowed professional autonomy to the bureaucracy, it also imposed effective accountability (Samatar, 1999; Tsie, 1998). In addition, officers were rotated in assignments all over the country to maintain their neutrality (Holm and Molutsi, 1992). Moreover, to ensure that efficiency and neutrality did not suffer as expatriates were gradually replaced by the locals, the best students – with most being expected to join public service – were allocated to boarding schools outside their home districts (Holm and Molutsi, 1992). These farsighted policies adopted by Botswana’s government structured a bureaucracy that Du Toit refers to as ‘a corps of public servants who are both competent in a technical sense and legitimate in a political sense of being seen as fair, not as parochial, and without regional, cultural, or ethnic bias’ (1995: 59). On the other hand, the culture created by the kgotla also appears to have played a critical role in making Botswana’s bureaucracy accountable to citizens and in aligning the objectives of civil servants with the public interest at least at two levels. At the first level, public servants attend kgotla meetings to consult citizens on public issues and to develop some form of consensus on policies to be adopted or projects and programmes to be implemented (Holm, 1994; Liphuko, 1989; Molutsi and Holm, 1990). And at the second level, the bureaucracy, in the spirit of the kgotla, also tries to reach an interdepartmental and inter-ministerial consensus on policy matters, in particular on the allocation of financial resources to back policies, before placing departmental proposals for the cabinet’s consideration (Healey, 1995; Leith, 2005; Maundeni, 2004). Before considering, in the next section, Botswana’s public spending on human development and the role of Botswana’s bureaucracy in public policy decisions, it would be useful to recall that the argument made in Chapter 3 was that

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bureaucracies tend to promote higher spending on education and health when their objectives are well aligned with citizens’ interests. This alignment may be the result of the bureaucracy’s being democratically accountable to citizens through their representatives, or because there are other legal, administrative or ethical compulsions that make it more accountable for its actions. Botswana appears to be a classical case where both these modes operate conjointly. On the one hand, the Botswanan bureaucracy is not only politically accountable to citizens through their representatives, but also responsible to them more directly through the kgotlas. And on the other hand, the bureaucracy is professionally competent, largely uncorrupted and answerable for its conduct within its own hierarchies as well as to courts of law. A bureaucracy of this character and tradition, working within a democratic regime, could be expected to yield high levels of public spending on human development. This has indeed been the case in Botswana, as we shall demonstrate. However, before we proceed any further, it needs to be noted that while military spending lies in the domain of the central government, the responsibility for education and healthcare provision in Botswana is shared, as in the case of Pakistan and India, with subnational governments. Primary education and healthcare are mostly the responsibility of local councils, and post-primary provision that of the central government; there is no provincial or state tier. Nevertheless, local government establishments are virtually appendages of the central government.7 Therefore, as in Pakistan’s case study, we take into consideration general government spending on education and health, but examine them in an overall central government policy context.

3. Public spending on education, health and the military Public spending in the social sectors was all but non-existent in Botswana during the colonial era, with the largest share of government resources being spent on administering and policing the protectorate; schools and hospitals were largely left to the missionaries, and the precious little that was spent on the public provision of education and healthcare was targeted at the European populations (Colclough and McCarthy, 1980; Parson, 1977). For instance, even in 1960, after there had been a manifold increase in funding by the British government, the average amount being spent annually on a white child was 18 times the amount being spent on an African child (Halpern, 1965). There were some increases in funding for both education and health by the protectorate administration after 1955, following the realisation of the impropriety of Bechuanaland’s prospective merger with South Africa and the likelihood of the protectorate’s becoming independent (Harvey and Lewis, 1990; Morrison, 1993). But considering the gross neglect Bechuanaland had experienced, the increased spending during the last decade before independence was ‘too little and much too late’ (Harvey and Lewis, 1990: 25). Following independence, with the political and bureaucratic elites becoming accountable to citizens, there was a remarkable shift in the priorities of the government towards human

Botswana 151 development. This shift is clearly reflected in the Transitional Plan for Social and Economic Development, 1966–1971 (Government of Botswana, 1966). By 1972– 1973, the government had doubled the pre-independence level of recurrent spending on education and tripled it on health, despite some serious setbacks in increasing domestic revenues during the first three years after independence, and even despite the fact that revenues from minerals had not as yet started to flow in (Hermans, 1974). Botswana was also able to expand its development spending sixfold by the same year, mainly through foreign assistance other than British (Hermans, 1974; Murray and Parsons, 1990). A more detailed discussion of education and health provision in Botswana since independence shows how this happened. Education At independence, as we have said, the condition of education in Botswana was deplorable. The gross primary school enrolment ratio was only about 50 per cent, a situation that was further exacerbated by a dropout rate as high as 60 per cent; facilities including buildings and equipment were inadequate, with many schools consisting of a single room; the student–teacher ratio was high; the classes were overcrowded; and almost half of the primary school teaching staff was untrained (Colclough and McCarthy, 1980; Harvey and Lewis, 1990). The condition of secondary schooling was even worse. Of the nine secondary schools that existed in Bechuanaland at independence, four had been the initiatives of chiefs and financed by tribal levies, three were missionary establishments, one was a private venture and only one had been initiated by the protectorate administration, and that only in 1965 (Colclough and McCarthy, 1980). As for tertiary education, no facility existed in the protectorate, and the few university graduates in the country had attended institutions abroad, mostly in South Africa. Following independence, cognisant both of the long-standing social neglect of citizens and the centrality of education in socioeconomic development, Botswana’s governing elite initiated programmes to expand educational provision despite serious financial constraints (Colclough and McCarthy, 1980; Meyer et al., 1993). However, to meet the needs of an expanding education sector for qualified local teachers (Chiepe, 1973) and to fulfil the larger public sector requirements for civil servants and technical staff, the initial focus was on expanding the secondary and tertiary education sectors by establishing secondary schools as well as post-primary and post-secondary training institutions (Colclough and McCarthy, 1980). Nevertheless, with the launch of the Accelerated Rural Development Programme in 1973, primary schooling received the greatest attention (Colclough and McCarthy, 1980; Harvey and Lewis, 1990), and by 1979 it had been made free (Healey, 1995). A comprehensive policy framework was developed for education in 1977 following the report of the first National Commission on Education, which emphasised the need for a comprehensive structure of primary, secondary and tertiary education based on the principles of equity and social justice (Bigala and

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Moorad, 1998). In pursuit of this policy framework, and having taken care of most primary education needs by the early 1980s, the government expanded the number of secondary schools to absorb students passing out of primary schools (Bigala and Moorad, 1998; Tsayang, 1998). Secondary school fees were abolished in 1988 and by 1991, 65 per cent of primary school students were moving on to secondary schools (Duncan et al., 1997). The government made a conscious effort to ensure equitable provision of schooling across the country, and by 1990 near universal access to primary education had been achieved (Duncan et al., 1997). Using the averages for sub-Saharan Africa and OECD countries to provide a regional and international context for comparison, Table 8.1 presents the financial side of Botswana’s efforts for educational provision. The table shows the annual public spending on education for Botswana and the sub-Saharan and OECD aggregates as a percentage of GDP averaged over five-year periods since Botswana’s independence. As these statistics depict, the level of public spending on education in Botswana has been about twice that of an average country in sub-Saharan Africa. Since 1966, Botswana’s government has spent on average between 5 and a little under 11 per cent of its GDP annually on education, whereas the corresponding averages for sub-Saharan Africa range from 2.3 per cent of GDP to a little over 4 per cent. Not only this, but until around 1985, Botswana’s spending levels were very similar to the average spending in OECD countries, after which they even

Table 8.1 Education: average annual public spending as a percentage of GDP in Botswana, sub-Saharan Africa and OECD countries (all government levels combined) Period

Botswana

Sub-Saharan Africa

OECD

1966–1970

5.05

2.30

n.a.

1971–1975

5.19

3.13

4.89

1976–1980

5.22

3.70

5.20

1981–1985

5.81

3.56

5.19

1986–1990

6.20

3.52

4.82

1991–1995

6.84

3.96

5.09

1996–2000

7.80

3.64

4.99

2001–2005

10.68

3.65

5.35

2006–2010

9.17

4.01

5.39

2011–2013

n.a.

4.10

n.a.

Sources: GFS; OECD Education Statistics; Sivard (1986, 1996); UIS; UNESCO Statistical Yearbook (various issues); United Nations Statistical Yearbook (various issues); WDI.

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exceeded OECD levels. Even though these high levels of public spending can be attributed in part to Botswana’s heavy educational deficits, they remain very significant in that they clearly reflect the responsiveness of the governing elite to the citizens’ deprivation and their long-term wellbeing. Health With only meagre public resources to finance it, the protectorate’s health policy was skewed heavily towards tertiary provision, had an urban bias and was designed almost exclusively to meet the needs of the European groups, particularly civil servants (Colclough and McCarthy, 1980). Of the nine hospitals existing at independence, four were government establishments and the remainder were missionary facilities (Harvey and Lewis, 1990). Unfortunately, missionary healthcare provision also exhibited a tertiary-urban bias, and even though there were some medical establishments in rural areas, which were of some limited benefit to the African population (Colclough and McCarthy, 1980), the vast majority of the population had no access to healthcare (Harvey and Lewis, 1990). Because of the tertiary facilities already established in urban areas, the momentum of the tertiary-urban bias in public healthcare provision continued for a few years into independence, but a significant shift in the health strategy occurred in 1973 when Botswana’s government launched its comprehensive primary health care programme to provide preventive and curative healthcare across the country through a three-tiered network of facilities (Colclough and McCarthy, 1980; Harvey and Lewis, 1990). At the basic level, for villages of over 500 people, the programme provided health posts comprising single-room establishments attended by visiting health staff; at the next level, located in villages of over 1,000 people, were the better equipped clinics with permanent staff, dispensaries, beds and facilities for maternity cases; and at the uppermost level were health centres with hospitalisation and ancillary medical facilities (Colclough and McCarthy, 1980; Harvey and Lewis, 1990; Murray and Parsons, 1990). The objective of the new programme was ‘widespread provision of primary health care to the many rather than the provision of hospitals and doctors to the few’ or ‘tertiary care for the urban elite’ (Leith, 2005: 15, 87). Even more importantly, the new health policy emphasised ‘equity, intersectoral collaboration, and community involvement, and provision of health services which were appropriate, accessible, and affordable’ (Duncan et al., 1997: 125). Quite remarkably, by 1985 more than 80 per cent of the rural population was living within 15 kilometres of a health facility (Harvey and Lewis, 1990). Building upon the success of this programme, the government introduced at the next stage the even more ambitious health for all strategy, which was aimed at enabling every citizen to attain the health level necessary for a productive life (Duncan et al., 1997). In a sub-Saharan context, Botswana’s public spending on health more or less replicates its spending pattern on education. As Table 8.2 depicts, with average annual spending of mostly between 2 and 3.7 per cent of GDP over the 1966– 2013 time frame, Botswana has been spending about 1 per cent of GDP more on

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Botswana

Table 8.2 Health: average annual public spending as a percentage of GDP in Botswana, sub-Saharan Africa and OECD countries (all government levels combined) Period

Botswana

Sub-Saharan Africa

OECD

1966–1970

1.85

0.81

3.18

1971–1975

2.03

0.84

4.33

1976–1980

2.14

0.92

4.92

1981–1985

2.30

1.11

5.17

1986–1990

2.52

1.70

5.08

1991–1995

2.45

2.30

6.12

1996–2000

2.42

2.39

6.09

2001–2005

3.67

2.53

6.69

2006–2010

3.66

2.76

7.45

2011–2013

3.11

n.a.

7.92

Sources: GFS; OECD Health Statistics; Sivard (1986, 1996); United Nations Statistical Yearbook (various issues); WDI.

health as compared with other sub-Saharan states on average. However, when compared with OECD countries, Botswana’s average annual public spending on health was only about half as much over the same period. This could have been expected, of course, given the ageing populations in OECD countries. On the other hand, Botswana’s health spending exhibits a distinct increase after about the year 2000, primarily because of the government’s expanded efforts to control the AIDS epidemic. It is also noteworthy in the context of health and education provision that, in targeting the benefits of this provision, the government consciously tried to restrain elitist inclinations and urban biases, giving adequate importance to the needs of the rural population, particularly in the poorer and more remote areas of the country (Colclough and McCarthy, 1980; Duncan et al., 1997; Harvey and Lewis, 1990; Healey, 1995; Selolwane, 2007). For instance, to ensure equity in access to basic education, the government provides boarding facilities in schools located in remote areas, rather than have students face the disincentive of travelling long distances to schools (Tsayang and Bulawa, 2007). The high public provisioning of education and healthcare – both of which are mostly free or very heavily subsidised – along with the equitability in their distribution, has somewhat compensated for the inequality in the distribution of income, which is rather high in the country (Duncan et al., 1997; Harvey and Lewis, 1990). It has also raised the income-earning potential of the people, in particular amongst the lower social strata, and has significantly improved their quality of life (Jefferis, 1998; Murray and Parsons, 1990; Selolwane, 2007).

Botswana

155

Military Military expenditures in Botswana show a pattern rather different from the pattern of public spending on education and health. For the first 11 years of its existence, the country did not even have a formal army and relied for border protection on the Police Mobile Unit (PMU), a small paramilitary organisation (N’Diaye, 2001). Rather than creating an army immediately upon independence, the government had chosen to defer it in favour of addressing the long-neglected human development of the citizens. This policy choice was made despite the possibility of belligerence against Botswana by the racist regimes in the neighbouring states of South Africa, Namibia and Southern Rhodesia, for its non-racial policies, opposition to apartheid and support for African liberation (Harvey and Lewis, 1990; Molutsi, 2004; Parson, 1984; Polhemus, 1985). Consequently, whereas public spending on education and health figured high in the postindependence policy framework, the Botswana Defence Force (BDF) was created as late as 1977 and only in response to the rapidly deteriorating security situation in the region: the African nationalist struggles against white minority regimes in Southern Rhodesia, Namibia and South Africa were escalating; bilateral relations between Botswana and Rhodesia had seriously deteriorated; and the PMU had become ineffective against the much intensified border violations by the Rhodesians (Dale, 1984; N’Diaye, 2001). Up to 1985, as Table 8.3 shows, Botswana’s annual spending on the military averaged less than 3 per cent of GDP despite the fact that the BDF was being

Table 8.3 Military: average annual public spending as a percentage of GDP in Botswana, sub-Saharan Africa and OECD countries (all government levels combined) Period

Botswana

Sub-Saharan Africa

OECD

1966–1970

0.00

n.a.

3.90

1971–1975

0.00

n.a.

3.96

1976–1980

2.69

n.a.

3.63

1981–1985

2.65

3.60

3.22

1986–1990

3.94

3.28

3.29

1991–1995

4.13

2.53

2.68

1996–2000

3.23

1.81

2.22

2001–2005

3.66

1.78

2.37

2006–2010

2.86

1.51

2.58

2011–2013

2.36

1.30

2.57

Sources: GFS; SIPRI Yearbook (various issues); Sivard (1986, 1996); United Nations Statistical Yearbook (various issues); WDI.

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Botswana

raised from scratch. However, this average increased to about 4 per cent over the next decade owing to the need to strengthen the BDF in the aftermath of the unabashed commando operations by South Africa against some African National Congress activists in Gaborone and Mogoditshane during 1985 and 1986, raising serious concerns about Botswana’s ability to protect its sovereignty (Dale, 1987; Leith, 2005). However, once the security situation had stabilised in the late 1990s, average annual military spending again exhibited a declining trend, even though it has generally remained higher than the averages for OECD and sub-Saharan states. The role of the bureaucracy To what extent does Botswana’s high level of public spending in the social sectors reflect the priorities of the country’s political elite? And to what extent can this spending pattern be attributed, to borrow a phrase from Holm and Molutsi, to ‘a powerful bureaucracy promoting rapid social change’ (1992: 78)? A constant theme in the literature on Botswana, probably taking its lead from Gunderson’s (1970) dissertation (cited in works such as Charlton, 1991; Isaksen, 1981; Samatar, 1999), is the dominant role that the country’s bureaucracy has played in policy formulation, particularly in the socioeconomic sectors. While authors such as Jefferis (1998) and Somolekae (1993) recognise the contribution of Botswana’s political leadership in the formulation of socioeconomic policies, others such as Molutsi (1989) and Picard (1987) contend that the bureaucracy mostly evaded political control and dominated policymaking in the country. Even the World Bank study carried out by Raphaeli et al. acknowledges the prominent part played by Botswana’s bureaucracy in policy formulation: Public sector management is performed in Botswana with commendable attention to detail, discipline and dedication by the civil service. It is considered one of the most successful in Africa, if success is measured by the capacity of a system to formulate and implement effectively strategies and programs for economic and social development. (1984: 1) Botswana’s bureaucracy has, indeed, played an influential, and most crucial, role in Botswana’s successful policymaking. This was particularly true until the 1980s when, owing to both the inexperience of the political elite and their ‘camaraderie’ with the civil service, bureaucratic input carried critical weight in policy formulation, and policies initiated by bureaucrats frequently passed through the political scrutiny process largely unchanged (Isaksen, 1981: 33). But to argue that the bureaucracy formulated socioeconomic policies without consideration of popular aspirations, or independently of political representatives, may be seriously misleading. To understand the citizen’s requirements, the bureaucracy has not only regularly consulted citizens through policy-specific advisory councils, but has also

Botswana 157 often utilised the country’s traditional sociopolitical structures and institutions, in particular the kgotla. As noted earlier, civil servants have frequently accessed traditional kgotlas across the country, particularly on sensitive issues or where there could be grassroots implications, to consult citizens, to explain proposals, to develop a policy consensus or obtain feedback (Holm, 1994; Molutsi and Holm, 1990). Moreover, planning procedures in establishments such as the District Development Committees require bureaucrats to formulate (for the central government’s consideration) development proposals for the districts after consulting a wide range of representatives, including both local councillors and chairpersons of Village Development Committees. The latter are bodies responsible for village development elected by, and responsible to, the kgotla. The consultations may be formally conducted through development conferences, but more frequently they take place as a part of consultations with the kgotla (Serema, 2002). Nor does it seem fair to argue that the political leadership has been inert in policy formulation or that the bureaucracy was not politically responsive. Even in the early days, final policy decisions were taken by the political leadership (Healey, 1995). Interestingly, the same report by the World Bank that highlights the role of the bureaucracy in policymaking and implementation, also recognises that: A … factor in sound policymaking is the availability of skilled advice to assist the politician to formulate a sector policy … While information and expert advice are vitally important to the decision-making process, they do not in themselves produce decisions. Judgment is the function of the political authority which must not only exercise wisdom but, often, courage. The Botswana government has displayed both these qualities. (Raphaeli et al., 1984: 25) Tsie describes the same phenomenon thus: ‘[T]he bureaucracy in Botswana has authoritative operational autonomy, but it is nonetheless subject to political control through cabinet and ultimately parliament’ (1998: 14). Especially since the 1980s, politicians are becoming increasingly well educated, and equally discerning in matters of public policy, with many of them being drawn from the bureaucracy itself (Healey, 1995). That many of the cabinet ministers were drawn from bureaucratic ranks suggests two very interesting aspects of the nature of the politician–bureaucrat relationship in Botswana. First, it may not have been possible for junior colleagues to dominate their seniors in the cabinet; and second, it implies a fusion of political responsiveness and professional competence (something that mechanisms of political accountability of bureaucracy aim to achieve in any case) within the cabinet itself. In this context, political agreement with bureaucratic input was more likely to be the result of shared perspectives and ideological harmony rather than any bureaucratic domination. The bureaucracy was, in fact, able to develop a cooperative and synergetic relationship with the political elite in which the elected political leaders determined the broad parameters of public policy, and the bureaucracy had the autonomy to develop

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Botswana

a conforming policy framework (Healey, 1995; Samatar, 1999; Tsie, 1998). Charlton refers to this relationship as ‘creative co-operation between bureaucrats and politicians’, emanating, inter alia, from ‘the ideology of developmentalism that imbues both the civil service and the political leadership of the country alike’ (1991: 265, 274). At the same time, however, it must also be noted that even though the contention of Botswana’s bureaucracy being autonomous in the policymaking process is not entirely correct, it nevertheless does underscore the centrality of bureaucratic input in Botswana’s public policy formulation. Indeed, the administrative autonomy available to Botswana’s bureaucracy has enabled it to contribute in the policymaking process with professional impartiality, without fear or favour, in the interest of citizens; to implement projects and programmes efficiently; and to remain largely free of corruption (Somolekae, 1993). From this perspective, greater bureaucratic autonomy appears to have facilitated, rather than obstructed, conducive human development policies and the realisation of citizens’ wellbeing. But having thus argued, it appears rather puzzling as to why a bureaucratic organisation that contributed so intensely to Botswana’s socioeconomic development after independence had taken so little interest in it during the colonial period. Whereas such a query would certainly be valid, there is a clear reason for the apparent asymmetry in the bureaucracy’s behaviour before and after independence. Although most colonial civil servants might have been both mindful of and sensitive to the welfare of the local people at the local administrative level, the higher protectorate administration and the British government – being neither responsible for nor accountable to local citizens – took very little interest in their long-term social wellbeing. At times locals could decipher that an ungenerous ‘decision ha[d] been forced on the local Administration by the meanness of Whitehall’ (Halpern, 1965: 312). Any contribution to socioeconomic development by the Bechuanaland’s administration prior to 1955 was, thus, largely attributable to the endeavours of individual officers rather than to any coordinated public sector effort for development. For instance, the first ever grant for local education in Bechuanaland, given by the protectorate administration in 1904, was the outcome of Commissioner Ellenberger’s efforts, and a number of other financial and administrative improvements in favour of the locals in educational provision resulted from the perseverance of H.J.E. Dumbrell, director of education from 1928 to 1945; but in other cases, like the educational reforms proposed by E.B. Sargent, an advisor to the high commissioner, the colonial government remained unyielding (Hull, 1987; Tlou and Campbell, 1997). Similarly, when given a little more administrative and financial space in the few years before independence, Peter Fawcus, Bechuanaland’s resident commissioner, was able to take the initiative and formulate a development plan that focused on the colony’s long-neglected needs (Murray and Parsons, 1990). A clearer picture of the true quality, nature and inclinations of the colonial bureaucracy emerges from the realisation that this very bureaucracy, when working for the government of independent Botswana,

Botswana 159 was instrumental in raising domestic revenues soon after independence by extracting better terms for Botswana in the Southern African Customs Union, and by negotiating doubled beef exports to Europe, thereby by 1972 ending the country’s dependence on British grants for its recurrent budget (Hermans, 1974; Murray and Parsons, 1990; Samatar, 1999; Tsie, 1998) and, thus, also clearing the road for financing human development. The role of the judiciary In the context of Botswana’s institutional strength and high levels of public spending on education and health, some mention must also be made of the country’s judiciary. Upon independence, the traditional legislative, executive and policymaking powers of the chiefs in respect of their tribes were abolished or greatly reduced, in return for which they were granted a legislative role in the upper house, that is, the House of Chiefs (Du Toit, 1995; Griffiths, 1983; Molutsi, 1989). But they were allowed to retain their traditional judicial authority under customary law, largely as exercised during the protectorate period (Jones, 1983; Roberts, 1972). In the judicial structures of Botswana, on one side is the hierarchy of the modern judiciary carried over from the protectorate, which operates under a Roman–Dutch legal system. This part comprises the Courts of Magistrates, the High Court and the Court of Appeals. And on the other side are the traditional kgotla courts, which adjudicate certain civil and criminal cases under the Tswana customary law and are presided over by the chiefs, their representatives or headmen in accordance with the tribal hierarchies. But rather than creating a dualistic structure, both systems converge through the provision for appeals against the decisions of customary courts before the Courts of Magistrates and the High Court. The retention of traditional courts has formally institutionalised the role of the kgotla in the judicial structures of independent Botswana (Du Toit, 1995); and from the accountability point of view, grounding the judicial system in the traditional judicial structures has given Botswana’s judicial system several strengths. For one, it continues to provide an open, transparent and participative judicature at the grassroots level. The chiefs and headmen remain accountable as presiding officers before the kgotla and the morafe for their decisions. This is all the more significant since the position of the chiefs is not merely traditional, but an institutionalised part of the modern state structures (Du Toit, 1995). And second, the application at the basic level of the customary law, with which the Tswana tribes have governed themselves from pre-colonial times, adds to the acceptability and legitimacy of the entire system. More importantly, however, a stable, efficient, transparent and independent superior judiciary in Botswana – which Sullivan (1991) ranks in the highest category in terms of judicial independence – has provided incentives for other state institutions to discharge their responsibilities with efficiency and integrity, and to promote public interest. Of course, Botswana’s judiciary has played no direct

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Botswana

part in the government’s public spending policies, but it has certainly contributed in strengthening the overall structure of democratic accountability and in making the governing elite responsible for their actions and responsive to citizens’ interests. For instance, the judiciary has played a crucial role in maintaining democracy in the country by resolving political conflicts ‘in a manner which has been generally impartial and acceptable to all sides’ (Molutsi and Holm, 1989: 4). It has intervened repeatedly to uphold the basic rights and freedoms of individuals, of institutions such as the press and of oppressed groups, in particular women; and by doing so it has succoured liberal democratic practices and established the pre-eminence and rule of law (Sebudubudu and Osei-Hwedie, 2006; Selolwane, 2007). There have also been several instances when even magistrate’s courts have ruled against the government where they found the latter’s actions to be politically motivated (Holm, 1988), thereby instituting, at the very basic level, the accountability of the government. And as argued in Chapter 3, greater accountability induces governments to spend in sectors that enhance citizens’ wellbeing.

