Good governance requires representation and effectiveness. A representative government, if it is not effective at decision making, may generate frustration and conflict among different groups. In turn, administrative effectiveness, if it is not based on fair representation of the society, can be counterproductive, since it may produce arbitrary governmental decisions against the citizens’ major ity preferences. However, the neologism governance emerged in political science and public administration studies in reference to a set of institutional rules, coordination, and decision-making processes aimed at attaining effectiveness in defining collective goals, making priorities, and producing outcomes as, in a similar way, one can talk of private corporate governance, rather than of representative government.
Concern with governance has grown with changes in the environment of existing governments and the subsequent worsening of their performance. Recent processes of increasing internationalization, usually labeled “globalization,” and intensification of societal complexity have indeed undermined the basis of traditional territorial jurisdictions and hierarchical, top-down coordination mechanisms. They have caused different forms of state decline, state restructuring, or state failure. In the new environment, good governance requires larger and more diversified territorial scopes of public policies and a new functional specialization and fragmentation of policy-making and political institutions.
Causes Of Ungovernability
Put in more theoretical terms, recent concerns with governance reflect a decreasing fit between institutional structures and recurrent patterns of behavior in the environment of these structures—a situation that may emerge in human history in different places and times. The current perception of a decreasing performance of state-centered governance can be attributed to three different processes: (1) increasing internationalization of human exchanges and relationships; (2) state failures, provoked by excessive demands on governments, excessive state intervention, and the fiscal crisis of the state; and (3) the failure of certain states.
Internationalization
Increasingly, the world is becoming organized into a number of vast transnational areas of “imperial” size going beyond the limits of traditional nation-states. First, broad military and security alliances, such as the North Atlantic Treaty Organization (NATO), provide an international umbrella for collective security that makes traditional state armies inefficient or even unnecessary. The change of scale is especially necessary in order to face new threats from international terrorism and the diffusion of weapons of mass destruction. Second, transnational trade agreements proliferate, such as the European Union (EU), the North American Free Trade Agreement (NAFTA), the Southern Common Market (Mercosur), and the Association of South East Asian Nations (ASEAN).Virtually no country in the world remains outside some formal international trade agreement, especially under the sponsorship of the World Trade Organization (WTO). Widespread currencies, such as the dollar and the euro, and international monetary policies make traditional states obsolete in their task of shaping and protecting markets and inefficient in governing the economy.
Dramatic reductions in the costs of transport, especially by air, and of communications, especially by telephone and the Internet, have greatly favored these new developments. Just as other technological changes in the past (like gunpowder or railways) induced the formation of relatively large states and made them viable, others are now creating larger areas of human relations that make traditional states too small for efficient performance.
At the same time, transnational processes create new opportunities for local political units of small size to develop their self-government. Specifically, the larger the markets, the more regionalized the economic activity tends to be. In general, economic differences across the territory increase with internal integration, which tends to foster territorially differentiated political demands. Also, linguae francae, such as English and others, permit human beings to develop broad communications while maintaining their own local languages and cultures and avoiding the costs of forced homogenization typically imposed by large nation-states. Indeed the number of independent countries has increased dramatically since the early twentieth century, leading to an overall decrease in the size of countries, a process that has developed in parallel to the diffusion of democracy across the world. Decentralization of large states, diverse forms of asymmetric federalism, and the independence of small political units, while they undermine traditional nation-states, also favor the introduction of new forms of democratic governance.
State Failures
Warning calls regarding the problems of the state to cope with the tasks with which it was confronted began to rise during the 1970s. They were triggered by both increasing political unrest in mature democracies and a new period of economic stagnation. An early report on the governability of democracies, which was addressed to the Trilateral Commission dealing with problems in Western Europe, Japan, and the United States, remarked on the “overloading” of government. The authors identified at the time three main sources of concern: increasing demands from diverse social groups, increasing public expenditure, and the decomposition of political party systems, provoking the vanishing of single party majorities in legislatures (and “divided government” in the United States). They concluded that “the demands on democratic government grow, while the capacity of democratic government stagnates.”
A specific failure was the management and performance of state-owned enterprises. Especially after World War II (1939–1945), many private companies were expropriated and managed by government officers, not only in communist-dominated countries but also in a number of Western European democracies under labor or social-democratic governments, most prominently in Britain and France. It can be estimated that in the peak year of 1982, counting both communist and noncommunist countries, about one-third of total world output was produced by state-owned enterprises, while more than 40 percent of the world’s wage earners were state employees. In noncommunist countries, state-owned enterprises experienced lower productivity increases than private enterprises, as could be observed when they were compared with private enterprises of the same sector in other countries. The average deficit of state enterprises was about 19 percent of their output by the mid-1970s. In order to maintain activity and employment, state enterprises received huge amounts of transfers and subsidies from central governments, and this money had to be extracted from resources in other sectors of the economy.