4. The relative importance of political regimes and administrative and judicial institutions for human development spending The discussion in section 3 relating to the influence of Botswana’s bureaucracy in policymaking vis-à-vis the country’s political leadership raises the related, albeit wider, question of the significance of democracy relative to that of high-quality administrative and judicial institutions from the standpoint of public spending on human development. Though it may never be possible to fully answer this question, moving beyond Botswana to the broader regional context of sub-Saharan Africa helps in obtaining some useful insights. To this end, in this section we compare the patterns of public spending on human development across sub-Saharan African states grouped by the nature of their regimes and the quality of their administrative and judicial institutions. In general, following the wave of democratisation in sub-Saharan Africa during the 1990s, states that appear to be spending the most on education and health, as Table 8.4 shows, are those that enjoy relatively more democracy and have public institutions that are above average in quality. These are the states listed under Group-I in the table. Some of these states have had higher spending on human development than others over the 15-year time frame we consider, that is, 1999–2013; but, as the table depicts, during this period the average country in the group spent almost 7 per cent of GDP annually on education, almost 4 per cent on health and a little over 1.5 per cent on the military. On the other hand, democratic states with average or below average institutions spent substantially lower on education and health, but only a little less on the military. The states included in this class are listed in the table under Group-II. Interestingly Swaziland and Burkina Faso, the two autocratic states with strong institutions (Group-III), serve as a contrast to democratic states with average or weak institutions. Swaziland has essentially been governed autocratically

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Table 8.4 Sub-Saharan Africa: average annual public spending as a percentage of GDP (1999–2013) States

Education

Health

Military

Group-I Democratic with above average institutions Botswana, Cape Verde, Ghana, Lesotho, Madagascar, Malawi, Namibia, South Africa

6.80

3.83

1.62

Group-II Democratic with average or below average institutions Benin, Comoros, Guinea-Bissau, Kenya, Mali, Mozambique, Niger, Nigeria, Senegal, Sierra Leone, Tanzania, Zambia

4.06

2.39

1.30

Group-III Autocratic with above average institutions Burkina Faso, Swaziland

5.45

3.85

1.73

Group-IV Autocratic with average or below average institutions Angola, Cameroon, Central African Republic, Chad, Côte d’Ivoire, Democratic Republic of Congo, Equatorial Guinea, Ethiopia, Gabon, Gambia, Guinea, Liberia, Republic of Congo, Rwanda, Somalia, South Sudan, Sudan, Togo, Uganda, Zimbabwe

2.95

1.87

2.52

Sources: GFS; WDI.

since 1973; and Burkina Faso has only recently acquired, at best, some marginal democratic features. But both states have institutional structures that are comparable in strength to those of Group-I states, and understandably it is for this reason that on average the two states also exhibit a pattern of education, health and military spending that is quite comparable to that of an average Group-I state. On the other end, the average annual spending on education and health in these states has been considerably higher than in democratic states with average or below average institutions (Group-II), while military spending has also been higher by about 0.4 per cent of the GDP, reflecting their autocratic attributes. It is pertinent to add here that pre-democratisation Lesotho could also be placed in the same category as Swaziland and Burkina Faso. The country was governed autocratically prior to 1993, but has much in common with Botswana in terms of culture, social organisation, colonial history and administrative structures. And like Botswana its public spending on human development has been relatively high even during the years of autocratic rule. Finally, the states that continue to be defined by autocratic features along with average or weak institutions are listed in Group-IV. These states exhibit on average the lowest annual spending rates on human development in the region,

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but the highest on the military. As Table 8.4 shows, the average annual spending on education and health in these states over the period under consideration was a little below 3 per cent and 2 per cent of GDP, respectively, which is lower than the corresponding spending in democratic states with average or below average institutions. But the average annual military expenditures in these states were at least 0.8 per cent of GDP higher than the annual average in other states. Some of the states included in each of the four groups have been more democratic or autocratic than others in the same group over the period under consideration, and some have also had stronger institutions than others. This tends to make the categorisation fairly broad. But even so, moving from one group to the next shows how spending patterns change with variations in the level of democracy and in institutional strength. The broad groupings also allow us to abstract away from the peculiarities of individual states and to attribute the differences in their spending patterns to the nature of political regimes and institutional strength. There is, however, one caveat. That states with relatively strong institutions tend to have comparatively high education and health spending levels, irrespective of regime type, should not be understood to imply that democracy is not important in terms of public spending on human development – even in an African context. Far from it, as seen in Table 8.4, it is those democratic regimes in sub-Saharan Africa that are also supported by relatively more accountable institutions that appear to spend the most on human development. Similarly, when we compare states with average or below average institutions, democracies do much better. High spending on education and health even in autocracies with strong institutions does, nevertheless, point towards the overarching significance of administrative and judicial institutions in shaping public spending patterns across states as well as to their ability to compensate, in some cases, for the absence of democracy. This is, in fact, what the empirical evidence on life expectancy outcomes in Chapter 6 also suggested.

5. Natural resources Botswana’s extensive mineral deposits, copper and nickel, but most importantly diamonds, have yielded considerable revenues for the government since the mid1970s (Harvey and Lewis, 1990; Parson, 1984). A question that needs attention, therefore, is whether the country’s governing elite – the political leadership and bureaucracy – would have given the same high priority to education and health in the absence of these revenues. While it cannot be denied that the revenues generated by the diamondmining industry enabled Botswana’s government to finance extensive education and healthcare facilities, it might be rather erroneous to assume that it was diamond-generated wealth that shaped the government’s policy. First, there had been eager demand for mass schooling and healthcare in Botswana. Even prior to independence, the Tswana chiefs had actively encouraged, and financially assisted, social provision by the missionaries. Second, Botswana’s government focused on human development as a basic tenet of socioeconomic advancement (Harvey and

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Lewis, 1990; Meyer et al., 1993) and started to concentrate on the social sectors immediately after independence despite a serious paucity of financial resources (Chiepe, 1973; Molutsi, 2004). Third, even if diamond-generated revenues have facilitated high public spending on education and health in Botswana, ‘the mere availability of finance does not explain Botswana’s success in expanding social infrastructure and service provision’ (Duncan et al., 1997: 121). Rather, so many African and non-African states rich in minerals or other natural wealth have performed so poorly in socioeconomic development that natural resources seem to be an unimportant (Jefferis, 1998; Molutsi, 2004), or even a negative (Sachs and Warner, 1995, 1999), factor in the overall development paradigm, especially in terms of educational spending and outcomes (Gylfason, 2001a, 2001b, 2007). Fourth, foreign aid appears to have played just as crucial a part as diamond revenues, if not a greater one, in financing Botswana’s human development. Foreign aid financed all public development spending up to 1972–19738 (Hermans, 1974) and about 80 per cent until 1976–1977 (Duncan et al., 1997). On the other hand, royalties from mining were negligible during the early years after independence (Hermans, 1974). For instance, there were no revenues from minerals up to 1967–1968; revenues from minerals constituted only 5.3 per cent of total government revenues in 1971–1972; and they grew to 24.3 per cent only by 1976–1977 (Harvey and Lewis, 1990). Even after revenues from minerals became more substantial, foreign aid continued to finance public spending on education and health quite significantly (Meyer et al., 1993; Molutsi, 1993). Interestingly, in the mid-1980s, when income from minerals constituted around 50 per cent of government revenues (Modise, 1999), foreign aid was funding about 45 per cent of Botswana’s development expenditure (Duncan et al., 1997). In fact, Botswana serves as a leading success story on the effective utilisation of aid for socioeconomic development. And finally there is the institutional factor. As Acemoglu et al. note succinctly, ‘Botswana got off onto the right track at independence, and by the time the diamonds came on stream, the country had already started to build a relatively democratic polity and efficient institutions’ (2003: 105). From this perspective, Samatar appears to be justified in claiming that without its institutional strength, ‘no amount of diamond revenues would have been sufficient to make Botswana an African miracle’ (1999: 188–189). Thus, it appears that even in the absence of diamond deposits, Botswana’s governing elite would have found resources, one way or the other, to finance the nation’s socioeconomic development requirements rather than simply neglect them.

6. Education and health outcomes As noted earlier, education and health outcomes in different countries may not be strictly comparable because of the so many different historical, economic, environmental and cultural factors affecting them. Nor might it be possible to attribute differences in these outcomes entirely to differences in public spending levels in these areas or to disparities in PSE across states. But even so, and also

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as related earlier, health and education outcomes broadly follow governmental efforts. Botswana, in fact, serves as a leading example in this context. It was because of the government’s comprehensive initiatives in the education sector, for instance, that within a decade of independence, the net primary enrolment ratio increased from 47.2 to 62.9 per cent, enrolments in secondary schools and other post-primary training institutions rose from 3.1 to 18.1 per cent of the relevant age group, and enrolments in tertiary education and training rose from 0.2 per cent of the relevant age group to 1.0 per cent (Colclough and McCarthy, 1980). Similarly, in the health sector, the country-wide provision of preventive and curative healthcare through a well-structured network of facilities helped in raising the average life expectancy at birth from 53 years in 1967 to 64 years by 1987. Over the same period, the under-five mortality rate was brought down from 144 to 57 per 1,000. These are impressive achievements. But comparing outcomes in Botswana with outcomes in sub-Saharan Africa and OECD countries, as in the case of expenditure, is even more insightful. Table 8.5 juxtaposes the most recent values for some basic indicators for education and health outcomes in Botswana with their average values in sub-Saharan Africa and OECD countries. As this table shows, the indicator values for Botswana are much better than the sub-Saharan average in almost all areas of educational and health attainment. In fact, in many areas Botswana appears to be nearing the average levels for OECD countries. The literacy rates in Botswana are closer to OECD averages than they are to the sub-Saharan figures; and primary enrolment as well as primary and lower secondary completion rates present a rather similar picture. Secondary enrolment levels, though not quite as impressive, are nevertheless much above the sub-Saharan average. On the eve of independence, Halpern had commented that ‘[e]ducationally, the Batswana are probably more backward than any other people in Africa which has been under British rule; they are challenged only by the Swazi for this dubious distinction’ (1965: 307). Certainly, Botswana has come a long way from such a distinction! Table 8.5 Basic education and health outcomes in Botswana, sub-Saharan Africa and OECD countries (2006–2013) Indicator

Sub-Saharan Africa

Botswana

OECD

Literacy rate, adult female (%; ages 15 and above)

51.26

85.56

99.34

Literacy rate, adult male (%; ages 15 and above)

68.80

84.63

99.55

Literacy rate, adult total (%; ages 15 and above)

59.83

85.09

99.44

Literacy rate, youth female (%; ages 15–24)

64.81

96.97

99.75

Literacy rate, youth male (%; ages 15–24)

76.38

93.48

99.76

Literacy rate, youth total (%; ages 15–24)

70.44

95.21

99.75

School enrolment, primary, female (% net)

74.26

84.39

96.98

Botswana 165 Indicator

Sub-Saharan Africa

Botswana

OECD

School enrolment, primary, male (% net)

78.35

83.26

96.88

School enrolment, primary (% net)

76.33

83.82

96.93

School enrolment, primary, female (% gross)

96.34

104.13

102.63

School enrolment, primary, male (% gross)

103.63

107.85

103.41

School enrolment, primary (% gross)

100.02

106.01

103.03

65.25

92.52

School enrolment, secondary, female (% net)

n.a.

School enrolment, secondary, male (% net)

n.a.

56.37

91.58

School enrolment, secondary (% net)

n.a.

60.79

92.03

School enrolment, secondary, female (% gross)

37.08

84.28

102.24

School enrolment, secondary, male (% gross)

44.79

79.16

102.64

School enrolment, secondary (% gross)

40.96

81.70

102.45

School enrolment, tertiary, female (% gross)

5.76

7.95

83.98

School enrolment, tertiary, male (% gross)

9.36

6.92

68.08

School enrolment, tertiary (% gross)

7.57

7.43

75.83

Primary completion rate, female (% of relevant age group)

65.79

95.29

100.90

Primary completion rate, male (% of relevant age group)

72.64

94.05

100.10

Primary completion rate, total (% of relevant age group)

69.25

94.67

100.48

Lower secondary completion rate, female (% of relevant age group)

23.05

86.39

106.59

Lower secondary completion rate, male (% of relevant age group)

28.64

82.10

103.35

Lower secondary completion rate, total (% of relevant age group)

25.87

84.23

104.85

Life expectancy at birth, total (years)

56.44

46.99

80.68

Mortality rate, neonatal (per 1,000 live births)

32.22

28.50

3.03

Mortality rate, infant (per 1,000 live births)

63.86

41.00

4.45

Mortality rate, under-five (per 1,000 live births)

97.54

53.30

5.31

Births attended by skilled health staff (% of total)

49.72

94.60

99.95

Nurses and midwives (per 1,000 people)

1.11

2.84

8.69

Physicians (per 1,000 people)

0.20

0.34

2.86

78.58

94.10

n.a.

Pregnant women receiving prenatal care (%) Sources: HDI data UNDP; UIS; WDI.

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However, in the case of the health outcomes, the scourge of AIDS has distorted the picture. Even though the neonatal, infant and under-five mortality rates are much lower than the sub-Saharan averages, life expectancy achievements have been reversed. As mentioned above, life expectancy at birth was 64 years in 1987, which was much higher than the sub-Saharan average of 50 years at that time; but it has dropped down to 47 years in recent times, which is, in fact, much lower than the sub-Saharan average. Notwithstanding the impediments to improvement or outright reversals caused by AIDS in the health sector and also through consequential effects in the education sector, Botswana’s achievements are extraordinary, especially considering that the country had such a late start in social spending after years of neglect, and also that its very low population density makes it much more costly to provide education and healthcare on a per capita basis than most other countries in the region (Colclough and McCarthy, 1980).

7. Concluding comments Although India cannot be compared with Botswana under a reasonable ceteris paribus assumption, such a comparison does provide an important intuitive insight. As argued in Chapter 7, India has been spending more than Pakistan on education and health, but less on the military, because of its democratic regimes. Botswana, on the other hand, has been spending much more on education and health than India even though Botswana’s democracy also has many a weakness that detracts from democratic accountability. For instance: a single political party has ruled since independence, creating the semblance of a one-party state (Holm, 1988; Picard, 1987; Sebudubudu and Osei-Hwedie, 2006) or of an elite democracy (Good, 1992, 1994); strong civil society interest groups are lacking (Molutsi and Holm, 1990); ethnic minorities remain disadvantaged (Molutsi, 2004; Taylor, 2003); and the opposition has been weak (Parson, 1984; Taylor, 2003), has sometimes been suppressed rather harshly (Good, 1996) and has even been viewed as an ascriptive minority incapable of turning into a majority (Horowitz, 1991). But two factors appear to have more than compensated for these weaknesses and to have led to high levels of human development spending in the country, not just vis-à-vis India, but also in the wider international context. The first factor is Botswana’s inherent democratic culture, which has made both the government and state institutions responsive to citizens’ interests and wellbeing. For the most part, this culture appears to be the continuation of the participative decision-making by Tswana tribes and the traditional accountability of Tswana chiefs to their people as epitomised in the institution of the kgotla. Undeniably, the kgotla may have lost some of its original institutional strength with modernisation, in particular urbanisation; but its political legitimacy and the democratic traditions it has nurtured over centuries, especially the right to voice an opinion without the fear of social or political sanction, live on as an integral part of the modern political culture of independent Botswana. The second factor is Botswana’s bureaucracy, which has played an overwhelmingly important role in the country’s socioeconomic development. It has been

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167

widely recognised for not only its professionalism, but also its integrity. While not evading political accountability, it remains professionally neutral, with a value system structured around the ethic of paternalism, responsiveness to citizens’ wellbeing and the protection of the public interest. As might be intuitively inferred from Botswana’s case study, were the Indian bureaucracy as efficient and comparatively uncorrupted as Botswana’s, spending on human development in India might have been much higher. Thus, from a broader perspective, Botswana’s bureaucracy illustrates the centrality of high-quality institutions to public spending on human development.

Notes 1 At about this time, however, around 40 per cent of Botswana’s male labour force was employed in South Africa (Selolwane, 2007). 2 Later, the Union of South Africa. 3 Through the secretary of state for Commonwealth relations after 1948. 4 Four technocratic members are also appointed to this house from a list proposed by the president. 5 Candidates for the lower house are required to declare the presidential candidate they support during the election. A simple majority of these elected members then elects the president. 6 The structure was formalised in 1896 under Proclamation No. 2 issued by the High Commissioner (Picard, 1987). 7 Du Toit (1995), Healey (1995), Odell (1985), Picard (1987) and Somolekae (1998b) describe the close functional relationship between central and local government structures. 8 This was the year in which Botswana was able to finance its recurrent budget entirely from domestic revenues and also allocate a part of these revenues – though very little – for development (Hermans, 1974).

9

Argentina A tale told by taxation

We argued in Chapter 3 that in addition to regime and institutional characteristics, the modes of public resource mobilisation also affect public spending patterns. In particular we argued that taxation can reinforce a government’s accountability to citizens, while in natural resource-rich states, rents or royalties potentially place a wedge between governments and their accountability to the citizenry. Further, dependence on foreign aid can make governments responsive to the conditions imposed by international development partners, which can, not infrequently, lead to higher spending on health and education. In using a case study approach to understanding the implications of this resource-based accountability for public spending on human development, we require a regional context that simultaneously offers a level of similarity amongst states in terms of their political regimes and the quality of their administrative and judicial institutions, which then allows an abstraction from their effects upon public spending. In addition we need cases with a variation in the nature of public resource mobilisation across states that is large enough to permit a reasonable attribution of the differences in their patterns of public spending to the mode they predominantly use to raise their resources. And of all regions, none meet these criteria better than the re-democratised states of Latin America. Even though the quality of democracy is not the same in all democratic Latin American states, it helps while making comparisons that most of these states experienced democratisation during its third wave, that is, between the late 1970s and early 1990s (Hagopian and Mainwaring, 2005; Payne et al., 2007). Similarly, although the quality of administrative and judicial institutions is not exactly the same across Latin America, it helps that these are generally weak in most Latin American states (Domingo, 1999; ICRG, 2013; Kaufmann et al., 2009; Mainwaring and Scully, 2010; Payne et al., 2007). The potential determinants of public spending patterns and outcomes are, of course, many; Argentina’s case shows that a tax-driven accountability to citizens is amongst the significant ones. Our approach in this chapter is to focus on one state, Argentina, and then to compare its pattern of public spending on human development as well as its performance outcomes with other groups of states classified on the basis of their resource dependence, that is, the dominant mode through which they mobilise resources. We chose Argentina for several reasons. For one, like most other Latin

Argentina

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American states, Argentina has had its share of political chaos, economic woes and military dictatorships (Brown, 1979, 2003; Levitsky, 2005, 2008), and, like many other Latin American states, it also reverted to democracy during the third wave of democratisation (Hagopian and Mainwaring, 2005). Second, Argentine administrative and judicial institutions have remained weak, like those of the majority of Latin American states (e.g. Domingo, 1999; Helmke, 2003; ICRG, 2013; Kaufmann et al., 2009; Larkins, 1998; Levitsky, 2008; Mainwaring and Scully, 2010; Miller, 2000; Payne et al., 2007; Spiller and Tommasi, 2007). And finally, Argentine governments in the period under review have raised resources for public spending primarily through taxation, and to an extent through external borrowing or through seigniorage – more simply, money creation (e.g. Brown, 1979, 2003; Burgin, [1900] 1971; Rodríguez, 1994; Sturzenegger and Zettelmeyer, 2006; Véganzonès and Winograd, 1997) – but not through foreign aid, or through rents generated by natural resources. Admittedly, Argentina has considerable petroleum deposits, and since the mid-1980s it has also been a net exporter of oil, but the Argentine economy has never been dependent on, or driven by, its petroleum industry. Average rents from oil over the period 1985–2012 have, in fact, been only about 3.2 per cent of GDP.1 This combination of attributes makes Argentina, on the one hand, a window to look into the political economy of other Latin American states and, on the other hand, a standard against which aid-dependent, natural resourcerich and other tax-dependent states in Latin America can be compared from the perspective of public spending on human development under a broadly tenable abstraction from the influence of regimes and institutions. As in the case of the earlier two case studies, we take into account general government spending in Argentina. However, we take into account tax-driven resource mobilisation at the central government level to serve as a proxy for the government in general. For one, as in the case of Pakistan and India, Argentina’s fiscal federalism has made the provinces2 largely dependent on the federal government for both resources and regulation (Artana et al., 1995; Sturzenegger and Werneck, 2008), so that the same accountability to citizens in their capacity as taxpayers that might affect public policy at the centre also tends to affect provincial policies. Second, the provinces’ own resources are also mostly generated by taxation (Véganzonès and Winograd, 1997; World Bank, 1990). And third, even after decentralisation of education and health services to the provinces over the 1980s and 1990s, the centre continues to play an important role both in direct provision, as for instance in the case of tertiary education, and in guiding provincial policies and financing their expenditures. Local governments, too, have a role, albeit a small one, in the provision of these services. But they are supervised by provincial governments (Asensio, 2006) and, in any case, they derive the bulk of their resources from rates, taxes, including land taxes, and transfers from the higher tiers of government (Artana et al., 1995; Asensio, 2006). Military expenditures, of course, remain a national preserve. The remainder of this chapter is divided into five sections. Section 1 outlines the economics and politics of Argentina’s transformation from a pastoral

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to a modern industrial economy, and illustrates how, irrespective of the transformation, taxation remained the major source for government revenues since the country’s independence. This section also explains how Argentina oscillated between democracy and military dictatorship, thereby providing an insight into the more general history of Latin American states. The narration offered in section 1 provides the necessary backdrop for section 2, which reviews Argentina’s public provision of education and healthcare as well as its military spending in a historical context. To understand how the nature of public resource generation influences public spending on human development, section 3 compares public spending levels on education, health and the military in Argentina with those in natural resource-rich states, foreign aid-dependent states and other taxationdependent states in Latin America over the 15-year period 1999–2013. Section 4 compares education and health outcomes in Argentina with those in the other groups of states. And section 5 offers some concluding comments.

1. Argentina: economics, politics and the nature of government revenues At the time of independence from Spanish rule in 1816,3 Argentina was essentially a pastoral economy driven by foreign trade. Most economic activity in the country revolved around producing hides, dried and salted meats, tallow, horsehair, horns, bones and other animal products for export (Brown, 1979, 2003; Ferns, 1973). During the colonial period, feral cattle and horses had been the main source for these goods, but by the middle of the eighteenth century, the wild herds had been depleted and, to meet the expanding demand for exports, estancias – the expansive cattle-rearing estates of Latin America – were developed across the vast Pampas grasslands to breed cattle (Brown, 1979; Ferns, 1973). Export-driven cattle breeding generated backward and forward linkages in the domestic economy: robust commerce along the thousands of miles of trading routes leading from the interior to the port of Buenos Aires; mule and oxcart transportation systems and the consequential breeding of these animals; coastal and river shipping services; cart and boat building; hide and meat-salting factories or saladeros; warehouses, stockyards and marketplaces; and finally the port-related activities that formed the lifeblood of the Buenos Aires metropolis (Brown, 1979, 2003). On the other hand, the Argentine economy was also heavily dependent on a range of imports, which included processed foodstuffs, textiles, wines, ironware and earthenware, lumber and, until the late nineteenth century, cereals and flour (Brown, 1979, 2003; Ferns, 1973). These imports, in turn, also generated their backward and forward linkages of economic activity fairly similar to those produced by exports (Brown, 1979). Moreover, the trading sector induced a secondary or final-demand linkage: that is, the production of consumer goods and services required by the local population associated with, and rapidly increasing because of, the primary trade-related activities (Brown, 1979).4 This linkage not only spurred the economy in Buenos Aires, but also promoted dairy farming and the cultivation of cereals, fruits and vegetables, as

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well as simple manufacturing such as textiles, leather goods, wine and sugar in the interior provinces (Brown, 1979).5 There was also some sheep rearing, mostly in the interior provinces at the time of independence, but not on a significant scale (Edwards, 2008). However, the technological refinement and growth in the woollen industry in the UK and the US towards the middle of the nineteenth century generated demand for imported wool, as a result of which prairielands nearer to Buenos Aires started giving way to sheep, while cattle herds were pushed further into the interior (Brown, 1979). The Creoles increasingly parcelled out the virgin lands of the western and southern frontier into estancias by pushing out the native Indian populations; and finally, the Desert Campaign of 1878–1879 led to the almost complete annihilation of Indians in these regions and settlement of the grasslands (Brown, 1979; Edwards, 2008). These developments had a significant impact on the economy. Sheep rearing and wool exports diversified the pastoral economy without disrupting the existing forward and backward linkages; and new job opportunities were created for European immigrants, who were more skilled in sheep rearing than they were in cattle ranching, which in turn contributed to the rearing of better sheep varieties that produced superior grade wool with higher export potential (Brown, 1979, 2003; Edwards, 2008). By the end of the 1850s, raw wool had become Argentina’s most important export (Brown, 1979). Driven by immigration from Europe, mechanised farming and the introduction of the railways also brought about a wheat export boom in the last quarter of the nineteenth century (Brown, 1979, 2003; Corradi, 1985). As can be seen from the extensive data compiled by Mitchell (2003), Argentina exported wheat for the first time in 1874. The quantity was only nominal that year – 400 metric tonnes; but by 1896–1900, the average had reached more than 855,000 metric tonnes. Alongside wheat, the farming of maize and linseed also expanded (Alejandro, 1970; Rock, 1986; Romero, 2002) and by 1910 cereals had become the chief Argentine export (Brown, 2003). The outcome of all these developments was that international trade, along with the domestic economic activities that it stimulated, became the economic base for the Argentine state to mobilise resources for its public expenditures. This largely meant the imposition of customs duties on imports, and to some extent on exports, along with an array of port fees. It also meant levying taxes on goods produced or exchanged inland or transported along the trading and supply routes (Brown, 1979; Burgin, [1900] 1971). In fact, almost all government revenues were generated by various forms of taxation, and whatever little nontax revenue accrued came from land and building rents, from dividends on Banco Nacional shares and from the sale of land (Burgin, [1900] 1971). Since for several decades following independence Argentina had remained a loose alliance of provinces governed by caudillos rather than an integrated federation, with virtually all revenues going to the coffers of the provinces (Brown, 1979, 2003), it is instructive to take a look at the revenue composition of Buenos Aires, the most prosperous province of the confederation, which for the most part also headed it. As Burgin ([1900] 1971) reports, almost 87 per cent of the province’s revenue in 1830 was generated by

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customs duties,6 and a little over 3 per cent each came from stamp duty and capital taxes, while all other tax and nontax sources produced the balance of 7 per cent. Customs duties yielded an even higher proportion of Buenos Aires’s revenues in the succeeding decades. For instance, in most years between 1840 and 1850, it ranged between 89 and 93 per cent of the total revenues collected. With the adoption of the Constitution of 1853 and the federalisation of Buenos Aires in 1880 the control of foreign trade and customs came to the central government (Brown, 2003). Thereafter, and until the restructuring of the fiscal system in the 1930s, the federal government’s sources yielded around 60–65 per cent of the total public revenues in Argentina, while the provincial and local governments collected the other 35–40 per cent (Sánchez Román, 2009). The federal government, nevertheless, shared the centrally collected taxes with the provinces under a system of revenue sharing (quite like that of Australia, India and Pakistan) referred to as coparticipación (Willis et al., 1999). It must, however, be clarified at this juncture that during this era, and until long after, customs duties were directed more at generating revenues than at protectionism (e.g. Burgin, [1900] 1971; Véganzonès and Winograd, 1997). With the introduction of modern transport systems, development of new farming machinery and industrial technologies, and the rise of manufacturing, the traditional economy in Argentina, as with other states in Latin America in general, began to be gradually transformed in the 1860s (Brown, 1979; Ferns, 1973). First, the steam-powered railways and boats reduced both time and cost of transportation; the extensive railway system not only facilitated the transport of cattle and sheep products, but also made possible the bulk transport of cereals from the interior to Buenos Aires for export (Brown, 1979; Ferns, 1973). Second, the introduction of refrigerated transport towards the end of the nineteenth century created enormous demand for chilled Argentine beef and mutton in Europe. This not only strengthened and expanded most of the existing domestic backward and forward linkages of cattle and sheep rearing, but also added new ones, especially where the existing ones had become redundant, as they had, for instance, in the case of saladeros, which were quickly replaced by the frigoríficos or meat refrigeration plants (Brown, 1979, 2003; Edwards, 2008; Rock, 1986). Third, apart from the railways, a host of other innovations made their way into Argentina with global technological advancement. Amongst the prominent developments during the late nineteenth and early twentieth centuries were gas and electricity provision, urban transport systems such as the tramway and telecommunication systems such as telegraph and telephone (Brown, 1979; Pineda, 2009). These innovations created extensive domestic forward and backward linkages, which led to further expansion in the Argentine economy (Brown, 1979; Edwards, 2008). Of these developments, the most important was the growth in the manufacturing sector. Only rudimentary industry, comprising mainly handicrafts, existed at the time of independence, but for a long time it could not progress beyond that and the growth that did take place was mostly in the form of labour-intensive manufacturing workshops producing for very limited markets (Alejandro, 1970; Pineda, 2009). Some modest industrialisation started toward the late 1860s, when entrepreneurs

Argentina 173 found it profitable to invest in the relatively more stable political environment following unification (Edwards, 2008; Ferns, 1973; Pineda, 2009), and by the end of the nineteenth century industrial groups began to branch out into multiple economic sectors (Edwards, 2008). By 1913–1914, value-added manufacturing represented 16.6 per cent of GDP; and the 22,204 industrial enterprises that existed in 1895 had grown to 48,799 (Pineda, 2009), with the major expansion coming in agriculture-based industries such as meatpacking, flour-milling, wineries, sugar, tobacco and burlap sacks, and to an extent also in cement, textiles, metallurgy, paper, shoes and glass (Alejandro, 1970; Brown, 2003; Pineda, 2009; Rock, 1986). From the perspective of public resource mobilisation, the most significant outcome of these developments was that taxation continued to be the basic source of government revenues during this period, and customs duties, despite a comparatively liberal trade policy, remained the primary means (Alejandro, 1970; Corradi, 1985). The First World War, however, proved to be a critical stage for the tradedependent Argentine economy. A sharp fall in its exports at the onset of the war brought stagflation, with prices rising but employment and wages shrinking (Bergquist, 1986; Edwards, 2008); and even though recovery might have been quicker than expected, the shock had two important outcomes (Edwards, 2008). First, domestic industry expanded by providing substitutes for imported consumer goods that became unavailable because of the war (Alexander, 1962; Edwards, 2008); and second, it created greater realisation of the urgency to develop the domestic industry (Edwards, 2008). The government began to face increasing pressure from political, industrial and intellectual groups for the protection of domestic industry, with an argument that had expanded from infant industries to include industrial diversification, national self-sufficiency and the need to reduce domestic economic uncertainties created by a dependence on the international economy (Pineda, 2009). Despite this, the changes introduced in the tariff structure during the interwar period were mostly selective (Pineda, 2009) and rather modest compared with the changes that were to be made in the 1940s (Alejandro, 1970). Some scholars have, indeed, argued that the tariff structure in Argentina even during the pre-1940s period could be categorised on the higher side (Coatsworth and Williamson, 2004), while others have asserted that they were comparatively low (e.g. Randall, 1978; Weil, 1944). There are also those such as Alejandro (1970) who consider it to be between the two extremes. Such argumentation, of course, relates to the nature of Argentine protectionism and its impact on the industry; what is of substance for our argument here is that first, despite the heightened demand for protectionism, governments continued to focus on whether higher tariffs would increase or decrease their revenue yield (Pineda, 2009); and second that customs duties remained the most important source of those revenues. For instance, customs duties on external trade continued to yield about 70 per cent of the central government revenues even over this period (Brown, 2003). Argentine industrialisation over 1880–1930 could not perhaps reach its full potential (Pineda, 2009) but, even so, it produced three important consequences from the standpoint of public revenues and spending:

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Argentina It led to rapid economic expansion, created a dense network of forward and backward linkages, and contributed, along with the agriculture sector, to making Argentina one of the most prosperous nations of the time (Edwards, 2008). It enlarged the labour force by rapidly expanding employment opportunities that attracted not only local entrants, but also very large numbers of immigrants (Pineda, 2009). Remarkably, between 1869 (when the first national census was taken) and 1914, Argentina’s population increased fourfold from around 1.8 million to 7.8 million (Romero, 2002), with about a third of it being foreign-born (Edwards, 2008). Buenos Aires city experienced the fastest pace of population growth. In 1869, the total population of the city was less than one-fifth of a million; but by 1914 it had grown to 1.5 million; and in 1936 it was about 2.4 million (Brown, 2003). Even more importantly, industrialisation led to the concentration of labour in industrialising urban and semi-urban areas, particularly in Buenos Aires (Pineda, 2009).

The first of these three outcomes expanded the state’s taxation potential. For instance, it was during these years of industrialisation that governments started making an effort to introduce the country’s first ever income tax (Sánchez Román, 2008, 2009). And when – spurred on by falling customs revenues in the wake of the Great Depression (Alhadeff, 1985, 1986) – income tax was finally introduced in 1932, industry paid the largest share, which, for example, was just a fraction below 45 per cent in 1935 (Sánchez Román, 2006). The second outcome precipitated issues of redistribution, which attained urgency during the 1930s (Rock, 1993). And finally, a combination of the second and third outcomes strengthened industrial labour’s political power base. The power resources of labour were, in fact, to become politically critical with the adoption of universal male suffrage in 1912. Labour was to attain centrality in the election campaign of the populist leader Juan Domingo Perón in 1946 and labour demands were to become an important factor behind the higher levels of public spending for education and health during Perón’s presidency, which will be discussed in section 3. Industrialisation picked up momentum over the 1930s (Alejandro, 1970; Corradi, 1985). The Great Depression affected Argentina even more adversely than had the First World War, generating economic chaos along with serious political unrest. This gave the Argentine army the opportunity to remove the civilian president in 1930 and to assume power under General José Félix Uriburu who was succeeded by General Agustín Pedro Justo in 1932. The new government policy under General Justo was to actively engage with the economy; to invest in construction of physical infrastructure, railways and roads; to create a reliable financial system by establishing a central bank; and to oversee markets and intervene where necessary (Edwards, 2008; Romero, 2002). The depression also spurred the government into providing a greater degree of protection for domestic industry. Tariff protections and tax concessions were given to infant industries; foreign exchange was subsidised for importation of raw materials and

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machinery; and credit was made available on liberal terms (Brown, 2003; Romero, 2002). These measures improved incentives for entrepreneurs and by 1944 industry had become a principal sector of the argentine economy (Corradi, 1985). Not only had the traditional animal- and agriculture-based industries grown, but also new clusters such as motor vehicles and electrical goods had emerged (Alejandro, 1970; Edwards, 2008). On the other hand, as noted above, income tax was introduced in Argentina in 1932, which soon changed the historical reliance of governments on customs duties for resource mobilisation (Sánchez Román, 2009). The proceeds from income tax were initially fairly modest – for instance, it yielded 8.5 per cent of the total revenues in the first year; but by 1942 it had become the single most productive resource for the government, yielding over 34 per cent of its total revenues (Sánchez Román, 2006). Certain other levies, including sales and excise taxes, were also introduced by the central government under the financial reforms of the 1930s, while the provinces surrendered their overlapping taxes in lieu of a formal system for the sharing of revenues (coparticipación) from the impuestos coparticipativos (i.e. coparticipatory or shared taxes) between the centre and provinces (Eaton, 2001). Under this system, the provinces received about 29 per cent of the shared taxes, while around 71 per cent went to the centre (VENTU, 1996, cited in Rhoten, 2000). The provincial share was then divided between the various provinces under a system of secondary distribution. The criteria under which this had been done since the introduction of the system had sometimes been based on clear benchmarks, but at other times, not so clear (Artana et al., 1995). Nevertheless, secondary distribution appears to have been more streamlined and less discretionary since the introduction of the Coparticipation Law of 1988 (Sturzenegger and Werneck, 2008). In effect, the levy of the new taxes and the integration and rationalisation of provincial taxation – along with the creation of a central collection department7 – strengthened and further institutionalised Argentina’s tax base and fiscal federalism. Since the 1930s, the number of shared taxes as well as the central and provincial revenue proportions have undergone many changes (Eaton, 2001), which have sometimes favoured the centre, and at other times the provinces; but overall, the number of shared taxes and the provincial share in them has increased, standing at around 57 per cent since 1988 (Eaton, 2001; Sturzenegger and Werneck, 2008). On the other hand, the provinces have retained forms of taxation such as stamp duty on property, and turnover and automobile taxes (Artana et al., 1995; Eaton, 2001). Returning to the historical narrative, the Second World War marks another critical point for Argentina. The military took over from the civilian government under Ramón Castillo in 1943, and in the elections of 1946 Juan Perón rode to the presidency on the wave of his popularity with the labour movement (Alexander, 1962; Bergquist, 1986; Rock, 1975). With Perón in power the economy entered into a new phase of industrialisation sponsored by the state. The foremost principle of the new industrial policy was to intensify import substitution industrialisation (ISI), an inward-looking strategy popular during that era in

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many countries, which aimed at promoting the domestic production of manufactured goods by protecting local industries (Alejandro, 1970; Edwards, 2008). To achieve the objectives of ISI, Perón’s government relied on the conventional tools of this strategy: that is, protective tariffs and non-tariff barriers such as import quotas and licences, multiple exchange rates and even export taxes (Alejandro, 1970; Edwards, 2008). But the regime also took wide-ranging ancillary measures to encourage investment. For instance, it developed the energy, transport and communications sectors extensively (Alexander, 1962); offered industrial credit on liberal terms (Alexander, 1962; Véganzonès and Winograd, 1997); and created a monopoly over agricultural exports – purchasing produce at low prices but exporting them at international prices, to funnel the profits into subsidising industrialisation (Alexander, 1962; Edwards, 2008; Romero, 2002). As a result of these policies, manufacturing expanded, particularly the textile, shoemaking, chemical, metallurgical and automobile industries (Alexander, 1962). On the other hand, the regime nationalised strategic sectors such as the railways, docking facilities, telecommunications and utilities, which were mostly foreign owned or controlled (Edwards, 2008; Ferns, 1973; Romero, 2002). It also took public sector initiatives in areas such as iron and steel, energy, shipping and military equipment (Ferns, 1973; Romero, 2002). The higher levels of industrialisation attained during this period further reinforced the implications that had followed the initial expansion of manufacturing in the pre-1930s period. For one, industrial labour increased from under half a million to about a million during 1935–1946 (Brown, 2003; Corradi, 1985); second, the population of Greater Buenos Aires, where over 70 per cent of this labour lived and worked, also increased by a million over about the same period to reach 4.7 million (Brown, 2003); and third, the tax potential expanded even further. From the viewpoint of democratic accountability, these outcomes appear to have effected a critical confluence of the power resources of labour and tax-driven accountability. On the one hand, the numerical and sociopolitical strength of labour had increased, and on the other, labour also became a significant taxpaying sector, not only of indirect taxes and taxes on income, but, under Perón’s fiscal restructuring, also of substantial social security contributions, which represented around 40 per cent of the total central government tax revenues from the late 1940s to the mid-1970s (Véganzonès and Winograd, 1997). In fact, high taxation of labour became one of the distinguishing features of the Argentine taxation structure (Véganzonès and Winograd, 1997). Thus, the taxpaying component of the accountability nexus reinforced the political accountability of the government to labour interests, which appears to partly explain why labour was much stronger and more effective in Argentina than in other Latin American countries such as Venezuela that relied on rents from petroleum extraction. A military coup in 1955 brought Perón’s regime to an end and ushered in an era of severe political instability that was to last until 1983. Over this period, Argentina saw three military interventions and 16 presidents. The military leaders who ruled from 1955 to 1958 attempted, albeit unsuccessfully, to reverse Perón’s economic policies (Brown, 2003; Edwards, 2008; Romero, 2002); and

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Arturo Frondizi, the civilian president elected in 1958, attempted to bring back private sector initiative in industrialisation by curtailing state intervention and encouraging foreign investment (Corradi, 1985; Edwards, 2008; Romero, 2002). Industrial production did improve as a consequence, but Frondizi became unpopular when some of his policies, such as wage restrictions, were seen to be anti-labour (Edwards, 2008; Romero, 2002). Eventually, the army also opposed him for fulfilling his election pact with the Peronists and forced him to quit office in 1962 (Brown, 2003; Corradi, 1985; Edwards, 2008). In the following year, a Radical Party leader, Arturo Illia, was elected to the presidency. He adopted a generous wage policy but the labour movement remained largely unsatisfied (Romero, 2002). The prospect of Perón’s return to power – even if through his wife – coupled with economic problems, alarmed the army into yet another coup d’état in 1966 and the proclamation of the Argentine Revolution by the new military leader, General Juan Carlos Onganía (Corradi, 1985; Edwards, 2008). The military regime quickly introduced a neoliberal stabilisation programme similar to Frondizi’s that froze wages, reduced public spending, lowered tariffs and encouraged private sector – especially foreign – investment (Corradi, 1985). These policies produced some economic benefits, but the military regime’s social repression led to mass protests and street violence that forced Onganía to vacate in 1970 (Corradi, 1985; Edwards, 2008). Between then and the military takeover of 1976, Argentina had six presidents, including Juan Perón – who died in office within a year – and his wife, Isabel Martínez de Perón.8 During the two-and-ahalf years of the second Peronist era, labour gained important concessions, but labour unrest persisted. On the other hand, struck by the 1973 oil crisis, the economy also continued to deteriorate. Both these factors prompted the 1976 military coup d’état against Isabel Perón (Edwards, 2008; MacLachlan, 2006). During all this political and economic tumult, Argentine governments in general made increasing use of money creation and external borrowing to finance their deficits.9 But taxes remained the most important source of revenue. In fact, Argentine governments further expanded the taxation structure with additional levies over the 1940s to 1970s. More significant amongst the new taxes were: a profits tax introduced in 1943; a tax on inheritance, levied in 1951; value-added tax (VAT), which replaced the sales tax in 1973 (Eaton, 2001); taxes on electricity, gas and oil imposed in 1970; and certain additional levies on foreign trade, introduced during the late 1960s (Véganzonès and Winograd, 1997). The military junta led by General Jorge Rafael Videla, which ruled the country from 1976 to 1981, attempted to dismantle the Peronist economic structure and to reorient the economy once again towards neoliberal market capitalism (Edwards, 2008; Romero, 2002). The new policies did bring some initial improvements in the economy, but the government had to borrow heavily in the international market, which led to a sharp rise in the external public debt and consequent amortisation problems (Brown, 2003; Edwards, 2008). For instance, from 1976 to 1983, the external debt rose from about 4 billion to almost 32 billion US dollars (Tedesco, 1999). Inflation over this period also averaged about 200 per cent per annum.10 These economic difficulties were further compounded

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by the economic recession of 1981; and General Roberto Viola, who had taken over from Videla in the same year, devalued the currency, partially revived protectionism and reduced public spending, thus returning somewhat ‘to the old “business-as-usual” policies’ (Edwards, 2008: 99). The economy, however, continued to deteriorate and foreign borrowing continued to rise sharply. In a vain effort, the junta replaced Viola with General Leopoldo Galtieri in December 1981 but the military was not to last in power for long owing to its Falklands misadventure (Edwards, 2008; Romero, 2002). The humiliating defeat of the Argentine army by the British in 1982 forced it to hand back power in 1983 to an elected civilian government led by Raúl Alfonsín, leader of the Radical Party. However, the legacies left by the army for the new government were daunting: hyperinflation that had reached almost 400 per cent in that year;11 deep recessionary pressures; an unsustainable external debt; and a very dissatisfied labour movement – not to mention the scars of ruthless repression (Brown, 2003; Edwards, 2008; Romero, 2002). Over his fiveand-a-half years as president, Alfonsín tried to resolve the economic problems the country faced with the help of the IMF and its standard neoliberal policy prescription, as well as with his Plan Austral, which was based on, inter alia, the introduction of a new currency, raising taxes, freezing prices and wages, and reducing the fiscal deficit (Tedesco, 1999). But despite some early success, the measures eventually failed either to keep inflation under control or to put the economy on a path of sustained growth (Brown, 2003; Edwards, 2008; Romero, 2002). Nor was there any improvement in the external debt, which had, in fact, risen from about 35 billion US dollars in the first year of Alfonsín’s government to over 58 billion US dollars during its last (Tedesco, 1999). Once again, in the elections of 1989, most Argentines rallied around the Peronist (Partido Justicialista) candidate, Carlos Menem, who was to govern for two consecutive terms. Interestingly, over the decade that he remained president, Menem implemented economic policies that were aggressively market-oriented and mostly an antithesis of the policies that Perón had adopted. They included deregulation, liberalising foreign trade, opening the economy to foreign investment and privatising a very large proportion of the state-owned assets, including the national airline, the telephone and electricity companies, and even the state oil company (Brown, 2003; Edwards, 2008; MacLachlan, 2006). The reforms were considerably successful in the beginning. Inflation came down from over 3000 per cent in 1989 to 12 per cent in 1992;12 impressive amounts of foreign investment flowed in; the economy began to grow; and the government was even able to sustain its convertibility law, which brought the peso on a par with the US dollar, with the freedom to use either currency and conversion guaranteed by the state (Edwards, 2008). These neoliberal policies, nevertheless, also created some problems, the more significant of which were unemployment and labour unrest (Brown, 2003; Edwards, 2008). On the other hand, the convertibility law overvalued the peso and generated trade deficits (Edwards, 2008). The most serious problem that Argentina faced over this period was a very large foreign debt (Brown, 2003; MacLachlan, 2006), the implications of which were further

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exacerbated by the global financial crisis of 1997 and the Brazilian devaluation in 1999 that upset the Argentine balance of trade and deepened the recession that had already hit the economy in 1998 (Edwards, 2008). The years between 1999 and the election of Néstor Carlos Kirchner in 2003 saw further political and economic instability. Fernando de la Rúa, the candidate jointly nominated by the Radical Party and several smaller parties succeeded Menem. De la Rúa continued Menem’s neoliberal policies, but the recession and financial crisis continued to deepen and external debt continued to rise; and by the end of 2001, his political alliance had fallen apart and he had been forced to resign amidst violent protests against economic hardship (Edwards, 2008). Over the next 18 months, Argentina saw four successive presidents – the first three within a fortnight; in early 2002, the country defaulted on its sovereign debt of US$ 141 billion13 (MacLachlan, 2006); the peso–dollar convertibility had to be abandoned and the peso devalued; inflation also returned, though not to the earlier levels (Edwards, 2008). Néstor Kirchner, representing the Left wing of the Partido Justicialista, assumed the presidency towards the middle of 2003. By this time, devaluation of the peso had promoted exports and stabilised Argentina’s balance of trade (Edwards, 2008); the economy was growing again, and the rate of inflation was somewhat lower. Kirchner did not entirely dismantle the neoliberal policy structure (MacLachlan, 2006), but there was some visible return to Juan Perón’s policies. For instance, Kirchner concentrated on reducing unemployment and carved a greater role of the state in regulating markets and prices and in exercising control over foreign-owned utilities such as water and electricity. There was also a clear return to protectionism. On the completion of his term, Kirchner encouraged his wife, Cristina Fernández de Kirchner, to step forward. Elected president in 2007, and re-elected in 2011, Cristina broadly continued Néstor’s economic policies. Under the Kirchners, Argentina’s economy has achieved considerable stability: the average growth rate over the past decade has been over 7 per cent, inflation has averaged a little over 13 per cent, and the foreign exchange reserves and debt problems have been largely overcome. Returning to the central argument of this section, once again the most significant aspect of the post-1983 period of Argentine history is that, despite the economic and financial turmoil that the preceding narrative describes, there was no change so far as the reliance of the state on tax revenues is concerned. For instance, over the period 1983–1989, central government tax revenues (inclusive of social security contributions) ranged between 88 and about 92 per cent of total central government revenues, with an annual average of over 90 per cent;14 and in the post-1990 period, they have ranged between 89 and a little over 94 per cent, averaging at about 91 per cent annually.15 Against this background of Argentina’s historical dependence on tax revenues amidst political and economic chaos, the next section reviews the public provision of education and healthcare, as well as military spending, in Argentina since independence.

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2. Public spending on education, health and the military in Argentina The historical pattern of public spending on education, health and the military in Argentina exhibits two broad trends. The first is a general growth in government spending on education and health since independence; and the second is a tendency towards higher allocations for these sectors over periods of democracy, with these levels falling during periods of military rule. Spending on the military, on the other hand, largely follows the converse pattern, as could be predicted. Another noteworthy aspect is that while some important expansion in educational provision by the state had already taken place prior to the presidency of Perón, the most significant expansion in the provision of education and healthcare took place during his presidency, as we shall explain. Education Mostly owing to the efforts of the Catholic Church, but also because of some initiatives taken by town councils as well as by the private sector, a number of primary and a few secondary schools already existed in Argentina at independence (Leonard, 1989). Similarly, the only university that existed in the country at that time, the University of Córdoba, had been created by the Jesuits in 1622 (Edwards, 2008; Leonard, 1989). The first post-independence attempts to enhance public provision of education were made in Buenos Aires during the 1820s, and mainly comprised: some expansion in primary schools, including those for girls; the establishment of the University of Buenos Aires in 1821; and an agreement with the British in 1825 that permitted them to establish their own Anglican schools (Leonard, 1989). Provinces other than Buenos Aires also made some progress toward the provision of primary schooling, and by 1850 there were around 125 primary schools in the public sector (Leonard, 1989). The reunification of the country over 1860–1862 under the Constitution of 1853 and the ensuing period of liberal democracy – even if it was somewhat oligarchic in nature16 – gave further impetus to public provisioning of education. The constitution had made provincial governments responsible for education, but the central government played a much more significant role, both under its supervisory authority (Dupre, 2001) and upon request from provincial governments (Hall, 1939). A comprehensive national system for primary schooling, following the pattern of the system prevalent in the US, was introduced throughout the country by Domingo Faustino Sarmiento between the mid-1860s and the mid-1880s in his capacity first as the minister for public instruction, then as the president of the country and, finally, as the superintendent of the National Council of Education, established in 1881 to coordinate and supervise educational policies throughout the country (Hall, 1939; Leonard, 1989). By 1884, a system of compulsory primary education, with free provision in national schools, had been established throughout the country under a federal law (Leonard, 1989; Parrado, 1998). Remarkably, by the 1930s more than 92 per cent of the primary

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school students and about 60 per cent of secondary school students were enrolled in public schools (Leonard, 1989). Even though the national educational policy focused on the urban areas and there were also some regional disparities, Argentina was seen to have the best public schooling system in Latin America during that period (Dupre, 2001; Leonard, 1989). From a public spending point of view, even if expenditures on education during this period were lower than expenditures on administration or defence, they were substantial. Prior to the First World War, for instance, federal educational expenditures constituted between 10 and 20 per cent of total spending, while in the provinces they constituted up to 30 per cent of total spending17 (Véganzonès and Winograd, 1997). As a percentage of GDP, Argentine public spending on education grew from under 1 per cent at the turn of the twentieth century to about 2 per cent in the early 1940s (Véganzonès and Winograd, 1997). The second significant thrust in the expansion of educational provision came with Perón during the late 1940s and early 1950s. Inspired in many ways by his association with the labour movement, which he had helped strengthen by inducting labour leaders into the legislative and executive institutions of the country (D’Abate, 1983) and introducing an overall policy framework oriented towards the welfare of labour (Alexander, 1962; McGuire, 1997; Ranis, 1995; Rock, 1975; Segura-Ubiergo, 2007), Perón’s educational reforms were, as Leonard terms them, ‘efforts to reach the popular classes’ (1989: 106). As a result, vocational and technical education became one of the central themes under Perón’s Justicialismo, leading to the creation of vocational secondary schools throughout Argentina both to train students in professional trades and to develop technical skills amongst the already employed adults (Rein, 1998). The culmination of the drive to establish a system of technical education was the establishment of the National Worker’s University, with campuses all over the country (Leonard, 1989), which essentially meant that even blue-collar workers could acquire a tertiary education (Rein, 1998). In similar vein, the needs of the remote regions of the country were attended to, and construction of schools in the rural areas was given special attention (Dupre, 2001; Leonard, 1989). The number of compulsory school years in provincial primary schools was raised from four to seven so as to bring them on a par with the schools in Buenos Aires (Rein, 1998). The educational reforms were even more far-reaching in a broader context. An independent ministry was created for education; primary and secondary educational provision was rapidly expanded; new school buildings were constructed and existing ones were renovated, enlarged and refurbished; tuition fees for secondary and tertiary institutions were abolished; and, most importantly, there was an unprecedented increase in the funds allocated to education (Rein, 1998) and greater resources than ever before were funnelled to expand the reach of secondary and tertiary education, which hitherto had tended to have an elitist bias (Véganzonès and Winograd, 1997). Public financial subsidies were also continued for private schools, but they were required to conform to government regulations and guidelines in order to qualify (Naradowski and Andrada, 2001).

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Nevertheless, making educational facilities available is usually just part of the effort required; Perón’s government also tried to take care of the rest. Not only were needs-based scholarships and grants for books offered to students, but also additional schemes such as free lunch in schools and transportation were introduced to facilitate educational attainment for those who had remained deprived of it (Rein, 1998). Perón’s initiatives had a very deep impact indeed. As Rein notes, ‘[e]ducation became available to all, and the circle of children benefiting from the education system steadily expanded … [including those] from social sectors that had never before been served by the education system’ (1998: 35–37). But a combination of successive military dictatorships over the 1960s to the early 1980s saw reduced overall funding for education (Caistor, 1985; Dupre, 2001). Leonard, for example, notes that Onganía’s dictatorship during the 1960s ‘decimated public education in Argentina’ (1989: 298), with perhaps the universities being the most adversely affected sector (Corradi, 1985; Romero, 2002). Similarly, Caistor (1985) reports that government spending on education fell from 16.3 per cent of total government expenditures in 1975 to 10 per cent in 1976 (i.e. immediately following the military takeover), while over the same year military spending increased from 13.5 to 15.6 per cent of total government expenditures. The return to democracy in 1983 again saw some new initiatives to strengthen educational provision at all levels. Alfonsín’s government increased the funds allocated to education (Leonard, 1989), sought to improve the secondary schools run by the federal government (Braslavsky, 1998) and provided unrestricted access to, and increased funding for, universities (Dupre, 2001). University tuition fees that had been reintroduced by the preceding military regime were also withdrawn (Balán, 1998; Gertel, 1991). Nevertheless, owing to the economic and financial crises that Argentine governments confronted during this period, the education sector also continued to face funding bottlenecks (Dupre, 2001). Education received greater attention during Menem’s presidency. Although the reforms he introduced devolved even the secondary schools and nonuniversity tertiary institutions to the provinces, the federal government remained responsible for financial and technical support, training of teachers, and overall policy coordination and supervision of educational provision by the provinces (Dupre, 2001; Rhoten, 2000). A national curriculum was drafted; provisions were made for special and adult education; the years of compulsory schooling were enhanced from seven to ten;18 and private educational institutions were further induced to comply with public educational policies (Dupre, 2001). Of these reforms, the increase in the years of compulsory schooling was especially significant as it included three years of secondary schooling under basic and compulsory education and thereby made the state responsible for its universal provision (Parrado, 1998). Furthermore, to augment provincial resources, a federal educational pact committed significant federal funding for schools (Véganzonès and Winograd, 1997). Policy initiatives were also undertaken to bring the underprivileged societal groups and backward regions on a par with the

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more developed parts of the country: such initiatives have often taken the form of financial incentives for poor students to attend school (Dupre, 2001). Amongst the more recent developments in the Argentine public education provision is the expansion of compulsory education to include the entire duration of secondary schooling, bringing the number of compulsory years of education to 13. When judged from the standards of public educational provision in the more developed nations, Argentine education appears to be confronted with several weaknesses and public funding gaps (Dupre, 2001; Lo Vuolo, 1997). But even then, as sections 3 and 4 of this chapter illustrate, Argentina spends more on education, and has also produced much better educational outcomes, than most other Latin American countries. Health Although healthcare provision in colonial Argentina was left to the Church and charities even more than was the provision of education (Véganzonès and Winograd, 1997), there had been some important public sector initiatives. In Buenos Aires, for instance, the first city hospital, the Hospital de Hombres, was government funded; and its counterpart for females, the Hospital General de Mujeres, was largely sustained by public resources even though it had been established by a charity (Escudé, 1989). Following independence, there was a substantial increase in the number of public hospitals. Taking the example of Buenos Aires, 22 hospitals were being operated by the city or the federal government in 1909, with another ten being run by state-sponsored charities (Escudé, 1989). In the country as a whole, there may have been as many as 96 public or state-subsidised hospitals by the turn of the twentieth century, providing mostly free services; and even though there were interprovincial disparities in the quality of health services, the regional spread was also largely adequate (Véganzonès and Winograd, 1997). Some preventive initiatives, such as that of smallpox vaccination after its outbreak in 1891, were also taken (Escudé, 1989). However, despite this expansion in hospitals, public sector spending on health remained relatively low until the early twentieth century; it was also mostly restricted to the provision of tertiary healthcare (Véganzonès and Winograd, 1997). Over the 1930s, Argentine governments began to realise the need for a more encompassing public healthcare provision in the country. For instance, the medical profession was given formal recognition and regulation in 1935; a Child and Maternity Department was created in 1937; and the National Health Department was established in 1941 (Véganzonès and Winograd, 1997). The most significant public sector interventions in Argentine healthcare provision, however, came during the presidency of Perón; and as in the case of his education reforms, they were aligned with the labour movement. On the one hand, the regime restructured the health administration, upgraded the department of health to a ministry (Véganzonès and Winograd, 1997) and created an extensive network of hospitals and other health facilities throughout the country, which offered universally

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accessible and practically cost-free healthcare (Lloyd-Sherlock, 2005). Moreover, Perón’s government made medical education easily accessible, paid attention to the training of nurses and established a pharmaceutical and hospital-supplies industry in the public sector (Escudero, 1981). The extent of the expansion in public healthcare provision during the Peronist regime can be gauged by the fact that the number of public hospital beds rose from 15,425 in 1946 to 50,000 in 1955 (Escudero, 1981). On the other hand, Perón’s government also encouraged a comprehensive structure of social health insurance, which was organised in a manner that allowed labour unions to administer funds and to provide healthcare services (Escudero, 1981; MacLachlan, 2006). This system of social health insurance was already in existence by 1943 in sectors such as the railways, but it was the Peronist regime that included the right to health as one of the ten rights of the worker in the constitution (Alexander, 1962), actively promoted the expansion of social health insurance (Alexander, 1962; Bour et al., 1994) and also brought it under government control in the government-owned sectors (Alexander, 1962). This system of social health insurance was consolidated, institutionalised and made obligatory in 1970, with each of the Obras Sociales – that is, the sectoral, union-controlled, health insurance funds – being made responsible for the provision of healthcare to its respective labour group; healthcare services were provided either through medical institutions that were also managed by the respective labour union, or through other private, and sometimes public sector, providers (Belmartino, 2000; Bour et al., 1994; Savage et al., 2004). As for health policies during the tumultuous period in Argentina’s history between 1955 and 1983 (i.e. from the removal of Perón to the restoration of democracy), there was greater sensitivity to citizens’ healthcare needs and higher public spending during the democratic interludes as compared to the military regimes (Escudero, 1981). This was particularly true for the short Peronist rule during 1973–76, when the Integrated National Health Service was created, provincial programmes were developed to provide quality healthcare free of cost and medical education was again made easily accessible (Escudero, 1981). During the spells of military rule over this period, public healthcare was neglected, and public spending for its provision declined (Escudero, 1981). The result was that by the time the military relinquished power, the Argentine health sector needed some serious reform. In the post-1983 period, even though Alfonsín’s government faced serious economic problems that also entailed cost rationalisation strategies in the health sector, the orientation of reform was largely towards providing universal healthcare services through the public and social health insurance sectors (Belmartino, 2000). A significant restructuring of the public health sector was carried out during the 1990s under Menem. Beginning with attempts at centralising all social security contributions, including those for healthcare, in a single aggregated fund (Belmartino, 2000; Savage et al., 2004), the reforms that Menem introduced over the two terms of his presidency provided for the various Obras Sociales to compete amongst themselves as well as the private sector for members and funds; made the provision of a minimum standard coverage to members by the funds mandatory; improved the mechanism of redistribution of funds from the richer

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to poorer Obras Sociales (Barrientos and Lloyd-Sherlock, 2000; Belmartino, 2000; Cavagnero, 2008; Savage et al., 2004); obliged the Obras Sociales to pay for services provided to their members through the public hospitals; and committed the government to meet the difference between funds collected by Obras Sociales through member contributions and the actual costs of service provision (Belmartino, 2000; Savage et al., 2004). The reforms also devolved national hospitals and a number of health programmes to the provinces, with many of the hospitals subsequently being made administratively autonomous or passed on to municipalities (Belmartino, 2000; Mesa-Lago, 2008; Savage et al., 2004). Nevertheless, the federal government remained responsible for part of the financing arrangements for hospitals, which continue to provide free medical care to those who cannot otherwise afford it (Mesa-Lago, 2008). While it cannot be denied that many of these reforms reflect the neoliberal policy paradigm adopted over the 1980s and 1990s aimed at rationalising public spending and improving economic conditions in Argentina (Lloyd-Sherlock, 2005; Rubinstein et al., 2009), it is equally evident that the compulsion to improve public sector healthcare also played an important role. Again, as in the case of education, public healthcare provision in Argentina appears to have many weaknesses when assessed from the standards in advanced states, especially in the context of institutional design (Mesa-Lago, 2008) and the quality of services provided (Lloyd-Sherlock, 2005). Many of these problems may also be related to insufficient funding (Cavagnero, 2008). But, as in the case of education, Argentina spends more on healthcare provision and has also achieved better outcomes, as sections 3 and 4 show, than most other Latin American countries. Before moving on, however, since many of the significant interventions in the public provision of health and education were made by Perón and were apparently inspired by his association with the labour movement, it is important to pause here and note that the ideology that Perón espoused (and which has continued to thrive in Argentina along with the political party Perón founded, the Partido Justicialista) cannot be clearly identified with capitalism, nor with communism or even fascism. In fact, it has signified different, even conflicting, ideologies (Corradi, 1974). Segura-Ubiergo (2007) contextualises Peronism as a left-wing philosophy on the grounds that Perón’s agenda and policies were largely oriented towards social welfare, while Bergquist (1986) views it as nationalistic right-wing corporatism. Interestingly, the Partido Justicialista continues to have a right-wing faction, which has more recently been represented by Menem and his neoliberal economics. In fact, Peronism can even be seen as more of a third way (Brown, 2003). It is, therefore, difficult to attribute the expansion in educational provision during this period to any particular ideology. Even more importantly, we need to understand that the influence of the Argentine labour on education and health policies was not merely predicated on the strength of its unions, but it was also driven, as noted above, by its ability to seek accountability from governments as the most significant taxpaying group. This appears to be a basic reason why even those democratic governments that followed neoliberal economic agendas could not ignore public provisioning of health and education.

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Military expenditures Warfare in the Viceroyalty of the Río de la Plata did not end with independence. For many decades to come, Argentine provinces fought amongst themselves as well as against European powers (Brown, 2003; Edwards, 2008). Moreover, until the country was united and the frontier settled towards the last quarter of the nineteenth century, the country’s military commanders were very frequently also its political leaders (Brown, 2003; Edwards, 2008). It is, therefore, rather unsurprising that the military received very high priority in terms of public spending (Véganzonès and Winograd, 1997). Although social and development spending increased substantially with the beginning of the age of liberal democracy in 1880, military expenditures continued to be the largest proportion of public spending as the army remained a powerful influence on, if not a threat to, the civil governments for a very long time to come (Véganzonès and Winograd, 1997). The pattern of public spending, however, changed under Perón’s presidency. Even though military spending did not decline in absolute terms or as a percentage of GDP, government spending in the social and economic sectors expanded rapidly to make these sectors the highest recipients of public funding (Véganzonès and Winograd, 1997). Since the fall of Perón, military spending has generally been higher during the periods of direct army rule than in the democratic interregnums. For instance, excluding the years of transitions, the annual average spending on the military over the 1967–1969 junta regime was 2.05 per cent of GDP, but during the years 1974–1975 of the democratic interlude it dropped to 1.5 per cent;19 it rose again over 1977–1980 during military rule to 4.4 per cent of GDP, and then dropped to 2.2 per cent of GDP over 1984–1989, after the army relinquished power in 1983 (Tedesco, 1999).20 Another noteworthy aspect is that prior to 1983, since the military continued to dominate governments directly or indirectly, military spending would not decline in response to economic depressions and financial crises even remotely as much as would spending in the social and economic sectors (Véganzonès and Winograd, 1997). Since their decline after re-democratisation in 1983, military expenditures have, however, exhibited a sustained downward trend: the annual average of 2.2 per cent of GDP over 1984–1989, as noted above, dropped to 1.31 per cent of GDP over the 1990s, and then further to 0.98 per cent of GDP between 2000 and 2012.21 So far, the narrative of this chapter has outlined the developments in the political economy of the Argentine state, emphasising its predominant dependence on taxation to mobilise public resources. It has also described the nature of public provision for education and healthcare, and has shown how this provision was linked with the nature of the political regime in the country. An argument was also made that the influence of labour on spending policies was derived not merely from its social and political position, but also from its position as an organised group of taxpaying citizens. It could, of course, be contended that Argentine taxation policies were in themselves driven by the need of various governments (especially those that were

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187

democratically elected and accountable) to finance social programmes, including the provision of education and healthcare to citizens. And, indeed, this also appears to be true. After all, our study has found democracy to be a core determinant of public spending on human development. But this should not be seen to detract from the effects of tax-driven accountability on government education and health expenditures highlighted in the preceding narrative. As explicated in Chapter 3 in the context of the tax–spend and spend–tax hypotheses, works such as Cheng (1999) find contemporaneous bidirectional causality running from public spending to taxation, as implied by Barro (1974, 1979), and from taxation to public spending, as suggested by Friedman (1978). In fact, once taxes are levied (perhaps to finance public spending stimulated by democratic accountability to citizens) they can potentially generate a self-reinforcing mechanism of high levels of taxation and public spending directed towards citizens’ wellbeing. Huntington, for instance, refers to the accountability nexus between democratic representation and taxation when he argues that ‘[the] lower the level of taxation, the less reason for publics to demand representation. “No taxation without representation” was a political demand; “no representation without taxation” is a political reality’ (1991: 65). In the same vein, it also appears to be true that the higher the level of taxation, the greater the reason for taxpaying citizens to demand public spending in citizens’ interest. In this sense, taxation becomes an anchor for democracy and democratic accountability. Indeed, this contention finds support in Friedman’s (1978) argument that higher taxation can lead to even higher spending – notwithstanding that he made this argument to oppose wasteful government expenditures! However, like most other Latin American states, Argentina, as noted earlier, has also been financing public spending with the help of domestic and foreign loans (as distinct from foreign aid) as well as through seigniorage. The extent of borrowing and money creation has varied considerably over different periods and regimes, but both forms of deficit financing have figured prominently in the country’s public resource mobilisation policies (e.g. Alejandro, 1970; Edwards, 2008; Kiguel and Neumeyer, 1995; Rodríguez, 1994; Sturzenegger and Zettelmeyer, 2006; Tanzi, 1978; Véganzonès and Winograd, 1997). Perón’s repayment of the entire external debt in 1947 (Edwards, 2008) appears to be more in the nature of an exception. The adverse macroeconomic effects of extensive deficit financing through money creation and borrowing from foreign and domestic banking systems and financial markets are well documented (e.g. Easterly et al., 1994), but what concern us here are the likely effects of these forms of deficit financing on the accountability relationship between governments and citizens. The obvious question that, therefore, needs to be addressed is: does not such borrowing and money creation weaken the accountability relationship between governments and citizens created by the taxation of citizens? Such detraction may indeed appear to be the case, considering that when public spending is not financed through a direct and immediate flow of resources from citizens to the government, it creates a situation quite similar to the one that tends to be produced by rents from natural resources. The not so short-run implications, however, offer a

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very different insight. Sustained money creation results in inflation (Easterly and Schmidt-Hebbel, 1994; Shahin, 1992), which reduces citizens’ spending power so that they bear the costs of money creation in a manner akin to taxation. In fact, seigniorage is commonly referred to in the literature as an inflation tax,22 and it could possibly be the most regressive form of taxation (Martinez-Vazquez, 2008). Similarly, it is the citizens who must eventually yield resources through lower public spending or higher taxation required for the amortisation of domestic23 and foreign loans; and citizens, as Bailey explains, are not unwary of their future liabilities: [H]ouseholds may regard deficit financing as equivalent to taxation. The issue of a bond by the government to finance expenditures leads to future interest payments and possible ultimate repayment of principal. That is, it implies future taxes … If future tax liabilities implicit in deficit financing are accurately foreseen … the behavior of the community will be exactly the same as if the budget were continuously balanced. (Bailey, 1971: 156–158) Not just this, but often citizens also have to face stringent macroeconomic policies with painful social consequences when debts become unsustainable (Kaufman, 1988; Kuczynski, 1988; Mussa, 2002; Roddick, 1988). Consequently, even if the burden of borrowing resources may not be as direct, or as immediate, as in the case of current taxation, it is the citizens who must bear it; and the fact that they do, and are also well aware that they do, does provide them a strong justification to hold governments responsible for the utilisation of borrowed resources. As such, an accountability nexus created between citizens and governments through money creation or borrowing would tend more in the direction of the accountability relationship produced between them by taxation, rather than detracting from it, as in the case of revenue raising through rents from natural resources. Quite clearly, public spending policies in Argentina have been influenced by its dependence on taxes and the accountability linkages that it creates. But to what extent? And what about the effects of the other potential determinants of public spending? After all, one of them, democracy, clearly appears to have affected public expenditure patterns in Argentina! Thus, to understand the extent to which public spending on education, health and the military in Argentina may have been influenced by its dependence on taxes, the Argentine patterns need to be compared with states in Latin America that rely mostly on foreign aid or rents from natural resources, as well as with other states that rely on taxation. The next section offers such a comparison.

3. Argentine public spending on education, health and the military 1995–2006: a Latin American context Latin American states exhibit many variations in terms of economic and social development; they are also not all alike in the context of factors such as ethnic

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relations, left-wing movements and labour strength. But, as noted in the introduction to this chapter, they have much in common when it comes to the nature and legacies of their political regimes as well as the quality of their administrative and judicial institutions. This property of Latin American states allows for, as also noted at the beginning of this chapter, the attribution of any differences in their resource allocation patterns to the nature of their most significant resource: even if not under a watertight ceteris paribus condition, at least under a fairly plausible abstraction from other potential determinants of public spending. The simplest approach to deciphering the effects of the nature of resource dependence on public spending for human development would be to compare the Argentine spending patterns with other Latin American states grouped on the basis of their reliance on taxes, natural resources or foreign aid. Following this approach, in this section we compare the average annual public spending on education, health and the military in Argentina with the same expenditures in 13 other mainstream Latin American states – Bolivia, Brazil, Chile, Colombia, Costa Rica, Ecuador, Honduras, Mexico, Nicaragua, Paraguay, Peru, Uruguay and Venezuela – classified in accordance with the nature of their core resource. Since such a comparison can yield meaningful insights on the relationship between the mode of public resource generation and public spending only when at least the other two determinants of democratic accountability (i.e. regime type and institutional quality) can be abstracted from, we focus on the 15-year period 1999–2013, in which all these countries have been largely democratic,24 with broadly comparable institutional quality. Our selection of the 13 Latin American states is based primarily on the availability of data; however, we do not include island nations since they are not strictly comparable with mainstream Latin American states. We also do not include Cuba, as it is not a democracy; or Panama, since it depends mostly on the revenues generated directly or indirectly by the Panama Canal, which makes the country rather unique.25 The first requirement for the comparison is to classify states in accordance with their dependence on taxes, natural resources or foreign aid. Such a classification obviously cannot be straightforward since no state relies exclusively on any one of the three resources, and in effect this becomes a question of the dominant resource of each state. To work this out, we expanded further on the earlier approach we used in the classification of states in the cross-country regressions analysis for performance, and took into account the three resource types as follows: •

Taxation – The annual average percentage of the central government revenues from taxation and social security contributions in the 14 Latin American states we consider here, inclusive of Argentina, ranges between 59 and 91 per cent26 over the period 1999–2013. Since this share of tax revenues in total revenues varies continuously across states, we placed states lying in the upper half of this range (i.e. above the median value) in an upper tax group, and states lying in the lower half in a lower tax group.

190 •

•

Argentina Natural resources – To group states in a way similar to the one used for tax revenues, we employed a modified version of the measure used by Mayer (1999) to classify states as natural resource abundant and natural resource scarce. For each state in his sample, Mayer (1999) calculates the share of all primary commodity exports of a state in its GDP for the year 1970, and places states above the median of the values thus obtained in the natural resource abundant group, and those lying below the median value in the natural resource scarce group. We carried out a similar classification, but on the basis of average annual value of rents received from all forms of natural resources as a percentage of GDP for 1999–2013. The values obtained ranged, with continuous variation across states, from 0.4 per cent of GDP in Costa Rica to a little over 31 per cent in Venezuela.27 As in the case of tax revenues, we divided the states into two groups depending on whether they lay in the upper or lower half of this range. Foreign aid – Foreign aid as a percentage of GNI, averaged for the period 1999–2013, does not exhibit the same continuous variation across the Latin American states under consideration as do the values of the other two resource measures. Instead, it shows two extremes. For instance, in the case of Nicaragua, annual foreign aid averaged about 12.5 per cent of GNI; for Bolivia and Honduras, it was, respectively, 6.6 and 6.3 per cent of GNI on average; while in the case of the remaining countries it ranged between 0.02 and 0.6 per cent of GNI.28 Therefore, while it was reasonable to classify states in the upper and lower ranges of aid, it was not appropriate to obtain these groups on the basis of a median value. Therefore, following our earlier benchmark in the case of performance regressions, we placed states that on average received foreign aid of 5 per cent or above of their GNI over the period in the question in the upper foreign aid group, and those that received below 5 per cent in the lower foreign aid group.

Having thus classified all the states for the three resource categories, they needed to be divided into three distinct groups on the basis of their dominant resource. The three measures used (i.e. the share of tax revenue in total revenues, natural resource rents as a percentage of GDP and foreign aid as a percentage of GNI) are not mutually comparable and therefore the states in the uppermost group in each resource category could be viewed logically as the states relying most on that resource. Using this standard, the final classification would have been rather straightforward, but Bolivia, Chile, Honduras and Nicaragua lay in the upper ranges of more than one resource group. Consequently, we adopted the following stepwise procedure to classify states in accordance with their most important resource: 1 2

States in the upper range of the foreign aid group were placed in the Aiddependent category. States in the upper range of the natural resource-rich group (excluding those already consigned to the Aid-dependent category) were placed in the Natural resource-rich category.

Argentina 3

191

The remaining states were placed in the Tax-dependent category, which, in fact, turned out to double up as the category of states in the lower range of natural resource dependence.

This stepwise approach afforded a largely unambiguous classification of states. The only exception was Paraguay, which fell in the lower category of all three ranges. The reason for this is that even though Paraguay is scarce in natural resources, the government derives a large part of its revenues from the exportation of hydroelectricity, which reduces tax revenues as a percentage of total government revenues. However, since in their accountability implications revenues from hydroelectricity exports bear greater resemblance to rents from natural resources than to taxation, we placed Paraguay in the natural resource-rich category. Furthermore, it needs to be noted that each of the resource measures is relative, that is, it is affected not only by the size of revenues generated by each resource category, but also by the size of the revenues generated by the other resource categories, which in turn affects the classification of states. Mexico provides a good example: although it is a significant oil exporting state, the relative size of the revenues generated by taxation makes it a tax-dependent state. Table 9.1 presents the classification of states along with the average annual public spending by each state on education, health and the military over the period 1999–2013. As this table shows, Argentine governments spent on average a little more on education and health over this period, but a little less on the military, as a proportion of GDP as compared to the governments of other tax-dependent states in Latin America. Tax-dependent states spent an average of 4.18 per cent of GDP on education compared to Argentina’s 4.72 per cent. Average annual public spending on health in tax-dependent states stood at 4.03 per cent of GDP, while the Argentine average was 4.88 per cent. On the other hand, Argentina spent about 1 per cent of its GDP on the military, whereas the average for other tax-dependent states was 1.42 per cent. However, as the table further depicts, while Argentina’s public spending pattern is not too different from the average public spending pattern of Latin American tax-dependent states, it spent considerably more on education and health, but much less on the military, than did on average the natural resource-rich states in Latin America. An intergroup comparison further illustrates the point that taxation tends to affect the patterns of public spending on human development as well as the military. As Table 9.1 shows, natural resource-rich states spent less on human development as compared to tax-dependent states by 1.5 per cent of GDP, on average, but about 0.7 per cent of GDP more on the military. A comparison of the tax-dependent states with foreign aid-dependent states yields further insight into the resource-based accountability relationships. Interestingly, public spending patterns in states dependent on foreign aid are fairly similar to those in tax-dependent states. Foreign aid-dependent states spent from around 3 to over 6 per cent of GDP on education; from about 3.6 to 4.6 per cent of GDP on health; and, with the exception of Bolivia, under 1 per cent of GDP on the military. These ranges and the overall averages in each

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Argentina

Table 9.1 Public spending on education, health and the military in Argentina: a Latin American resource-centric context (1999–2013) States

Argentina

Foreign aid range

Lower

Natural resource range

Tax revenue range

Public spending as a percentage of GDP Annual averages (All government levels combined) Education

Health*

Military

Lower

Upper

4.72

4.88

0.99

Tax-dependent states Brazil

Lower

Lower

Upper

4.73

3.44

1.61

Costa Rica

Lower

Lower

Upper

5.17

6.05

n.a.

Mexico

Lower

Lower

Upper

4.99

2.68

0.48

Peru

Lower

Lower

Upper

2.88

2.79

1.41

Uruguay

Lower

Lower

Upper

3.12

5.20

2.16

4.18

4.03

1.42

Average (excluding Argentina) Natural resource-rich states Chile

Lower

Upper

Upper

3.72

3.09

2.40

Colombia

Lower

Upper

Lower

4.17

4.73

3.42

Ecuador

Lower

Upper

n.a.

2.76

2.25

2.31

Paraguay

Lower

Lower

Lower

3.82

3.04

1.16

Venezuela

Lower

Upper

Lower

3.65

2.34

1.38

3.62

3.09

2.13

Average Aid-dependent states Bolivia

Upper

Upper

Lower

6.26

3.55

1.87

Honduras

Upper

Lower

Upper

n.a.

3.91

0.88

Nicaragua

Upper

Lower

Upper

3.06

4.57

0.56

4.66

4.01

1.10

Average Sources: UIS; WDI; WHO data repository. * Includes compulsory health insurance funds.

area – that is, 4.66, 4.01 and 1.10 per cent of GDP respectively on education, health and the military – are closer to their counterpart ranges and averages in tax-dependent states than they are to those in natural resource-rich states. Again, this gives some credence to the contention made in this book that foreign aid can

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193

lead to increased spending on education and health. Nevertheless, comparatively high military spending by Bolivia, despite its being dependent on foreign aid and despite there being no justification for high military spending in terms of external conflict or its threat over the period in question, does underscore the possibility of aid resources being indirectly funnelled to military uses, as also suggested in a wider context in Chapter 5 on the basis of cross-country empirical analysis. The expenditure patterns presented in Table 9.1 also provide some insight into the influence of labour movements and left-wing ideologies on public spending for human development. For instance, even though the left-wing labour movement has historically been almost as strong in Venezuela as it has been in Argentina (Segura-Ubiergo, 2007), and even though Venezuela had a left-wing regime over the expenditure period in question, it spent much below Argentina on human development. Interestingly, Venezuela’s low tax dependence points towards the nexus between the taxes that labour pays and the ability of labour, as discussed earlier in the chapter, to hold governments more accountable for its own and the broader citizenry’s welfare. On the other hand, high taxation and high public spending in the majority of the European welfare states also appears to support this argument. Admittedly, high taxation levels are also the effect of high public spending that might have been spurred by the other factors that provide incentives for governments to commit more public resources to human development; but as noted earlier in this chapter, tax-generated accountability itself then becomes a factor that makes governments spend more on the welfare of citizens. And this is what the resource-classified pattern of public spending on education, health and the military in Latin American states tends to illustrate.

4. Education and health outcomes Table 9.2 compares education and health outcomes in Argentina with the average outcomes in other tax-dependent states, natural resource-rich states and foreign aid-dependent states. As noted earlier in the book in several places, while these outcomes are affected by numerous other factors, they broadly tend to reflect public sector effort and efficiency. As the indicator values in the table depict, while Argentina’s health outcomes are quite comparable with average outcomes in other tax-dependent states, its education outcomes are much better, which can be attributed to Argentina’s historical emphasis on education rather than to any differences in current performance. What is more interesting is a comparison between the groups of other tax-dependent states, natural resource-rich states and aid-dependent states. Comparing the first two groups shows that human development outcomes are generally better in tax-dependent states than in natural resource-rich states, apparently with two exceptions. First, tertiary enrolments are higher in natural resource-rich states, which, in fact, indicates an elitist bias. Second, school completion rates are higher in natural resource-rich states, but this difference is rendered much less significant by their lower primary and secondary enrolment rates. Net secondary enrolment rates may appear higher in natural resource-rich states, but these have to be considered in conjunction with

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Argentina

Table 9.2 Education and health outcomes in Argentina: a Latin American resourcecentric context (2009–2014) Indicator name

Argentina Average in tax-dependent states (excluding Argentina)

Average in natural resourcerich states

Average in aiddependent states

Literacy rate, adult female (%; ages 15 and above)

97.89

94.50

94.13

85.88

Literacy rate, adult male (%; ages 15 and above)

97.82

94.62

95.13

90.57

Literacy rate, adult total (%; ages 15 and above)

97.86

94.56

94.62

88.15

Literacy rate, youth female (%; ages 15–24)

99.40

98.69

98.79

98.01

Literacy rate, youth male (%; ages 15–24)

99.03

97.84

98.40

97.31

Literacy rate, youth total (%; ages 15–24)

99.22

98.26

98.59

97.65

School enrolment, primary, female (% net)

n.a

94.12

88.96

90.16

School enrolment, primary, male (% net)

n.a

93.88

89.38

89.37

School enrolment, primary (% net)

n.a

94.11

89.18

89.75

School enrolment, primary, female (% gross)

116.87

104.72

102.37

106.14

School enrolment, primary, male (% gross)

118.24

106.00

104.99

107.56

School enrolment, primary (% gross)

117.57

105.37

103.71

106.87

School enrolment, secondary, female (% net)

88.87

73.11

75.99

58.77

School enrolment, secondary, male (% net)

81.49

69.39

71.54

55.05

School enrolment, secondary (% net)

85.12

71.21

73.73

56.88

School enrolment, secondary, female (% gross)

96.63

93.56

87.12

76.69

School enrolment, secondary, male (% gross)

87.39

88.41

82.42

69.61

School enrolment, secondary (% gross)

91.94

90.93

84.73

73.09

School enrolment, tertiary, female (% gross)

96.18

51.15

64.93

29.01

Argentina Indicator name

Argentina Average in tax-dependent states (excluding Argentina)

Average in natural resourcerich states

Average in aiddependent states

School enrolment, tertiary, male (% gross)

61.57

39.21

50.30

29.08

School enrolment, tertiary (% gross)

78.63

45.05

57.46

29.04

Primary completion rate, female (% of relevant age group)

110.73

96.34

99.48

93.16

Primary completion rate, male (% of relevant age group)

107.99

95.29

98.64

88.76

Primary completion rate, total (% of relevant age group)

109.34

95.80

99.05

90.92

Lower secondary completion rate, female (% of relevant age group)

95.25

80.63

83.96

65.41

Lower secondary completion rate, male (% of relevant age group)

81.89

71.33

78.23

57.19

Lower secondary completion rate, total (% of relevant age group)

88.45

75.88

81.04

61.22

Life expectancy at birth, total (years)

76.01

76.38

75.24

71.63

7.50

7.24

9.54

14.10

Mortality rate, infant (per 1,000 live births)

12.70

11.14

14.92

24.27

Mortality rate, under-five (per 1,000 live births)

14.20

13.18

17.46

29.57

Births attended by skilled health staff (% of total)

97.14

95.70

93.68

75.90

Nurses and midwives (per 1,000 people)

n.a

3.59

0.91

1.01

Physicians (per 1,000 people)

3.21

1.99

1.39

0.47

Pregnant women receiving prenatal care (%)

n.a

95.23

96.65

90.87

Mortality rate, neonatal (per 1,000 live births)

195

Sources: UIS; WDI; WHO data repository.

gross secondary enrolment rates, which are lower than in tax-dependent states. Literacy rates, life expectancy and the percentage of pregnant women receiving prenatal care are virtually the same in the two groups. Outcomes in aid-dependent states, on the other hand, appear to be the lowest. The only exceptions are primary school enrolments and the availability of nurses and midwives, where this group seems to perform slightly better than the natural resource-rich states. Given that over the 15-year period 1999–2013 aid-dependent states have been spending on human development, as Table 9.1 shows, largely on a par with tax-dependent states,

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their lower indicator values at least as much reflect a performance gap as they might indicate a possible shortfall in historical public spending. The lower health and education outcomes in the Latin American aid-dependent states corroborate the findings of the regression analysis on performance presented in Chapter 6. Even though this regression analysis took into account only one indicator (i.e. life expectancy at birth), it had predicted, on the basis of statistical rigour and a large cross-country sample, what appears to be the case in many other education and health outcomes in Latin American states. This leads us to conclude that even if foreign aid generates higher public spending on human development, the accountability of governments to donor agencies associated with foreign aid tends to detract from the direct accountability of governments to citizens, which results in performance deficits.

5. Concluding comments Admittedly, the differences in the patterns of public spending on human development across Latin American states cannot be attributed entirely to the differences in the nature of their resources, since some of them could, of course, be linked to the variations in the quality of political regimes and administrative institutions in line with the argument of this book. But that such differences become pronounced when states are grouped according to their dominant mode of public resource mobilisation – with visible intra-group similarities and inter-group dissimilarities in patterns of spending – indicates that the manner in which states generate resources also affects, to a considerable extent, the uses to which they put the resources. That governments in states where citizens yield resources for public use tend to spend higher on human development, but less on the military, as compared to governments in states where citizens do not, signifies the presence of an accountability relationship running from governments to citizens based on this sacrifice of resources. Evidently, their sacrifice of resources tends to provide citizens with some prerogative to hold governments accountable for the use of those resources. Furthermore, that these patterns have emerged across Latin American states – where the many historical, social and cultural similarities, and the political and institutional commonalities, permit a plausible abstraction from several other potential influences on public spending – adds to the weight of the argument.

Notes 1 Source: WDI. 2 As the federating units are known in Argentina. 3 Practically, Argentina gained independence from Spain on 25 May 1810 when the Spanish viceroy surrendered to the Creole junta, but the formal declaration of independence was made on 9 July 1816. 4 The population in Argentina increased rapidly both because of natural progression and because of large-scale immigration from Europe induced by economic opportunities. 5 The silver mines of Potosí in Bolivia had also contributed to the development of colonial Argentina by generating economic activity along the transport and trading

Argentina

6 7 8 9 10 11 12 13 14 15 16 17 18

19 20 21 22 23 24 25 26 27 28

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routes from Potosí to Buenos Aires as well as the interior provinces, but by the time of independence, silver production at Potosí had collapsed (Brown, 1979; Corradi, 1985; Ferns, 1973). From both interprovincial and external customs; and inclusive of port dues and the impuesto nuevo (new duties) levied on imports during that period. The Dirección General del Impuesto a los Réditos (Sánchez Román, 2006). As Perón’s vice-president, she succeeded him. As mentioned elsewhere, Perón’s repayment of the entire external debt was an exception. Inflation figures sourced from WDI. Inflation figures sourced from WDI. Inflation figures sourced from WDI. This was the largest sovereign debt default in history, and the debt had to be restructured later. Source: IMF’s Historical GFS. Source: IMF’s GFS. Adult male universal suffrage was adopted in 1912. The proportion of expenditures on education was higher in the provinces since they did not spend on defence or foreign affairs (Véganzonès and Winograd, 1997). Argentina’s seven years of compulsory schooling seems to be low when compared with the standards prevalent during the 1990s in other nations at similar levels of development. The stagnancy since Perón’s reforms is easily explained by the intervening military rule. Source: SIPRI Yearbook, various issues. We have not included the years 1981 and 1982 in this comparison in order to exclude the effect of the Falklands War and its preparation on military spending. The last two figures have been sourced from the WDI. This usage may, however, be imprecise to the extent that the revenues generated by money creation also incorporate the real growth in the demand for money (Easterly and Schmidt-Hebbel, 1994). In the case of domestic borrowing, crowding-out of private investment is another problem. Besides, even though some lending groups might gain in terms of interest payments, the broader citizenry bears the burden. By 1999, Peru had been five years out of its brief reversal to autocracy. However, after 2009 Venezuela became autocratic, for which reason we have not included its expenditures from that year onwards. Huber and Stephens (2010), for instance, in their analysis of social spending in Latin America, also consider Panama a special case because of the Canal Zone. Data sourced from IMF’s GFS. Data sourced from the WDI. Data sourced from the WDI.

10 Conclusion Ending a story to begin another

We are now in a position to bring together the main threads of argument and analysis presented in the book and build upon these findings to strengthen the accountability thesis. Section 1 of this chapter summarises the arguments and findings presented in the book, and section 2 explains why we need to revisit our approach to human development and to reformulate it in terms of strengthening the structures of democratic accountability, so as to make public actors more accountable to citizens; it also identifies some avenues through which this can be achieved.

1. The end of a story We began this book by elaborating the centrality of the human development approach in Chapter 1 and asked why some states chose to allocate more public resources for the provision of education and healthcare to their citizens while others preferred to strengthen their militaries. We questioned whether this was the outcome of governments in some states being confronted by stronger structures of democratic accountability than those in other states. In our search for answers, we visited the existing scholarly literature in Chapter 2 and found that much of the research concentrated on economic, ideological, social and demographic influences on public spending. The studies that did consider democratic accountability took only a partial view of it, both in theorising and in empirical modelling, and mostly with a limited focus on political democracy. Against this background, we presented our own argument in Chapter 3. Conceptualising government decision-making on public spending as being determined by the accountability framework that public actors confronted, we argued that strong accountability mechanisms are structured by an intersection of political democracy, high-quality administrative and judicial institutions, and taxation of citizens. We further argued that these accountability mechanisms make public actors more answerable to citizens and thereby create incentives for high levels of public spending on education and health, but for low spending on the military. And by thus arguing, we expanded the notion of democratic accountability – frequently conceived as the traditional accountability of governments to voters during elections – into a much broader framework of accountability in which

Conclusion 199 institutions and resources play a critical role in creating a chain of accountability between public actors and citizens. To demonstrate the force of this argument, we employed a combination of regression analysis and case studies. Controlling for the many influences on public spending identified by earlier research, we fitted several regression models based on the methods and data described in Chapter 4, and presented our results and analysis in Chapter 5, illustrating how democratic accountability certainly influences public spending on health, education and the military. Along with the relationship between democratic accountability and public spending for human development, we also studied, as a corollary interest, the relationship between democratic accountability and human development outcomes. Empirical insight afforded by our model was presented in Chapter 6. Since empirical analyses always have certain inherent limitations and can at times create statistical illusions, we also studied the relationship between the three dimensions of democratic accountability and public spending for human development through historical comparative case studies. The study of Pakistan and India in Chapter 7 explored the implications of democracy for public spending on health, education and the military. The study of Botswana, presented in Chapter 8, examined how high-quality institutions affected the level of public spending on human development. And the study of Argentina in Chapter 9 unbundled the effects of a reliance on taxation, rather than natural resources or foreign aid. These case studies also highlighted the impact of the three dimensions of democratic accountability on human development outcomes. The findings yielded by the empirical analysis and the insights offered by the three case studies provided persuasive evidence in support of our arguments. Briefly: •

•

•

Findings from the regression analysis in Chapter 5 indicated that, ceteris paribus, the more democratic a state is, the higher the level of public resources it will allocate for education and health, but the lower for the military. The comparative case study of Pakistan and India further substantiated the findings of the regression analysis, explaining how autocratic regimes tend to make public actors more responsive to the narrow vested interests of powerful elites and to insulate them from the broader interests of the citizenry. The regression analysis in Chapter 5 further suggested that, ceteris paribus, the better the quality of the administrative and judicial institutions of a state, the higher the level of public resources it will spend on the provision of education and healthcare. The case study of Botswana reinforced these findings in a sub-Saharan context, and further illustrated that the positive effect of high-quality institutions on public spending for education and health tends to operate not just in democratic polities, but also in some authoritarian settings. While the regression results suggested that higher taxation reduces military spending, the more detailed historical analysis in the case study of Argentina also revealed strong evidence in support of the role of taxation in creating

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•

•

Conclusion incentives for governments to spend more on the provision of both education and healthcare. Empirical evidence relating to the effects of foreign aid on public spending suggested that even though higher levels of foreign aid lead to higher government spending on health and education, the possibility of aid being indirectly funnelled toward the military cannot be ruled out. The Argentine case study also offered corroborative evidence for these findings in the broader Latin American context. With regard to the effects of democratic accountability on human development outcomes, the regression analysis in Chapter 6 produced plausible evidence in support of the positive impact of democratic accountability and, in particular, high-quality institutions on human development outcomes. The empirical evidence on the positive relationship between taxation and outcomes, though tangible, was not as strong. Dependence on foreign aid, however, appeared to have a negative relationship with outcomes. The evidence yielded by the three case studies further strengthened the inferences drawn from the quantitative evidence.

Put together, this evidence answers the central as well as the subsidiary question of the book. Why some states spend more public resources than others on the provision of education and healthcare, but less on their militaries, is because they are more democratic; because they have stronger administrative and judicial institutions; or because they rely on taxation rather than rents generated by natural resources. This is not to say that democratic states will always spend more public resources on education and health, or less on the military, as compared with autocratic states; or that states with strong administrative and judicial institutions will invariably do so more than states with weak institutions; or that the same would hold true without exception when we compare states with high taxation levels with those that rely on natural resources or on foreign aid. There are, and will continue to be, some exceptions. With this simple caveat in mind, it is nevertheless appropriate to think of high public spending on education and health, but lower on the military, in democratic states, states with strong institutions, and states predominantly reliant on taxation, in terms of the family resemblances metaphor used by Considine (2005) and Bevir and Rhodes (2006b: 59). That is to say that these spending propensities can be viewed as a set of strong collective characteristics that these states share, but not all of which will always emerge at all times in all states. On the other hand, regarding the subsidiary question of the book, the findings again suggest that the reason some states have better human development outcomes than others is because they are democratic, have highquality administrative and judicial institutions, or rely on tax revenues. Better human development outcomes in such states can be attributed to their higher spending on education and health but, as the regression analysis of Chapter 6 has shown, accountability structures also affect outcomes even when spending is controlled for.

Conclusion 201

2. And the beginnings of another Clearly, the evidence presented in this book has crucial lessons for institutional design, public policy and our approach to human development. These lessons touch – particularly in the context of the developing world – citizens and governments, and their international development partners, all alike. Lindert very rightly posits that ‘advice to today’s transition economies and developing countries needs to place at least as much emphasis on policies toward education and health as on the protection of nonhuman property’ (2003: 323). Our findings, however, suggest that exogenous attempts at persuading governments in the less developed world to increase public funding for education and health might yield only some very limited short-term results, and that enduring public policies for human development – in consonance with the argument of scholars such as North (1990, 2001, 2005), Pierson (1996, 2004) and Pollitt (2008) in the broader context – will require political regimes and state institutions that create powerful incentives for governments to adopt and maintain these policies. More specifically, this means that sustained human development will be possible only if public actors operate under incentive structures that keep their objectives well aligned with citizens’ best interests. From this it follows that for human development to continue over the long haul, structures of democratic accountability will have to be strengthened; citizens will have to be given their democratic right of sovereignty in the polity; the quality, impartiality, ethos and accountability of bureaucratic and judicial institutions will have to be improved; and the stakes of citizens as taxpayers in public policies will have to be increased. These are, in fact, merely the beginnings of the story that appears to be emerging from the findings of the story that we have just concluded. In the remainder of this chapter we visit only the peripheries of these new beginnings in the hope that future research will build upon them to better understand how we might strengthen democracy across the world, develop our administrative and judicial institutions, and reform our public resource mobilisation mechanisms, so as to strengthen the framework of democratic accountability, and thereby make public actors more accountable to citizens and responsive to their wellbeing. The structures and spirit of democracy While representative institutions sustained by regular elections based on universal adult suffrage are absolutely necessary for democracy, it is clear that democracy itself can never be guaranteed merely by their existence. In addition to an enforceable framework of democratic rights and obligations, for a polity to qualify as a democracy it must also have a democratic spirit, a democratic culture and a democratic ethos. India, the world’s largest democracy, serves as a poignant example. In the words of Bueno de Mesquita and Root: Why has India’s democracy not engendered accountable political organizations or the capacity for effective policy making? The primacy of

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Conclusion patronage politics in India has led to elections that are personality driven … Personalization of authority eventually ends in venality and the misuse of authority, illegitimacy, corruption, deinstitutionalization, and ungovernability. (2000: 9–10)

The observations of Drèze and Sen (2013) on Indian democracy are not much different. Similarly, in Pakistan, representative institutions – when they exist – have never been democratic in essence. When a country is plagued by political opportunism and myopia created by a democracy that is merely an occasional episode in the general drama of military despotism;1 when a society is afflicted by complex sociocultural stratification, illiteracy, ignorance and myth, and enfeebled by ethnic divisions, sectarian strife and, more recently, militarised religious extremists; when millions are impoverished, but when a few are also opulent; and when the relics of feudalism make control over land the fountainhead of political power, constitutional provisions can certainly vouchsafe to citizens the right to elect legislatures and executives but, to the vast majority of them, not much else. It is not surprising, therefore, that elections in Pakistan seldom mean representation, representation almost never translates into participation and participation hardly ever eventuates in institutional responsiveness. Democratic accountability thus remains an unfamiliar echo in the land, and public policies only further entrench existing privileges. The question that arises, then, is how to develop democracy. Evidently, there cannot be any clear answers. But there can be insights, which, if prudently implemented, may help in attaining the accepted standards of democracy, in infusing its spirit and in diffusing its norms. The four principles for consensual political order presented by North et al. (2000) have much to offer in delineating the road to be taken. The first principle envisions a degree of consensus amongst citizens on the desirability of their political institutions that makes them willing not only to accept the decisions emanating from these institutions, but also to defend them against possible exploitation by public actors. The second principle requires the empowerment of citizens and the reduction of the private interests of public actors in decision-making to a level that leaves public actors willing to relinquish power when they are voted out by citizens. The third principle is the clear definition and demarcation of the rights of individuals to valuable tangible and intangible assets. And the fourth principle imposes on the state the condition to make a credible commitment on the protection of citizens’ rights. The formal institutional design needed to implement these principles will vary from one state to another, but as long as their objectives are not compromised, the four principles can prove very valuable in democratising the relationships between citizens and their governments. While pondering institutional design, however, one caveat must be kept in mind. Even though many Western liberal democracies have already implemented these four principles quite successfully and it would be useful to learn from them, learning from other countries, as many scholars of comparative public

Conclusion 203 policy caution (e.g. Feick, 1992; Harrop, 1992; Rose, 1993), should not mean grafting foreign experiences blindly onto indigenous state and societal traditions. This is one reason why the democratic spirit continues to elude many a nation despite elected legislatures and executives. In some cases successful institutional design will require a reformulation of what others have learnt so as to make it compatible with local traditions without compromising the basic postulates of democracy. In others, underlying local traditions will also have to be rethought and reshaped, especially if they possess authoritarian characteristics. After all, it is all too easy for democratic political structures to disintegrate if they rest precariously on tribal or feudalistic socioeconomic foundations, as they do in many a developing state. Developing a consensus on what would constitute an acceptable democratic political structure for any state and the extent to which any continuing authoritarian traditions need to be moulded to make such a democratic structure sustainable will always be a complicated, even somewhat elusive, task. But even so, the insights offered by scholarly works such as Diamond (1999, 2008), Diamond and Morlino (2005b) and Diamond et al. (1997) provide a clear understanding of the fundamental tenets of democracy and how they must be operationalised and consolidated amongst the newly democratising nations. Most central in their conceptualisation of democracy is the notion that the mere presence of democratic institutions cannot suffice even for a minimalist interpretation: elections are not enough in themselves, they must also be free and fair; the right to vote is inadequate unless political participation is also widespread; availability of information falls below the acceptable standard until it can be obtained from more than one source; and simple multiparty competition does not fulfil the democratic requirement if it is not real and effective. Thus, it becomes all the more important to buttress formal democratic structures with a strong civil society and an effective framework of fundamental rights and freedoms as well as with informal democratic institutions, such as an independent media, that facilitate openness, transparency and accountability in the conduct of public affairs. Non-governmental organisations and other civil society agencies that are internally democratic also have a significant role to play in empowering citizens; the formation of such bodies will therefore also need to be encouraged. In tenuous democracies, developing strong democratic controls capable of reigning in marauding militaries will be no less critical (Stepan, 1988). Admittedly, sometimes militaries have stepped in to remove corrupt and inefficient democratic governments, stabilise economic crises, or even counter real or perceived threats of foreign instigated takeovers (Diamond et al., 1990a); but experience has shown that even in these seemingly mitigating circumstances, military authoritarianism has been counterproductive. For one, military regimes have had a tendency to become more corrupt, and even more inefficient, than the regimes they replaced. Second, every new coup d’état made militaries increasingly intolerant of democratic governments and less inhibited in pushing them out (Diamond et al., 1990b). Third, state institutions such as bureaucracies and the courts became more aligned with the requirements of military rule (Stepan,

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1988). And, most importantly, a culture of unaccountability percolated into the psyche of public actors. Scholars such as Hatchard et al. (2004) propose an array of institutional and legal measures to subordinate militaries to civilian governments, including constitutional provisions that render any military takeover ab initio illegal and its perpetrators punishable. But a primeval problem remains: the sanctity of the word of law and the legitimacy of state institutions are no competition for the force that flows down the barrel of a gun unless they too can be protected by force. And this force can be none other than a democratically alive and empowered citizenry, for it is only such a citizenry that can serve as a credible check on both usurping militaries and crumbling courts that legitimise their usurpation. For instance, even though Pakistan’s Constitution of 1973 makes any abrogation or subversion of the constitution an act of high treason, punishable by death, it was unable to prevent military takeovers in 1977 and 1999; nor could it enable succeeding civilian governments to hold the offending generals accountable for high treason. The trial of General Pervez Musharraf (the outcome of which was still awaited when this book was sent to press in November 2014) is indeed a tentative exception, a critical branching-off point, upon which the future of democracy in Pakistan hangs in delicate balance. A very important aspect that needs to be considered with respect to the development and consolidation of democracy, and one that we had reserved for the end of this subsection, is that in none of the three waves of democratisation identified by Huntington (1991) – that is, 1828–1926, 1943–1962 and post–1974 – has democratic expansion been without significant subsequent reversals. Huntington (1991) drew attention to the many setbacks to democratic rule that followed the first two waves of democratisation, and Diamond (1999) very pertinently asked whether the aftermath of the third wave was going to be any different. Ironically, Pakistan’s powerful military took over the country in October 1999, not leaving Diamond (1999) wondering for long. Mauritania, Honduras, Niger and, more recently, Egypt and Thailand have also shown how fragile democracy could prove – particularly in underdeveloped states – in the face of powerful militaries and the elites who thrive on authoritarian structures. Indeed, Diamond has been wise to caution that: There is nothing inevitable about the triumph and persistence of democracy in the world. No hidden hand will deliver it. And there is much to suggest that, without constant effort, innovation, and rejuvenation, democracy may deteriorate in the core of the world system … Much will depend on what the established, wealthy democracies do, not only to promote democracy abroad but also to offer through their own institutional functioning an appealing and viable example of democracy that works. (1999: 22–23) Indeed, in this, the established and wealthy democracies of the world have a long way to travel. The historical support given to authoritarian regimes by the US all over Africa, Latin America and the Middle East is, at best,

Conclusion 205 lamentable; the bolstering of Musharraf’s dictatorship in Pakistan by the US and almost every developed state in Europe was much worse; and the protection that the developed, democratic world continues to give even today to some authoritarian regimes, particularly in the Arabian Peninsula, is barely a shade more justifiable. The question, of course, is not merely one of democratising authoritarian regimes or those that lie on the borderline; it is also one of developing democracy in Diamond et al.’s (1990b) pseudodemocracies, referred to earlier in the book. Even the panacea to terrorism appears to lie in establishing democratic rights that lead to an expansion in human wellbeing, capabilities and choice – not in strengthening dictators, who in the long run can only force more individuals into intractable militancy. After all, there is no clear evidence that might suggest that the strength of the Taliban, or the threat that they pose, has in any way diminished even after being pitched against the world’s most powerful and highly resourced armies for more than a decade. And in this there are many lessons, the foremost perhaps being that the developed world has much to rethink on the priority that it gives to democratising authoritarian regimes. Strengthening administrative institutions In one way or another, public sector bureaucratic organisations are under constant pressure for improvement, but institutional reform has been remarkable since the early 1980s, especially in the developed OECD countries, where the change has tended from traditional hierarchies to market-oriented NPM models, and more recently to governance through networks. On the advice of international development and financial agencies, many of these changes have also been introduced in the developing world. Whereas the changes appear to have generally improved public sector cost-efficiency in the developed countries, their effect on the quality of the bureaucracy, its responsiveness to citizens, or its ability to protect the public interest, is ambiguous at best, particularly in the developing states. Again, an important reason appears to be thoughtless transplantation of policies and structures that were perhaps successful elsewhere, but that were unsuited to local realities; and again, as in the case of political institutions, it shows that even if learning from successful international experience might help, local peculiarities of the underdeveloped states must never be discounted (Parnini, 2009; Rodrik, 2007, 2008). Pakistan’s experience with decentralisation reforms in 2001 under Musharraf’s military government serves as a good case in point. When the British introduced a formal administrative system in India, they did not impose a British graft, ‘but rather developed a model which owed something to an already existing Indian pattern dominated by the old Moghul Empires … After all, that crucial figure … the District Commissioner, ha[d] no counterpart in the history of Britain itself’ (Wallis, 1989: 5–6). When Pakistan inherited this administrative system at Partition in 1947, it was by any standard of efficiency or integrity second to none; but, as explained in Pakistan’s case study, it deteriorated very rapidly.

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Realising the need for reform, the World Bank proposed a new decentralised structure, taking care to advise that ‘[i]nternational experience is not always easy to interpret or generalize. Nor should lessons be applied without reference to Pakistan’s own institutional circumstances and political fabric’ (1998: iii). It further cautioned that: These suggestions, and the details presented … are not the result of exhaustive review and analysis, but are meant to provide food for thought as the federal and provincial authorities consider how best to operationalize their commitment to establishing local governments. (1998: 54) And also that in view of the many risks associated, it might be appropriate to first ‘consider piloting devolution in a limited number of localities’ (1998: 54). Unfortunately, however, the military government, in its dire need for legitimacy and ‘to create a pliant political elite that could help root the military’s power in local politics and displace its traditional civilian adversaries’ (International Crisis Group [ICG], 2004: i), implemented the draft proposals without much thought. As could have been be expected, there was immediate elite-capture of power and authority when centrally appointed civil servants were replaced by elected representatives – the vast majority of whom belonged to the feudal aristocracy. Besides, social fragmentation increased, corruption became worse, and overall accountability deteriorated, which made the change a regression rather than a reform (ICG, 2004). Consequently, many of the changes that the new local government system had introduced had to be abandoned in 2008. But this has not helped either because of the many grey areas of jurisdiction and authority, responsibility gaps and accountability vacuums that have been created in the process. Yet Pakistan’s reforms are not an exception in being problem-ridden. In Africa, for instance, where local government reforms have been an ongoing process since the mid-1970s under the influence of the World Bank and other international development agencies, the issues of elite capture, institutional responsiveness tilted heavily in favour of privileged groups, ineffective accountability and general maladministration remain serious (Crook, 2003; Olowu, 2003). On the other hand, however, the administrative and local government reforms introduced in Latin America over the 1980s and 1990s, though not without their share of failings, appear to have had much better outcomes (e.g. Campbell, 2003; Grindle, 2000; Morris and Lowder, 1992). An obvious reason seems to be that the structures of devolved governance promoted by the international development agencies were in greater harmony with the underlying social, cultural and political traditions of Latin America and its European legacies than they were with the African tribal heritage. However, without disputing the importance of decentralisation for good governance, the lessons offered by the experience with decentralisation in Pakistan and elsewhere must also be learnt. Basic amongst these would be recognition of the need to structure public sector reform on a sincere premise to empower citizens

Conclusion 207 and make public actors accountable to them. In Pakistan’s case, for instance, since the objective was largely mala fide, even though President Musharraf promised to ‘“empower the impoverished”’, the reforms only ‘strengthened military rule’ and ‘drained power away from the provinces while doing little to minimise corruption or establish clear accountability at a local level’ (ICG, 2004: i). A second lesson is that a detailed process of consultation with stakeholders – most importantly, citizen groups and civil society organisations – must precede and inform any reforms contemplated; and also that measures to build local level capacity and mechanisms to protect against elite capture must also be carefully planned and incorporated into institutional design. The third, and perhaps most important, lesson that Pakistan’s decentralisation experience offers is that new administrative structures, as already noted, need to be carefully aligned with indigenous social, political and economic realities. Interestingly, Rodrik (2008) extends this requirement even further to argue that since there is usually more than one path to achieve the same objective, developing states should not attempt to emulate the institutional designs of the developed world, but should rather focus on structuring appropriate institutions, even if this means second-best institutions from a best-practices standard. Adopting such an approach can, in fact, be very advantageous: not only for the reason that it can create broader institutional congruities, but also because it can help in alleviating a lack of local ownership for reforms that tends to arise, for instance, when reforms displace indigenous structures and practices (Ouedraogo, 2003) or when they are perceived as development aggression led by donors (Parnini, 2009). Rodrik’s (2008) advice is based not just on an acknowledgement that developing states confront greater problems and capacity limitations, but also on an apprehension that thoughtless emulation can create blind spots or even backfire. The failure of reforms in Pakistan – where not only the new structures of local government but even the nomenclatures of the new functionaries were simply imported and imposed – serves as a practical manifestation of this phenomenon. But again, accepting institutional design to be seldom completely fungible should not mean that we also deny that there are always some core principles, some central conventions and some high ideals that lie at the foundations of administrative structures and that have at least some basic level of relevance and applicability across all regions and nations. Indeed, it is as important to incorporate these fundamental tenets in institutional design as it is not to disregard indigenous peculiarities. The more significant of these tenets are explicated below; many of these are particularly important for the developing world where the chain of democratic accountability running from the political elite to citizens tends to be weak. The politics–administration dichotomy Even though the politics–administration dichotomy is invoked mostly to protect policymaking from bureaucratic incursions, it is grounded as much in the need to shield policy implementation from political interference as in the principle of

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excluding the bureaucracy from the domain of politics. Not only is this understanding of the dichotomy in conformity with the Wilsonian conceptualisation, but it has been even more emphatically resurrected in Osborne and Gaebler’s (1992) insistence on separating steering from rowing and in NPM’s dictum to let managers manage. Restricting political interference in service delivery assumes much greater importance in the less developed countries. Public services, including health and education, hold critical value for the poor, while political interference – usually driven by clientelism in these countries – tends to divert public provision towards the more affluent and politically influential groups, which not only nullifies the rationale of public sector provision, but also entrenches private advantage at public cost. Thus, in any reform of developing world bureaucracies and governance structures aimed at strengthening accountability to the citizenry and protection of the public interest, preservation of the administrative autonomy of individual civil servants will remain of critical value. Bureaucratic neutrality Partly rooted in the politics–administration dichotomy, and yet distinct from it, is the ethos of bureaucratic neutrality. This is a concept of neutral competence or professionalism, which, as Asmerom and Reis explain, ‘does not mean that toplevel civil servants cannot or should not be involved in the articulation of public policy’ (1996: 8). Rather, as these scholars further suggest: [S]enior officials are professionally and morally obliged to provide their political leaders with the best policy alternatives based on sound arguments, relevant precedents, and suitability to the changing environment. The expectation that they will render these services from a non-partisan position is the crux of the matter. (1996: 8–9) In the same vein, bureaucratic neutrality also requires that public servants remain equally impartial and non-partisan when implementing public policies (Caiden, 1996). It would, of course, be erroneous to expect civil servants to be sterile in terms of personal beliefs, political inclinations or other ideological proclivities that individuals can be expected to have. But neutrality does require their professional conduct to conform to expected standards of impartiality and detachment. Such a concept of neutrality should not be confused with democratic unaccountability to the political representatives of citizens. Far from it, it means that it is civil servants’ institutionally embedded knowledge, insight and experience, as well as an unbiased concern for the public interest – not any personal or political consideration – that should inform the policy advice that they offer to political representatives and guide their implementation of public policies. In fact, it may not be incorrect to visualise bureaucratic neutrality as a concept akin to Rawls’s (1971) veil of ignorance. Admittedly, the NPM paradigm, which appears

Conclusion 209 to encourage the political alignment of the senior echelons of bureaucracy with the political party in power, has confused the virtues of neutrality. But in a paradigmatic sense this political alignment is envisaged more along an ideological, rather than a partisan, plane; and even in this dimension, any political bias in civil servants’ conduct that might affect their professional judgement remains clearly unacceptable. Professional neutrality is even more important for the bureaucracies of the less developed world, where the politicisation of civil servants is mostly driven by patronage politics and clientelism, that is, civil servants become attached to political parties – even when they have no ideological affiliation with them – merely for personal benefits. Such political loyalties very often lead them to disregard the public interest, or even violate rules and law, in favour of the interests of the ruling party or of individual politicians in power. Their selfaggrandising or rent-seeking interests notwithstanding, bureaucrats tend to forge these political alliances mostly when they are defenceless against the whims of undemocratic politicians, who may sometimes be elected and at other times virtually nominated on cabinets and legislatures by authoritarian regimes. In such settings, the authority of ‘over-powerful political executives’ clearly needs to be ‘balanced by a well-established civil or public service which has sufficient autonomy and strength to prevent politicians from breaking the law or financial regulations’ (Crook and Manor, 1998: 298), since, as noted earlier, bureaucracies can be more representative and democratic in opposing political demands that are inconsistent with the public interest (Wood and Waterman, 1994). In fact, any public service reform in the developing world envisaging good governance must ensure that bureaucracies remain democratically accountable without getting politicised or losing their neutral professionalism (Smith, 2007; World Bank, 2000). The ethos of public service Institutional design based on the principles of the politics–administration dichotomy and bureaucratic neutrality subsumes the existence of a high-quality bureaucracy inspired by the time-honoured norms and values of public service, such as: an unwavering allegiance to the profession and dedication to duty; an impartial application of rules and law; a concern for fairness and equity; a commitment to the protection of the public interest and promotion of the commonweal; high standards of personal integrity and probity; and a sense of being accountable for the preservation of professional ethics. While the bureaucracy of one developed state may be nearer to these ideals than that of another developed state, the bureaucracies of the developing world are generally far removed from them. In many less developed states, bureaucracies tend to be corrupt, inefficient and motivated more by self-preservation than any consideration of the public interest. In these settings, structuring administrative institutions that afford bureaucratic autonomy and neutrality requires, in the first instance, the development of efficient and accountable professional bureaucracies capable of

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sustaining these principles. Indeed, without bureaucracies inspired by a strong public service ethos, bureaucratic institutions in the less developed world would not have the potential to promote the commonweal in the policymaking process. Nor would they be able to utilise their authority in citizens’ best interests at the implementation level by conforming to the wishes of political representatives where they are democratically accountable to citizens, or by protecting the public interest where the links in the chain of democratic accountability are weak. As Peters posits: [H]elping to manage the creation of democratic systems of government will require a more rather than less effective system of public administration. In particular it will require an administrative system that comes as close to some of the traditional ideals of probity and equality as possible. (2001: 164) An interesting question, however, is how far would it be possible to infuse the public service ethos into bureaucracies. Woodhouse (1997), for instance, views this ethos as something more in the nature of a genetic code that is passed on from one generation of civil servants to the next, and which cannot be converted into rules that can be memorised. Again, there cannot be any single answer. But where the wisdom of Woodhouse’s (1997) construction, as well as the inherent responsibility of one generation of civil servants to the next that this construction implies, cannot be disputed. It also cannot be denied that a framework of rules and accountability that implements the intent of the public service ethos will contribute significantly in keeping in check any negative genetic mutations in civil servants’ ethics. Strengthening administrative accountability under markets and networks As discussed in Chapter 3, even though the central structures of political, legal and administrative accountability of the bureaucracy remain intact, they have been conflicted in many ways by the adoption of NPM practices and more recently by the introduction of governance networks. Even though the change is much more pronounced in developed countries, the developing world is rapidly catching up under the pressure for reform. In the new public sector paradigm, as Considine notes, ‘[t]he public official is expected both to honour his or her official mandate and to move freely outside the hierarchical constraints of government in search of collaborative and quasimarket relationships with contractors, competitors, and coproducers’ (2005: 213). This, in turn, has meant that it may no longer be possible to define accountability merely as ‘the following of rules or as honest communication with one’s superiors. Doing these things might be part of an accountability process, but they are not on their own sufficient conditions for establishing real responsiveness’ (Considine, 2005: 213). Nevertheless, while considering the potential modes to strengthen the accountability of the

Conclusion 211 bureaucracy to citizens in a constantly changing public sector, especially in the developing world, where even the original structures of bureaucratic accountability have tended to be lamentably weak, worrying over the diminishing control of legislatures, ministers or senior civil servants in purely hierarchical structures may only be retrogressive. If the authority and responsibility of public servants has now become multidimensional and spread over multiple relationships (Considine, 2005), so must we structure the chains of accountability that link them back to citizens. If NPM and network governance have created common domains and shared mandates for institutions, and if governance now comprises not just public and quasi-public organisations but also their private and civil society appendages, then the framework of obligations and accountability must also be expanded beyond the traditional linkages (Considine, 2005). In fact, when accountability involves a multiplicity of actors and several pathways, it becomes more relevant to conceive of it as a chain of elements that determines the responsiveness of individual and organisational actors (Considine, 2005). Governments can strengthen the elements in the chain of accountability by: spelling out unambiguously the objectives behind their policies and programmes, including the identification of the targeted beneficiaries; earnestly rendering all government operations open for public scrutiny, irrespective of whether they are performed by public sector agencies or contractors; making public interventions and their outcomes open to public scrutiny in a manner that also enables observers to understand the link between the two; enabling any individual or group dissatisfied by any public intervention to seek redress from some administrative or legal forum that has authority over the agencies responsible for the intervention; ensuring that individuals or organisations responsible for any failings are expeditiously held accountable and sanctioned in proportion to their responsibility; and, making interventions open to revision, alteration or even rollback where they do not meet the accountability requirement (Considine, 2005). The chain of elements will also need to be given new formations and linkages in response to emerging public sector environments. The vertical structure of accountability can be improved, for instance, by expanding the role of parliamentary committees and coordinating departments; and horizontal accountability can be strengthened by expanding the role of courts, audit departments, anticorruption agencies and ombudsmen. However, given the diversity and intricacy in the horizontal spread of the new governance, improving horizontal accountability will be the more daunting task. Moreover, the chains of horizontal accountability for market or competitive environments will need to be different from those developed for collaborative and cooperative networks (Considine, 2005). In the case of networks, for instance, the supervisory role of networks’ centres will have to be made more formal; and in the case of markets, the accountability of private sector service providers to core government departments will need to be made less ambiguous, more stringent and more enforceable, with not just the private agencies being liable for public action, but also the individuals working for them. Most importantly,

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however, in the case of both markets and networks, effective rules, procedures and structures will need to be devised to keep in the public realm the question of the public interest, the obligation to protect it and the authority to hold actors accountable for default. While reforming and innovating institutional structures in the face of a constantly changing public sector paradigm, in addition to the need to take into account the fundamental tenets of public service and local imperatives as discussed earlier, continuity or any potential break from it in terms of institutional design will also need to be explicitly factored in. Pollitt, for instance, presents several convincing reasons why the continuing influence of past institutional structures can have definitive significance for institutional reform, and why it may be necessary to ‘govern with the past, not against it’ (2008: 161, original emphasis). According to Pollitt (2008: 161–168): elements of the past place limits on future possibilities, and a complete truncation from the past may be very difficult, if not entirely impossible; a reference to the past helps in revealing the windows of opportunity for radical or transformational change as well as elements that can be used to legitimise reform; some elements of the past are always valuable, but also fragile, making a deliberate and careful effort for their preservation necessary during reformation; and finally, past experiences frequently provide wise counsel for the future. The choice, Pollitt goes on to conclude, is rather clear: [W]e can recognize the reality of long linkages over time, and adapt our policies and institutions to allow for them, or we can blunder forwards without either rear-view mirrors or forward vision much beyond the end of the ship’s prow. (2008: 181) In the context of the developing world, it is even more critical that the inherent design of institutions should promote public decision-making that appropriately balances, as MacIntyre’s (2003) study illustrates, continuity with responsiveness to altering environments. To achieve this end, it is necessary, as the author explains with the help of his power concentration paradox, to avoid extremes in either the concentration of authority or its dispersal across institutions. Too much centralisation, MacIntyre finds, encourages instability and volatility in public policies, while severe fragmentation facilitates rigidity and inflexibility; and ‘[e]ither extreme policy syndrome’, he rightly cautions, ‘undermines effective governance’ (2003: 31). Strengthening judicial institutions As emphasised at several places in this book, strong judiciaries are the lynchpin of the rule of law in any civilised society as well as the guarantors of both the right and the ability of citizens to hold public actors accountable. Under democratic structures, the ability of the judiciary to implement laws and dispense justice

Conclusion 213 impartially is preserved mainly through its independence from the executive and by providing some mechanism for vertical accountability within the judicial hierarchies. Some notion of external accountability – usually to the legislature – might also accompany this, but it is generally kept weak so as not to allow it to impinge upon judicial independence. The initial appointment of judges in the higher judiciary is, of course, largely a political process; but, once appointed, constitutional protections tend to ensure the immunity of judges from executive authority. The precise mechanisms vary across states, particularly between presidential and parliamentary systems, but they appear to be working well in the established democracies of the developed world. The story in the less developed world’s weak and unstable democracies is, however, very different. In many cases judiciaries in the less developed world are merely compliant extensions of executive authority and are often used to legitimise exploitation by authoritarian regimes, in particular the illegal acts of military despots. This has been especially true in Africa and Latin America, but Pakistan also serves as a sad example. The case study of Pakistan has already attempted to explain the dynamics and institutional symbiosis that often make judiciaries submit to military usurpations. The question, then, is how to ensure judicial independence in countries where democracy is fragile and where judiciaries are susceptible to capture by the executive or, even worse, where they do not even have any incentive to resist such capture and often become willing partners in undemocratic rule. The history of judicial legitimisation of martial laws in Pakistan and its unfortunate ramifications for the state and citizens of Pakistan provides convincing evidence of the sombre significance of this phenomenon. What is required, then, is not just judicial independence, but also a structure of judicial accountability that ensures judicial impartiality. And clearly this has to be a structure that moves beyond the notions of internal hierarchical accountability or the weak accountability of judiciaries to legislatures: it has to be one that creates an effective incentive for judges not to submit, either voluntarily or involuntarily, to executive control. If properly institutionalised, such a conception of judicial accountability would reinforce, rather than compromise, judicial independence. But care would need to be taken that institutional implements are not so stifling that judicial independence is compromised; for even though there appears to be no inherent contradiction between judicial accountability and judicial independence to the extent that both seek judicial impartiality (Voigt, 2008), the structures of judicial accountability and judicial independence need to be in proper balance to attain judicial impartiality (Domingo, 1999; Nicholson, 1993). Devising a structure of judicial accountability that is in balance with judicial independence can never be easy, and the peculiar requirements of each state would also be an important determinant, but the fairly recent assertion of judicial independence in Pakistan offers a core universalistic insight. A brief detour to narrate this incident is in order. Justice Iftikhar Muhammad Chaudhry, former chief justice of Pakistan, was one of the judges on the Supreme Court bench that legitimised the military coup d’état of 1999.2 He was appointed as the chief justice of Pakistan in 2005 by Musharraf, but was forcibly removed from office

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in 2007 when he refused to comply any further with military directions. A brief restoration followed; but within a few months he was again deposed along with several other judges of the Supreme Court who had supported him, and a team of subservient judges readily took over the apex court. Justice Chaudhry then led a campaign for the restoration of the deposed judges, but remained unsuccessful even after Musharraf was forced out of office and Asif Ali Zardari was elected president. Justice Chaudhry’s resistance to executive assault was unprecedented in the judicial history of Pakistan and very quickly civil society organisations and citizens at large rallied around him in a struggle to establish the rule of law. The public convergence on Islamabad in revolutionary onslaught in March 2009 forced Zardari to restore the deposed judges, including Justice Chaudhry as the chief justice of Pakistan. Ever since then, the higher judiciary in general seems to have become keenly aware of the informal accountability relationship that appears to have developed between the judges and the citizens of Pakistan. This new judicial independence is clearly evident in the activist judgments being handed down by the higher judiciary since the restoration of the deposed judges. These developments are all the more noteworthy in that the very judges who had legitimised military despotism, and had initially even taken an oath of fealty under a Provisional Constitutional Order of dubious legality, are no longer willing to tolerate any semblance of executive authoritarianism because they have started to feel directly obligated to the citizens of Pakistan. In a sense, this change in their judicial conscience appears to vindicate Smith’s assertion that ‘[j]udicial independence also requires the backing of public opinion’ (2007: 96). His advice, however, is even more pertinent to the argument of this book on the need to strengthen democratic accountability: In order for public opinion to support judicial independence, and in particular keeping judicial recruitment on a professional, not political, basis, resources need to be devoted to legal education among the public generally, and not just professionals, as well as consciousness-raising with the help of legal watchdogs. (2007: 96) The historical restoration of the judiciary in Pakistan is very instructive. That it highlights the role that citizens can play in forcing transgressing executives to accept the independence of judiciaries is very obvious. What is more important is that it shows how citizens can also impose on unreliable judiciaries a modicum of accountability. This is not to argue that judiciaries in the less developed world should be rendered accountable to citizens – in the same way that elected executives or legislatures are – by adopting, perhaps, any of the varied systems of elected judiciaries prevalent, for instance, in the US, Japan or Switzerland. Indeed, such judicial systems have their own limitations, which in most underdeveloped settings could produce pernicious consequences. But what the Pakistani example does encourage is the creation of additional channels of external judicial accountability that could create effective disincentives for judges against

Conclusion 215 collusion with despots. One possibility could be the establishment of a body independent of both the judiciary and the legislature, charged with the responsibility to ensure probity and transparency in judicial proceedings, particularly in matters where judges are seen to collude with executives in nefarious pursuits. The idea of a body removed from the influence of the judiciary and legislature to serve as a check on the performance of judges is certainly not new and has been applied in various forms (e.g. judicial commissions or councils) in a number of places, including Australia and, more notably, in Latin America. But what we are suggesting here is a body that is itself empowered to remove judges through a majority decision, rather than making recommendations to the executive or legislature for action. The members of this body could be drawn from amongst retired judges, retired legal practitioners, retired civil servants, elected public representatives from the ruling party as well as the opposition, and representatives from civil society groups. Their number, nevertheless, must be large enough to obviate the possibility of any judge influencing the commission, or reciprocally of any commission member influencing any judge. The incentive structure for members could also be devised so as to guard them against perverse inducements: for instance, lifetime tenures for retired professionals and ex officio tenures for elected public representatives. Not only will such a body not be out of context with the current discourse on judicial institutions in which the accountability of judiciaries is as important a concern as their independence (e.g. Yusuf, 2010), but any action against judges taken by such a body would also be inherently more objective than conventional forms such as impeachment or address by legislatures, which can, even if infrequently, be motivated by jurisdictional or ideological conflict. Indeed, to make judiciaries independent in the less developed world, it is necessary, as is often asserted, to judge the judges! Independence and accountability of the higher judiciary could also be expected to improve the performance of the lower judicial echelons, which are responsible for dispensing day-to-day civil and criminal justice and thereby establishing the rule of law. Nevertheless, since the lower courts are usually staffed by career judicial officers rather than politically appointed legal practitioners and experts, it would be necessary to ensure the quality of their recruitment and career management in the same way as it needs to be done for the bureaucracy, and most of the reforms outlined above for the civil services will also apply to the judicial services. Expanding taxation for accountability Low taxation and the consequent weak accountability of governments to citizens in their capacity as taxpayers is a problem largely relating to natural resource-rich states, particularly those that are driven by petroleum, and to an extent also to states reliant on foreign aid. In the case of natural resource-rich states, neither their citizens nor their governments could be expected to have any incentives to enhance the level or base of taxation. Citizens in any case cannot be expected to willingly relinquish any part of their incomes without the expectation of being

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compensated by the provision of public goods. And the governments of these states do not have any incentive to generate resources from taxation for at least three reasons: first, they may not need additional revenues because of the large amounts of rents they usually command; second, they may not want to become unpopular with citizens by raising taxes when they might be able to raise any additional revenues through nontax channels; and third, they would not want to provide citizens any additional reason to hold them accountable for their spending decisions. Thus, by not taxing their citizens, rentier states block the development of ‘the organic expectations of accountability that emerge when states make citizens pay taxes’ (Diamond, 2010: 98). From a democratic accountability point of view, this situation creates a perverse inertia that is perhaps nowhere starker than in the authoritarian inexorability of the Arab oligarchies of the oil-rich Middle East and North Africa. Since it is oil revenues, more than ideology, as Diamond (2010) notes, that have structured Arab authoritarianism, what could possibly disrupt this low-taxation low-accountability inertia in these states, as the author further suggests, is an increased need for revenues by their governments, and one which they might not be able to meet without expanding the tax base. However, even though oilrich states have had their fair share of financial crises, such disruption does not appear to be a likely scenario in the ordinary course of events. The expected longrun availability of oil revenues to most oil-rich states – as well as the extent of international credit that they can raise on the basis of this expected availability – often gives their governments great financial power, and thus appears to have so far prevented the development of any Magna Carta- or Boston Tea Party-like situation, or even of any gradual variant. A more feasible alternative that can potentially break the inertia is the democratisation of these authoritarian regimes. Perhaps the most important reason why the UK and Norway have not been reduced to petro-states is their enduring democratic traditions, which had taken firm root in both states long before the discovery of oil. With the democratisation of oil-rich authoritarian states, one might expect their governments to become more accountable and responsive to citizens’ long-term interests and to also sow the oil through responsible public policies for economic expansion that might outlast the mineral deposits. With economic expansion, the tax base of these states is bound to expand; and with increased taxation, the ability of citizens to demand accountability from their governments would also increase. Democratising oil-rich authoritarian regimes is again going to be a path defined by hurdles and complexities. Not only because donor agencies, which are otherwise important agents of change, have very limited power to press for democratic reform in the face of the financial strength of these states (Najem, 2003), but also because most established liberal democracies have their own geopolitical interests to protect, which tends to dissuade them from exerting any effective pressure on loyal authoritarian regimes to grant democratic concessions to their citizens. In fact, the ‘[e]xternal support for Arab regimes’, as Diamond (2010: 101) laments, ‘historically coming in part from the Soviet Union but now mainly

Conclusion 217 from Europe and the US, confers on Arab autocracies crucial economic resources, security assistance, and political legitimacy’. Nevertheless, some significant achievements such as the acceptance of constitutional limitations by Bahrain’s monarchy in 2002 is very encouraging (Quilliam, 2003) and underscores the possibility of achieving similar breakthroughs in other states. A proviso, however, is sincere international commitment for democracy based on an acceptance of the fact that the long-run benefits for the international community of democratising authoritarian regimes would be greater than those yielded by protecting them. The need for this commitment is particularly relevant in the case of those states that appear to be shielding authoritarian regimes from external pressure for democratisation as well as bolstering them against internal demands for greater representation. What would be of great help in this effort is the widespread public support for democratisation that exists in the Arab world, even if it is for a form of an Islamised conception of democracy (Diamond, 2010; Jamal and Tessler, 2008). It is saddening, however, just as much as it is sobering for the East, that the Western democracies have yet again failed the test of democracy in the battlefields of Egypt and Syria, where the great hopes raised by the Arab Spring have been shrivelled by the Arab Autumn. Moving beyond the context of the Arab oil-rich states, the ability of the international development community to enhance the tax-driven accountability of governments to citizens appears to be greater in the case of those low-taxation states that rely on foreign aid. In fact, not only is enhanced taxation often a condition imposed by many international financial agencies and bilateral donor governments for continued aid, but also a framework of good governance under which tax reforms are one of the main components is increasingly being stipulated (Smith, 2007; World Bank, 2000, 2003b). This broader paradigm of governance reforms can prove more effective in enhancing revenues from taxation than a focus merely on increasing the tax levels or expanding the tax base. For instance, by curtailing corruption, good governance can potentially also reduce tax evasion (which is often facilitated by conniving collecting departments) as well as enhance the willingness of citizens to pay taxes following reduced pilferage by spending departments and citizens’ realisation that taxes do not end up in private coffers. The predicament, however, is the actual ability of donors to impose or cajole good governance in recipient countries, especially when foreign aid itself can lead to a deterioration in governance rather than improve it. A reliance on aid can, for instance, expand the scope for corruption, partly relieve governments from answerability on expenditures, reduce incentives to improve cost-efficiencies and even drain talented civil servants into aid-sponsored projects (Knack, 2001; Smith, 2007; World Bank, 2000). This situation can be further compounded by the reluctance of aid agencies to discontinue financial assistance despite the unresponsiveness of recipient governments to good governance requirements because they themselves might have organisational interests in meeting disbursement targets (Collier, 2000, 2007) or because they apprehend the adverse impact that a termination of aid can have on groups already living in abject poverty

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(Gibson et al., 2005). In the latter case, while funding pro-poor programmes through civil society organisations remains a viable alternative, there could be much less benevolent reasons for donors, particularly bilateral donors, not to discontinue aid. Smith (2007), for instance, cites several instances where Western governments continued to directly assist not just regimes with dismal governance records, but also those that were guilty of oppression and large-scale human rights violations, simply for their own strategic geopolitical or economic interests. Clearly, this is a policy approach that requires some very serious reconfiguration. *** Democracy may never achieve perfection, not even in the most democratic of states, and at least not in the near future. But even then, it remains the best guarantee for structuring incentives that commit governments to human development and the consequent expansion of citizens’ capabilities, freedoms and choice, as well as the welfare, happiness and prosperity of the society as a whole. Similarly, administrative and judicial institutions may often fall short of the perfect institutional design required to align public policies with citizens’ best interests; but even so, their strength will always create incentives for governments to spend more on education and health. Higher taxation may not always translate into higher public spending on human development either; but it will certainly strengthen the prerogative of citizens and their right to hold governments accountable for their wellbeing. On the other hand, the public sector may never achieve the performance efficiencies of the private sector, but as long as laissez-faire markets cannot be designed to endogenise externalities and ensure equity in the distribution of benefits, including the provision of education and healthcare, it will remain the responsibility of the public sector to fill the gap to develop human capabilities, to increase human choices and to expand human freedoms. And in this, public sector agencies that are accountable to citizens will undeniably achieve better outcomes than those that are not. In the struggle for human development, the peoples and nations of the developing world will, therefore, need to strive continuously for higher democratic ideals, and superior administrative and judicial institutions. They will also need to share more in their financial responsibilities towards the state to demand greater governmental responsiveness. In this struggle, they might not only confront the burden of their own histories, but also find themselves pitched against the hidden momentum of the histories of other nations – not just in the lingering legacies of colonisation, but also in the prospects of increased global confrontation. But struggle they must; for even if serious, path dependence is a hurdle, not eternal condemnation,3 as Feigenbaum’s remark, ‘[i]f you want good government, go out and get yourself a better Medieval history’ (1995: 437) might suggest.4 Critical junctures will continue to emerge and peoples and nations will continue to face choices. The fundamental question is of having the incentives to branch off in the right direction. And this necessitates the construction of a state with the right form of political regime, the right kind of administrative and judicial

Conclusion 219 institutions and the right mode of public resource mobilisation. Learning from others how to construct such a state will be of great value for many a nation; for many others, however, enduring institutional legacies and societal traditions will make Rodrik’s (2008) notion of second-best institutions a better approach. Every nation will, of course, have to explore its own specific options; and, indeed, this is a vast field that must be handed over to future research. Nevertheless, from the perspective of the less developed world, it must be emphasised that this future research will need to concentrate on designing institutions that not only create strong incentives for governments to spend on human development, but also help states in retaining their human capital, for brain drain tends to harm many a struggling nation far more than the benefits the UNDP’s Human Development Report 2009 (UNDP, 2009) suggests it brings. Intuitively, strong democratic accountability should prove central to an institutional design that facilitates the preservation of human capital, just as this study has explained it to be critical for an institutional design that promotes public spending on human development. In the end, it is perhaps Darwin who best concludes our argument: ‘if the misery of our poor be caused not by the laws of nature, but by our institutions, great is our sin’ ([1909] 2008: 503).

Notes 1 With apology to the spirit of Thomas Hardy for distorting his metaphor. 2 Through its judgment in Syed Zafar Ali Shah v. General Pervez Musharraf (2000). 3 Path dependence may not necessarily be as inexorable or unalterable as the mainstream literature relating to it often portends. It is in part for this reason that Haggard and Kaufman (2008), for instance, prefer to use critical realignments or political realignments rather than critical junctures. 4 In Feigenbaum’s (1995) critique, this is the basic implication of Putnam’s (1993) analysis.

Appendix I Subsets of states: Phase-I and Phase-II analysis

Basic subset Albania; Algeria; Angola; Argentina; Armenia; Australia; Austria; Azerbaijan; Bahrain; Bangladesh; Belgium; Bolivia; Botswana; Brazil; Bulgaria; Burkina Faso; Cameroon; Canada; Chile; China; Colombia; Costa Rica; Côte d’Ivoire; Croatia; Czech Republic; Denmark; Ecuador; Egypt; El Salvador; Estonia; Ethiopia; Finland; France; Gambia; Germany; Ghana; Greece; Guatemala; Guinea; Honduras; Hungary; Iceland; India; Indonesia; Iran; Ireland; Israel; Italy; Jamaica; Japan; Jordan; Kazakhstan; Kenya; Kuwait; Latvia; Liberia; Lithuania; Luxembourg; Madagascar; Malaysia; Mali; Malta; Mexico; Moldova; Mongolia; Morocco; Mozambique; Namibia; Netherlands; New Zealand; Nicaragua; Niger; Norway; Oman; Pakistan; Panama; Paraguay; Peru; Philippines; Poland; Portugal; Qatar; Romania; Russian Federation; Senegal; Serbia; Sierra Leone; Singapore; Slovak Republic; Slovenia; South Africa; South Korea; Spain; Sri Lanka; Sweden; Switzerland; Syria; Tanzania; Thailand; Togo; Tunisia; Turkey; Uganda; Ukraine; United Arab Emirates; United Kingdom; United States; Uruguay; Venezuela; Yemen; Zambia; Zimbabwe.

Health subset Albania; Algeria; Angola; Argentina; Armenia; Australia; Austria; Azerbaijan; Bahrain; Bangladesh; Belgium; Bolivia; Botswana; Brazil; Bulgaria; Burkina Faso; Cameroon; Canada; Chile; China; Colombia; Costa Rica; Côte d’Ivoire; Croatia; Czech Republic; Denmark; Dominican Republic; Ecuador; Egypt; El Salvador; Estonia; Ethiopia; Finland; France; Gambia; Germany; Ghana; Greece; Guatemala; Guinea; Honduras; Hungary; Iceland; India; Indonesia; Iran; Ireland; Israel; Italy; Jamaica; Japan; Jordan; Kazakhstan; Kenya; Kuwait; Latvia; Lebanon; Liberia; Lithuania; Luxembourg; Madagascar; Malaysia; Mali; Malta; Mexico; Moldova; Mongolia; Morocco; Mozambique; Namibia; Netherlands; New Zealand; Nicaragua; Niger; Nigeria; Norway; Oman; Pakistan; Panama; Papua New Guinea; Paraguay; Peru; Philippines; Poland; Portugal; Qatar; Republic of Congo; Romania; Russian Federation; Senegal; Serbia; Sierra Leone; Singapore; Slovak Republic; Slovenia; South Africa; South Korea; Spain; Sri

Appendix I 221 Lanka; Sudan; Suriname; Sweden; Switzerland; Syria; Tanzania; Thailand; Togo; Tunisia; Turkey; Uganda; Ukraine; United Arab Emirates; United Kingdom; United States; Uruguay; Venezuela; Yemen; Zambia; Zimbabwe.

Education subset Albania; Algeria; Angola; Argentina; Armenia; Australia; Austria; Azerbaijan; Bahrain; Bangladesh; Belgium; Bolivia; Botswana; Brazil; Bulgaria; Burkina Faso; Cameroon; Canada; Chile; China; Colombia; Costa Rica; Côte d’Ivoire; Croatia; Cyprus; Czech Republic; Democratic Republic of Congo; Denmark; Ecuador; Egypt; El Salvador; Estonia; Ethiopia; Finland; France; Gambia; Germany; Ghana; Greece; Guatemala; Guinea; Honduras; Hungary; Iceland; India; Indonesia; Iran; Ireland; Israel; Italy; Jamaica; Japan; Jordan; Kazakhstan; Kenya; Kuwait; Latvia; Liberia; Lithuania; Luxembourg; Madagascar; Malaysia; Mali; Malta; Mexico; Moldova; Mongolia; Morocco; Mozambique; Namibia; Netherlands; New Zealand; Nicaragua; Niger; Norway; Oman; Pakistan; Panama; Paraguay; Peru; Philippines; Poland; Portugal; Qatar; Republic of Congo ; Romania; Russian Federation; Senegal; Serbia; Sierra Leone; Singapore; Slovak Republic; Slovenia; South Africa; South Korea; Spain; Sri Lanka; Sweden; Switzerland; Syria; Tanzania; Thailand; Togo; Tunisia; Turkey; Uganda; Ukraine; United Arab Emirates; United Kingdom; United States; Uruguay; Venezuela; Yemen; Zambia; Zimbabwe.

Military subset Albania; Algeria; Angola; Argentina; Armenia; Australia; Austria; Azerbaijan; Bahrain; Bangladesh; Belarus; Belgium; Bolivia; Botswana; Brazil; Bulgaria; Burkina Faso; Cameroon; Canada; Chile; China; Colombia; Costa Rica; Côte d’Ivoire; Croatia; Czech Republic; Denmark; Dominican Republic; Ecuador; Egypt; El Salvador; Estonia; Ethiopia; Finland; France; Gambia; Germany; Ghana; Greece; Guatemala; Guinea; Honduras; Hungary; Iceland; India; Indonesia; Iran; Ireland; Israel; Italy; Jamaica; Japan; Jordan; Kazakhstan; Kenya; Kuwait; Latvia; Liberia; Lithuania; Luxembourg; Madagascar; Malaysia; Mali; Malta; Mexico; Moldova; Mongolia; Morocco; Mozambique; Namibia; Netherlands; New Zealand; Nicaragua; Niger; Norway; Oman; Pakistan; Panama; Paraguay; Peru; Philippines; Poland; Portugal; Qatar; Romania; Russian Federation; Senegal; Serbia; Sierra Leone; Singapore; Slovak Republic; Slovenia; South Africa; South Korea; Spain; Sri Lanka; Sudan; Sweden; Switzerland; Syria; Tanzania; Thailand; Togo; Tunisia; Turkey; Uganda; Ukraine; United Arab Emirates; United Kingdom; United States; Uruguay; Venezuela; Yemen; Zambia; Zimbabwe.

Appendix II Subsets of states: Phase-III analysis

Health subset Albania; Algeria; Angola; Argentina; Australia; Austria; Azerbaijan; Bahrain; Bangladesh; Belgium; Bolivia; Botswana; Brazil; Bulgaria; Cameroon; Canada; Chile; China; Colombia; Costa Rica; Côte d’Ivoire; Croatia; Czech Republic; Denmark; Egypt; El Salvador; Estonia; Ethiopia; Finland; France; Germany; Ghana; Greece; Guatemala; Hungary; Iceland; India; Indonesia; Iran; Ireland; Israel; Italy; Jamaica; Japan; Jordan; Kenya; Kuwait; Latvia; Lebanon; Liberia; Lithuania; Luxembourg; Madagascar; Malaysia; Mexico; Moldova; Mongolia; Morocco; Namibia; Netherlands; New Zealand; Nicaragua; Norway; Oman; Pakistan; Paraguay; Philippines; Poland; Portugal; Qatar; Romania; Russian Federation; Senegal; Serbia; Singapore; Slovak Republic; Slovenia; South Africa; South Korea; Spain; Sri Lanka; Sudan; Sweden; Switzerland; Syrian Arab Republic; Thailand; Tunisia; Turkey; Uganda; Ukraine; United Arab Emirates; United Kingdom; United States; Uruguay; Venezuela; Yemen; Zambia; Zimbabwe.

Education subset Albania; Algeria; Angola; Argentina; Armenia; Australia; Austria; Azerbaijan; Bahrain; Bangladesh; Belgium; Bolivia; Botswana; Brazil; Bulgaria; Cameroon; Canada; Chile; China; Colombia; Costa Rica; Côte d’Ivoire; Croatia; Cyprus; Czech Republic; Denmark; Egypt; El Salvador; Estonia; Ethiopia; Finland; France; Germany; Ghana; Greece; Guatemala; Hungary; Iceland; India; Indonesia; Iran; Ireland; Israel; Italy; Jamaica; Japan; Jordan; Kazakhstan; Kenya; Kuwait; Latvia; Lithuania; Luxembourg; Madagascar; Malaysia; Malta; Mexico; Moldova; Morocco; Namibia; Netherlands; New Zealand; Nicaragua; Norway; Oman; Pakistan; Panama; Paraguay; Philippines; Poland; Portugal; Qatar; Romania; Russian Federation; Senegal; Serbia; Singapore; Slovak Republic; Slovenia; South Africa; South Korea; Spain; Sri Lanka; Sweden; Switzerland; Thailand; Turkey; Uganda; Ukraine; United Arab Emirates; United Kingdom; United States; Uruguay; Venezuela; Yemen; Zambia; Zimbabwe.

Appendix II 223

Military subset Albania; Algeria; Angola; Argentina; Armenia; Australia; Austria; Azerbaijan; Bangladesh; Belgium; Bolivia; Botswana; Brazil; Bulgaria; Cameroon; Canada; Chile; China; Colombia; Costa Rica; Croatia; Czech Republic; Denmark; Egypt; Estonia; Ethiopia; Finland; France; Germany; Ghana; Greece; Hungary; Iceland; India; Indonesia; Iran; Ireland; Israel; Italy; Japan; Jordan; Kazakhstan; Kenya; Kuwait; Latvia; Liberia; Lithuania; Luxembourg; Madagascar; Malaysia; Malta; Mexico; Moldova; Mongolia; Morocco; Namibia; Netherlands; New Zealand; Nicaragua; Norway; Oman; Pakistan; Panama; Poland; Portugal; Romania; Russian Federation; Senegal; Singapore; Slovak Republic; Slovenia; South Africa; South Korea; Spain; Sri Lanka; Sweden; Switzerland; Thailand; Tunisia; Turkey; Uganda; Ukraine; United Arab Emirates; United Kingdom; United States; Uruguay; Venezuela; Yemen; Zambia; Zimbabwe.

Appendix III Subset of states: life expectancy analysis

Afghanistan; Albania; Algeria; Antigua and Barbuda; Argentina; Armenia; Australia; Austria; Azerbaijan; Bahamas; Bahrain; Bangladesh; Barbados; Belarus; Belgium; Belize; Benin; Bhutan; Bolivia; Bosnia and Herzegovina; Brazil; Brunei Darussalam; Bulgaria; Burkina Faso; Burundi; Canada; Cape Verde; Chad; Chile; China; Colombia; Comoros; Costa Rica; Croatia; Cyprus; Czech Republic; Democratic Republic of Congo; Denmark; Djibouti; Dominican Republic; Ecuador; Egypt; El Salvador; Equatorial Guinea; Eritrea; Estonia; Ethiopia; Fiji; Finland; France; Gabon; Gambia; Georgia; Germany; Ghana; Greece; Grenada; Guatemala; Guinea; Guinea-Bissau; Guyana; Haiti; Honduras; Hungary; Iceland; India; Indonesia; Iran; Ireland; Israel; Italy; Jamaica; Japan; Jordan; Kazakhstan; Kiribati; Kuwait; Latvia; Lebanon; Liberia; Libya; Lithuania; Luxembourg; Macedonia; Madagascar; Malawi; Malaysia; Mali; Malta; Mauritania; Mauritius; Mexico; Micronesia; Moldova; Mongolia; Montenegro; Morocco; Mozambique; Nepal; Netherlands; New Zealand; Nicaragua; Niger; Norway; Oman; Pakistan; Palau; Papua New Guinea; Paraguay; Peru; Philippines; Poland; Portugal; Qatar; Romania; Russian Federation; Rwanda; Samoa; Sao Tome and Principe; Saudi Arabia; Senegal; Serbia; Seychelles; Sierra Leone; Singapore; Slovak Republic; Slovenia; Solomon Islands; South Korea; Spain; Sri Lanka; St. Kitts and Nevis; St. Lucia; St. Vincent and the Grenadines; Sudan; Suriname; Sweden; Switzerland; Tanzania; Thailand; Timor-Leste; Togo; Tonga; Trinidad and Tobago; Tunisia; Turkey; Turkmenistan; Uganda; Ukraine; United Arab Emirates; United Kingdom; United States; Uruguay; Uzbekistan; Vanuatu; Venezuela; Yemen.

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Index

Page numbers in italics denotes a figure/ table accountability: administrative 47, 210–12; horizontal 48, 49, 51, 52, 147, 211; institutional 47, 50, 51–2, 58, 132; judicial 213–15; legal 48–9; managerial 47; personal 48; professional 47–8; see also democratic accountability Acemoglu, D. 163 administrative accountability 47; strengthening of 210–12 Afghanistan 7 Afonso, A. 29–30, 107 Africa 29; local government reforms 206; see also sub-Saharan Africa aged population 70; and public spending on education 82, 85; and public spending on health 82, 83, 84, 88, 93, 97 AIDS 77, 140, 154, 166 Alejandro, C.F.D. 173 Alesina, A. 25 Alfonsín, Raúl 178, 184 Amenta, E. 23 Argentina 11, 168–97, 186–7; Alfonsín’s reforms 178, 184; colonial period under Spanish rule 170; Constitution (1853) 172, 180; and democracy 169, 180, 182, 186, 188; Desert Campaign (1878-9) 171; economy 169, 170–1, 172, 173, 174, 177–9; education and health outcomes 193–6, 194–5; education provision 180–3; fiscal federalism 169, 175; foreign debt 178–9, 187; healthcare provision 183–5; impact of First World War 173; and import substitution industrialisation (ISI) 175–6; income tax introduction 174, 175; industrialisation 172–4, 175–6, 177; Kirchner’s reforms 179; and labour 174,

176, 177, 185; and local governments 169; manufacturing sector 172–3, 176; Menem’s economic policies 178; military spending 180, 186, 191, 192; money borrowing and money creation 187-8; nationalisation 176; and Perón/ Peronism 175–6, 181, 183–4, 185; political instability after Perón’s regime 176–7; public spending on education 180–3, 191, 192; public spending on health 183–5, 191, 192; revenue composition of Buenos Aires 171–2; school enrolment rates 193, 194–5, 195; and Second World War 175; social health insurance 184; tariff structure 173, 174; taxation 169, 171, 173, 174–5, 176, 177, 179 Arora, S. 3 Asmerom, H.K. 208 Australia 58 autocorrelation 65 autocracies 10, 14, 46; effect on life expectancy at birth 103; government provision and taxation 13–14; public spending in education 18 Avelino, G. 18 Ayub Khan, General 111–12, 113–14, 121, 122, 134 Aziz, M. 115 Bahrain 217 Bailey, M.J. 188 Banerji, D. 125 Barro, R.J. 3, 54 Becker, G.S. 16 Behn, R.D. 40, 45, 58 Behrman, J.R. 124 Bergquist, C. 185 Bevir, M. 50 Bhutto, Benazir 127–9, 130, 134

Index Bhutto, Zulfikar Ali 115 Bloom, D. 3 Bolivia 193 Botswana 10, 139–67; AIDS epidemic 154; alliance between political and bureaucratic elites 145; British colonisation and rule 143–5, 147, 158; bureaucracy/ civil service 139, 140, 147–9, 156–9, 166–7; constitution (1966) 146; and democracy 139, 166; economy 139, 140; education and health outcomes 140, 162–6, 164–5; education provision 139–40, 151, 164; healthcare provision 139–40, 153; independence 145–50; influence of foreign aid on public spending 163; influence of natural resources on public spending 162–3; judiciary 139, 142–3, 159–60; kgosi 141–2, 144, 145; kgotla 140, 142–3, 145, 146–7, 149, 157, 159, 166; life expectancy at birth 164, 165, 166; literacy rates 164, 164; military spending 155–6, 155; political structure 146; public spending on education 140, 150–3, 152, 154, 166, 180—3, 192; public spending on health 140, 150–1, 153–4, 154, 166; school enrolment 164, 165; strength of administrative institutions 140–1; Transitional Plan for Social and Economic Development 151; Tswana tribal pyramids 141–2; Village Development Committees 157; weaknesses of democracy 166 Botswana Defence Force (BDF) 155–6 Brautigam, D. 53, 56 Breton 17 Britain: and Botswana 143–4, 147, 158; and India 113, 205 Brown, D.S. 18, 27 Bueno de Mesquita, B. 201–2 Buenos Aires (Argentina) 170–1, 172, 174, 176, 180, 183 bureaucracies 22, 45–6, 207–8; in Botswana 139, 140, 147–9, 156–9, 166—7; corruption of 209; and democratic accountability 45–9, 150; ethos of public service 209–10; in India 123; in Pakistan 115–16, 121–2, 127–8, 129; and resource allocation 46, 49–50; role of in policy formulation 45–6 bureaucratic accountability 210–11 bureaucratic neutrality 208–9 Burgoon, B. 24 Burki, S.J. 121, 130 Burkina Faso 160

255

Caldwell, J.C. 41 Cameron, D.C. 23 Campbell, A.C. 144–5 Candland, C. 110 Castillo, Ramón 175 Charlton, R. 158 Chaudhry, Justice Iftikhar Muhammad 213–14 Cheng, B.S. 187 Chicago School of Political Science 16 citizen sovereignty: and resource allocation in the public sector 36–8, 42 civil service 27–8, 45; neutrality of 208–9; politicisation of 50, 209; see also bureaucracies Civil Service of Pakistan (CSP) 115 classical normal linear regression model (CNLRM) 61, 63–6, 75 Colclough, C. 143 compensation hypothesis 24 Considine, M. 210 consumer sovereignty: and resource allocation in the private sector 33–5, 42 corruption 217; of Pakistani bureaucracy 121–2, 127–8; and public spending 26 customer-centricity: and NPM 51 Cutright, P. 17 Dahl, R.A. 44–5 de la Rúa, Fernando 179 Deacon, R.T. 18 Democracy 67—8; and Argentina 169, 180, 182, 186, 188; and Botswana 139, 166; diversity of 15; effect on life expectancy at birth 102–3, 103, 106, 109; fundamental tenets of 203; and human development 30, 98–9, 218; and India 111, 112, 123, 124, 128, 132, 201–2; and Latin America 168; and military spending 81–2, 86–7, 93, 98, 199, 200; and Pakistan 121, 133, 202; and public spending 82, 17—19, 98—9, 126–7; and public spending on education 84–5, 87, 93, 97, 199; and public spending on health 81, 83, 87, 93, 96, 199; setbacks to 204–5; structures and spirit of 201–5; and taxation 187; ways to develop 202–3 democratic accountability 9; and bureaucracies 45–9, 150; central postulate and meaning 39; and deterrent effect 40; and foreign aid 56–7; and human development 200, 201; and institutions

256

Index

45–52; and judiciary 48–9; and life expectancy at birth 100–9; and public sector performance (PSP) 29–30, 58; and public spending 31, 32–59, 160; and regimes 41–5; resources dimension 52–7 democratisation: waves of 204 demography: and public spending 21–2 deterrent effect: and democratic accountability 40 development, level of 70; effect of on life expectancy at birth 107–8, 108; and military spending 86, 98; and public spending on education 85; and public spending on health 84, 93 Diamond, L. 44, 203, 204, 205, 216–17 Dilulio, J.J. 51 Drèze, J. 41, 126, 127, 202 Du Toit, P. 149 Easterly, W. 24–5 economic growth: and education 3; and health 3; and human capital 2–4; and human development approach 5; and income inequalities 4; and public spending 21; and school enrolment rates 3 education: and economic growth 3; and human development 5, 6–7; incomeenhancing benefits 4–5; public spending on see public spending (on education) education outcomes: Argentina 193–6, 194–5; Botswana 140, 162–6, 164–5; India and Pakistan 134–7, 135–6 efficiency hypothesis 24 electoral rule dummy variable 72 electoral systems/elections 43–4, 203; accountability/sanction model 43; mandate/selection model 43; and public spending 15–16, 90; see also marjoritarian voting system; proportiomal voting system Elman, M. 129 estimation method and model 61–3 ethnic fragmentation 71, 88; and military spending 86, 88, 94, 98 external conflict 71; and military spending 82, 86, 94, 98 external rents: and public spending 26–7 Feigenbaum, H.B. 218 Ferejohn, J. 44

Feyzioglu, T. 27 Fogel, R.W. 3 foreign aid 69–70; and democratic accountability 56–7; influence on life expectancy at birth 105, 106; and Latin America 190, 191, 192, 193, 194–5, 195; and military spending 86, 88; and public spending 26–7, 82, 99, 168, 200; and public spending in Botswana 163; and public spending on education 84, 88, 93, 97; and public spending on health 83, 88, 96; and taxation 217 Freedom in the World (FIW) ratings 67 Friedman, M. 54, 187 Frondizi, Arturo 177 Gaebler, T. 51, 58 Galtieri, General Leopoldo 178 Gandhi, Indira 123, 130 Gandhi, M. 110 Gandhi, Rajiv 130, 132 Garrett, G. 24 Gaspar, V. 29 Gauss-Markov conditions 63 Gazdar, H. 119 GDP 66, 69 Germany 20 Ghobarah, H.A. 17 globalisation: and public spending 24 governance 211; good 25–6, 217; and public spending 25–6; shift from government to 50–2 Government of India Act (1935) 113 Great Depression 28, 174 Gupta, S. 29 Gyimah-Brempong, K. 3 Haggard, S. 18 Hatchard, J. 204 Healey, J. 147 health: and economic growth 3; and human development 5, 6–7; incomeenhancing benefits 4–5; public spending on see public spending (on health) health outcomes: Argentina 193–6, 194–5; Botswana 140, 162–6, 164–5; India and Pakistan 134–7, 135–6 Heclo, H. 22 Henneman, J.B. 54 Heussler, R. 143 Hicks, A. 23 Hirschman, A.O. 7

Index homoscedasticity 64 horizontal accountability 48, 49, 51, 52, 147, 211 Huber, E. 18, 23 human capital 1; and economic growth 2–3; and human development approach 2–6 human capital development 5–6 human development 1–11; and democracy 30, 98–9, 218; and democratic accountability 200, 201; and economic growth 5, 6–7; and health 5, 6–7; and human capital 2–6; public spending on 6–8 Human Development Index (HDI) 5 Hunter, W. 18, 27 Huntington, S.P. 187, 204 Husain, I. 118 ideology see political ideology Illia, Arturo 177 income inequalities: and economic growth 4 India 10, 41, 110–38; 1947-71 period 123– 6; 1977-88 period 130; bureaucracy 123; constitution 123; and democracy 111, 112, 123, 124, 128, 132, 201–2; education and health outcomes 134–7, 135–6; healthcare provision 124–5; hostility with Pakistan over Kashmir 128–9; Indira Ghandi’s rule (1971-77) 128; judiciary 123, 128; Kerala region 126; land ownership reform 123–4; and literacy 135, 135, 136; military spending 118, 124, 128, 129, 130, 131, 132; Narasimha Rao’s premiership 123, 132; primary health centres (PHCs) 125; public spending on education 118, 124, 126, 128, 130, 131, 132; public spending on health 118, 124, 125, 126, 128, 130, 131, 132; school enrolment 135–6, 135–6; under British control 113, 205 Indian Independence Act (1947) 113 Indian Supreme Court 128 industrialism 20–1, 70 institutional accountability 47, 49, 51–2, 58, 132 institutions 9, 68; and democratic accountability 45–52; effect on life expectancy at birth 104, 104, 109; and military spending 86, 87, 98; and neo-institutionalism 9, 23, 37–8, 40,

257

60; and public spending 16, 22, 82, 99, 199; and public spending on education 84, 86, 87, 93, 97; and public spending on health 83, 84, 86, 87, 96; role of in the private sector 35; strengthening administrative 205–10 interest groups: impact of on public spending 16–17 International Country Risk Guide (ICRG): Researcher’s Dataset 68, 71 International Monetary Fund (IMF): Government Finance Statistics (GFS) 66 Jeffrey, R. 117, 125 Jones, G. 35 judicial accountability 213–15 judiciary: Botswana 139, 142–3, 159–60; and democratic accountability 48–9; India 123, 128; Pakistan 111, 112, 116, 121, 122–3, 130, 213–14; strengthening 212–15 Junejo, Muhammad Khan 134 Justo, General Agustín Pedro 174 Kaufman, R.R. 17, 18, 24, 89 Kaufmann, D. 30 Keefer, P. 18–19, 41, 126, 127, 131 Kerala (India) 126–7 kgosi 141–2, 144, 145 kgotla 140, 142–3, 145, 146–7, 149, 157, 159, 166 Khama, Seretse 145, 148 Khemani, S. 18–19, 41, 126, 131 Kirchner, Cristina Fernández de 179 Kirchner, Néstor Carlos 179 Knack, S. 18 Knowles, S. 3 Kuan Yew , Lee: The Singapore Story 1 Kuznets 4 Latin America 18, 24, 168, 188–93; and democracy 168; foreign aid-dependent states 190, 191, 192, 193, 194–5, 195; left-wing labour movements 193; local government reforms 206; natural resource-rich states 190, 191, 192, 193, 194–5, 195; public spending 191–3, 192; tax-dependent states 189, 191, 192, 193, 194–5, 195; see also Argentina Léautier, F.A. 58

258

Index

left-wing parties/regimes 20, 22, 23, 72; Latin America 193; and public spending 20, 72, 82, 83, 89, 92, 95, 99 legal accountability 48 Leonard, V.W. 182 Levine, R. 24–5 life expectancy at birth 3, 75, 100–9; Botswana 164, 165, 166; and democracy 102–3, 103, 106, 109; and democratic accountability 100—9; and foreign aid 105, 106; and institutions 104, 104, 109; and level of development 107–8, 108; model 100–2; and public resource mobilisation 105–6, 105, 106; and public spending on health 107–8, 108; and reverse causality 108–9; and taxation 105 Lindbeck, A. 24 Lindert, P.H. 17, 18, 84, 89, 119–20, 124, 201 linear model 65 literacy 3; Botswana 164, 164; India 135, 135, 136; Pakistan 135, 135 Lott, J.R. 18 McCarthy, S. 143 McDonald, S. 3 McGuire, C.M. 18 McGuire, J.W. 13–14 MacIntyre, A. 212 Madison, J. 49 Magna Carta 53 majoritarian voting system 15, 72; and public spending 16, 82, 89, 90, 92, 95, 99 Malik, Y.K. 111 managerial accountability 47 mandate/selection model 43 Manin, B. 41–2 Mankiw, N.G. 2–3 Maravall, J.M. 17, 43–4 March, J.G. 37, 38 marginal cost 33 markets: strengthening administrative accountability under 210–12 Marshall, W.J. 17 Mauro, P. 26 median voter: influence of on public spending 13–14 Meltzer, A.H. 13 Menem, Carlos 178, 182, 184 Mexico 191 Mgadla, P.T. 144–5

Middle East 216 Milesi-Ferretti, G.M. 15–16, 89, 90 military regimes 203–4 military spending 81–2, 88, 91–2, 93–4, 95–6, 97–8; Argentina 180, 186, 191, 192; Botswana 155–6, 155; and democracy 81–2, 86–7, 93, 98, 200; and ethnic fragmentation 86, 88, 94, 98; and external conflict 82, 86, 94, 98; and foreign aid 86, 88; India 118, 124, 128, 129, 130, 131, 132; and institutions 86, 87, 98; and level of development 86, 98; and natural resource dependence 98; Pakistan 118, 118, 128, 129, 130, 131, 132, 133; presidential versus parliamentary regimes 90; sub-Saharan Africa 155, 160, 161, 162; and taxation 87–8, 93–4, 98 Millennium Development Goals 5 mineral wealth 26 minimalist democracies 44 Misra, J. 23 model and estimation method 75 Moore, M.H. 45, 51–2, 58 Mulligan, C.B. 85, 86 multicollinearity 64 Musharraf, General Pervez 118, 131–2, 204, 207, 214 Muslim League 130 Myerson, R.B. 15 National Commission on Education (Botswana) 151 National Worker’s University (Argentina) 181 Native Advisory Council (Botswana) 145 natural resources 26, 73; Botswana 162–3; and democratic accountability 55–6; and Latin America 190, 191, 192, 193, 194–5, 195; and military spending 98; and public spending 90–1 Nehru, Jawajarlal 110, 123 neo-institutionalism 9, 23, 37–8, 40, 60 neo-Marxism 21 neoliberalism 85 network governance 211 networks: strengthening administrative accountability under 210–12 New Institutional Economics (NIE) 35, 37, 38 new political institutionalism 23 new public management see NPM Niskanen, W.A. 14

Index non-governmental organisations 203 North Africa 216 North, D.C. 33, 202 NPM (new public management) 57, 205, 208–11; and customer-centricity 51; and PSP 28, 31 Odell, M.J. 143 O’Donnell, G. 48 OECD countries: education and health outcomes 164, 164–5; military spending 155; public spending on education 152, 152; public spending on health 154 official development assistance (ODA) 69–70 oil dependence 55, 73 oil revenues: influence on public spending 90–1 oil-rich authoritarian states: democratisation of 216–17 Olsen, J.P. 37, 38 Olson, M. 13–14 Onganía, General Juan Carlos 177, 182 ordinary least squares (OLS) estimation method 61, 63–6, 75 Orloff, A.S. 22 Osborne, D. 51, 58 outliers 64–5 Owen, P.D. 3 Pakistan 10, 110–38; agricultural sector 117; Ayubian period 111–12, 113–17, 121–2, 134; Bhutto’s democracy (1971-77) 127–9; bureaucracy/civil service 115–16, 121–2, 127–8, 129; Constitution (1956) 113; Constitution (1962) 121; Constitution (1973) 127, 204; corruption of bureaucracy 121–2, 127–8, 129; decentralisation reforms (2001) 112, 205–7; demand for social services 126; and democracy 121, 133, 202; democratic interregnum (198899) 130–1; economy 116; education and health outcomes 134–7, 135–6; education provision 117, 119; elections (2013) 133; feudal-military alliance 117, 118, 119, 122; formative phase (1947-71) 112–23; healthcare provision 120, 125; hostility with India over Kashmir 128–9; impact of Partition on 113; industrialisation 116; judiciary 111, 112, 116, 121, 122–3, 130,

259

213–14; land ownership 117; literacy rates 135, 135; martial law regime of Yahya Khan 122; martial law regime of Zia-ul-Haq (1977-88) 129–30; military spending 118, 118, 128, 129, 130, 131, 132, 133; Musharraf’s presidency (1999-2008) 131–2; public spending on education 118, 118, 119–20, 121, 124, 128, 130, 131, 132, 133, 134; public spending on health 117, 118, 120–1, 128, 130, 131, 132, 133, 134; school enrolment 135–6, 135–6; Sharif-led government 133–4; Social Action Programme 134; Zardari presidency (2008-2013) 132–3 Pakistan Peoples Party 130, 133, 134 Pakistan Supreme Court see Supreme Court of Pakistan Pampel, F.C. 21 Paraguay 191 parliamentary regimes 15, 46, 72, 213; and public spending 15, 89, 90, 99 Peltzman, S. 16 Penn World Tables 71 per capita income 70 perfect competition 34 performance 27 Perón, Juan Domingo 174, 175, 177, 181, 183–4, 185, 186 personal accountability 48 Persson, T. 15, 85, 90 Peters, G.B. 210 Pierson, P.555 37 policy: impact of on public spending 13–19; influence of pressure groups on 16 political ideology: and public spending 20–1; see also left-wing regimes political orientation dummy 72 political resource model 23 political systems 72 see also parliamentary regimes; presidential regimes political theory 37–8 politics-administration dichotomy 207–8 Polity2 scores 67 Pollitt, C. 212 Poulsen, J.D. 23 poverty 4, 5, 6 power concentration paradox 212 presidential regimes 15, 46, 72, 213; and public spending 15, 82, 83, 85–6, 89, 90, 92, 95, 99 pressure groups 16–17

260

Index

private sector: characteristics 33; and productive efficiency 34; resource allocation 32–6; role of institutions in 35; spending on health 107 professional accountability 47–8 proportional voting systems 15–16, 72; and public spending 16, 89, 90, 99 prospect of upward mobility (POUM) 14 Pryor, F.L. 21 Przeworski, A. 17 pseudodemocracies 44, 205 PSP (public sector performance) 27–30, 31, 57–8; and democratic accountability 29–30, 58; empirical dimension 28–30; and new public management (NPM) 28, 31; and public spending 29; theoretical dimension 27–8 public choice theory 22, 45, 87 public resource mobilisation: effect of on life expectancy at birth 105–6, 105, 106; and taxation 53–5 public sector: changes in structure and operation of 50; core characteristics 33; resource allocation 36–9 public sector performance see PSP public service: ethos of 209–10 public spending: and democracy 17–19, 82, 98–9, 126–7; and democratic accountability 31, 32–59, 160; and demography 21–2; determinants of 9, 12–31; and economic growth 21; and electoral systems 15–16, 90; and ethnic fragmentation 24–5, 88; and external rents 26–7; and foreign aid 26–7, 82, 99, 168, 200; and globalisation 24; and governance 25–6; on human development 6–8; impact of policy and its nature on 13–19; and institutions 16, 22, 82, 99, 199; and median voter 13–14; and natural resources 90–1; non-democracies 17–19; and political ideology 19–20; and PSP 29; and taxation 82, 99, 168, 187, 199–200, 218; and trade openness 23–4, 82 public spending (on education) 6–8, 81–2, 83, 84–6, 91–2, 95–6, 97; and aged population 85; Argentina 180–3, 191, 192; Botswana 140, 150–3, 152, 154, 166, 180–3, 192; and democracy 84–5, 87, 93, 97 199; and foreign aid 84, 88, 93, 97; India 118, 124, 126, 128, 130, 131, 132; and institutions 84, 86, 87, 93, 97; and level of development 85;

Pakistan 118, 118, 119–20, 121, 124, 128, 130, 131, 132, 133, 134; subSaharan Africa 152, 152, 160–2, 161; and taxation 85, 87, 93, 97; and trade openness 85, 88–9 public spending (on health) 6–8, 81, 81–2, 83–4, 91–2, 93, 95–6, 96–7; and aged population 83, 84, 88, 93, 97; Argentina 183–5, 191, 192; Botswana 140, 150–1, 153–4, 154, 166; and democracy 81, 83, 87, 93, 96, 199; effect on life expectancy at birth 107–8, 108; and foreign aid 83, 88, 96; India 118, 124, 125, 126, 128, 130, 131, 132; and institutions 83, 84, 87, 96; and level of development 84, 93; Pakistan 117, 118, 120–1, 128, 130, 131, 132, 133, 134; sub-Saharan Africa 154, 160–2, 161; and taxation 81, 82, 83, 87, 96–7; and trade openness 83, 84, 88–9 Ranis, G. 3 Rao, Narasimha 123, 132 reciprocal altruism 25 regimes: and democratic accountability 41–5 regression analysis 60–77, 199; autocorrelation 65; averaged values of variables 62–3; CNLRM and OLS assumptions 63–6; data period 62; dependent variables 66–7; dummy variables 71–3; estimation method and model 61–3; Group-I variables 67–70; Group-II variables 70–1; homoscedasticity 64; human development outcomes 74–7; hypothesis testing 63, 65; independence of disturbances from explanatory variables 64; limitations 10, 73; linear model 65; multicollinearity 64; normally distributed disturbances 65–6; outliers 64–5; sequence of fitting regression models 73–4 Reis, E.P. 208 rentier states 55, 56 representative democracy 42, 43 resource allocation: and bureaucracies 46, 49–50; and democracies 41 resource allocation (private sector) 32–6, 42; and consumer sovereignty 33–5, 42; limitations of 35–6 resource allocation (public sector) 36–9, 42; and citizen sovereignty 36–8, 42; and institutional accountability 49

Index resource-based accountability 52–7; and foreign aid 56–7; natural resources 55–6; and taxation 53–5 reverse causality 108–9 Rhodes, R.A.W. 25, 50 Richard, S.F. 13 Roberts, J. 3 Rodrik, D. 23, 24, 90–1, 207, 219 Root, H.L. 201–2 Ross, M.L. 54 Rudra, N. 18 St Aubyn, M. 29 Samatar, A.I. 163 Sarmiento, Domingo Faustino 180 Sayeed, K.B. 127 Schneider, R. 124 school enrolment: Argentina 193, 194–5, 195; Botswana 164, 165; and economic growth 3; India 135–6, 135–6; Pakistan 135–6, 135–6 Schuknecht, L. 29 Schumpeter, J.A. 53 Segura-Ubiergo, A. 17, 18, 24, 89, 185 Sen, A. 8, 41, 126, 127 Sharif, Nawaz 130, 131, 133–4 Singapore 1 Skocpol, T. 22 Smith, B.C. 214, 218 Smith, S.C. 4 Solow, R.M. 3 South Korea 137 sovereignty: resource allocation in the private sector and consumer 33–4; resource allocation in the public sector and citizen 36–8 spend-tax hypothesis 54 Stasavage, D. 18 Stigler, G.J. 16 sub-Saharan Africa: education and health outcomes 164, 164–5, 166; military spending 155, 160, 161, 162; public spending on education 152, 152, 160–2, 161; public spending on health 154, 160–2, 161 Sullivan, M.J. 49, 159 Supreme Court of Pakistan 114–15, 115, 122, 122–3, 129, 131, 213–14 Swaziland 160 Tabellini, G. 15, 85, 90 Taliban 7, 205 Tanzi, V. 29

261

taxation 68–9; and Argentina 169, 171, 173, 174–5, 176, 177, 179; and democracy 187; effect on life expectancy at birth 105; expanding for accountability 215–18; and foreign aid 217; and Latin America 189; and military spending 87–8, 93–4, 98; and public spending 82, 99, 168, 187, 199–200, 218; and public spending on education 85, 87, 93, 97; and public spending on health 81, 82, 83, 87, 96–7; and resource mobilisation 53–5 terrorism 205 Thailand 137 thick liberal democracies 44 Third Way 51 Todaro, M.P. 4 totalitarian regimes 18 trade openness 71; and public spending 23–4, 82; and public spending on education 85, 88–9; and public spending on health 83, 84, 88–9 Tsie, B. 157 UNDP (United Nations Development Programme)Human Development Report (1990) 5; Human Development Report (2009) 219 United States 204–5 Uriburu, General José Félix 174 Utter Pradesh (India) 126 Van Kersbergen, K. 25 Van Waarden, F. 25 Venezuela 193 Verhoeven, M. 29 Videla, General Jorge Rafael 177 Village Development Committees (Botswana) 157 Viola, General Roberto 178 voting see electoral systems Wagner’s Law 21 war variable 71 Weingast, B.R. 17, 53 welfare state 12–13; neo-Marxist theories of 21 Williamson, J.B. 21 Wilson, M. 3 Wittman, D. 14–15 Wood, B.D. 49 Woodhouse, D. 48, 210

262

Index

World Bank 206; lending 27; World Development Indicators (WDI) 66, 70; World Governance Indicators 77 World Development Report (1997) 26 World Development Report (2002) 26

Yahya Khan, General 122 Zardari, Asif Ali 132–3, 214 Zia-ul-Haq, General 30, 129–30