More generally, a new strain of academic literature focusing on state failures remarked that not only state-owned enterprises but also most state agencies formed to provide public services were oversized and socially inefficient, because they were controlled by self-interested politicians and high-level bureaucrats interested in expanding the state. In this approach, it is assumed that while politicians usually do not give priority to economic efficiency (but rather to political power), nonaccountable bureaucrats tend to expand the size of the bureaucratic apparatus and inflate personnel, which, like any inefficient monopoly, produces low production and absorption of profits. «State failures” became the other side of traditionally identified “market failures” in the provision of public goods.
Finally, as a consequence of its overload and excessive size, the state experienced a fiscal crisis, as has been identified since the 1970s from different and even opposite intellectual platforms. From a perspective critical of the capitalist system, it was remarked that the requirements of “capitalist accumulation” contradict those of “legitimation,” given the sustained tendency for public spending to outpace revenue. From a new conservative perspective, criticism of tax-and-spend policies provoked political and electoral revolts against parties and politicians favoring high taxation. Currently, the bulk of public expenditure in most European countries depends on broad social security systems, especially old-age pensions. Specifically, in continental Europe, social spending amounts to more than 30 percent of gross domestic product (GDP).The state has the dilemma of choosing ever increasing tax burdens—a choice that encounters political resistance—or cutting back public spending programs.
Failed States
As reviewed above, bad governance can be linked to some blatant state failures, especially in high-income countries. But in other parts of the world, rather than state failures, there are failed states. In contrast to the former, the latter are undersized and insufficiently operative states.
The better-established states are the few units that have been accepted as members of the Organization of Economic Cooperation and Development (OECD), since, according to the organization’s criteria, they must share a commitment to democratic government, good governance, and a market economy. In total, there are thirty such states, of which twenty-three are in Europe, three in North America, two in Asia, and two in Oceania. Elsewhere, the attempts to build sovereign and effective states have been much less successful. Good governance in a state requires indeed an extremely costly initial accumulation of resources into the hands of the public authority, a condition detrimental to the opportunities for private initiatives, at least at some foundational stage. Building a new public administration able to impose order, guard the borders, and collect taxes over a large territory requires heavy, labor-intensive investments, which may imply net losses for the economic activity of the subjects. Only when the size of the bureaucracy is sufficiently large can it be more technology intensive and produce outputs with net social benefits. Many countries have not reached such an advanced stage of statehood development. In particular, a number of former colonies and other deprived territories without administrative resources have been unable to achieve minimum levels of state effectiveness and governance.
In several dozen countries at the bottom of the scale of statehood, the government has actually ceased to function, if ever it did. This implies that the central rulers have no control over most of the state’s territory; they are ineffective in collecting taxes; they do not provide even the most basic goods and services (not even money coinage, for instance); there are epidemic diseases, widespread crime, disorder, rebellions, ethnic civil wars, and frequent interstate border conflicts; natural disasters become highly destructive; and masses of people emigrate, up to the point that emigrants’ remittances become the first source of income for natives. There are several accounts of failed states in the current world, including the World Bank’s list of between thirty and forty “fragile, collapsed, or failing states,” its list of states in internal conflict called LICUS (low income countries under stress), and Britain’s Department for International Development’s list of forty-six “fragile states” of concern. Most of these states are located in Central and West Africa, the Middle East, Asian territories of the former Soviet Union, Central America, the Caribbean Sea, and the Andean region.
New Governance
The decline or failure of governance in the framework of traditional states implies economic inefficiencies, bad governmental performances in providing public services, and democratic deficits in the form of low levels of rulers’ control and accountability. Subsequent responses have attempted to address these concerns.
International Governance
Increasing relations beyond the traditional limits of nation-states require certain worldwide institutional arrangements, including international organizations such as the International Monetary Fund (IMF) and the WTO, interstate agreements, and common practices such as arbitration. But as transnational exchanges and relationships develop within large world regions, such as North America, Europe, or Asia, rather than as true “globalization,” it also makes other complex institutional arrangements highly relevant. At continental scale, multilevel governance implies a set of overlapping jurisdictions in which no authority rules with exclusive powers. Rather, the central government may rule indirectly through local governments, the latter may develop self-government on important issues, and power sharing can be widespread.
The EU is a case in point in order to discuss how to overcome the so-called democratic deficit. At the European level, the Council of Ministers, which represents the citizens of each country through their own institutions, can be considered an upper chamber of territorial representation of a federal-like type. Accordingly, the council is increasingly made up of representatives of not only the state governments, but also the substate, regional governments and parliaments. Likewise, the European Parliament, whose members are chosen directly in Europe-wide elections, can be considered the lower chamber, the representative institution of the European citizens. In fact both chambers, the council and the parliament, develop significant legislative powers and mutual vetoes. Since the council and the parliament are elected separately and by different rules, they tend to have different political party majorities, and the corresponding interinstitutional decisions tend, thus, to be based on very broad agreements. In turn, the European Commission, which is appointed by the two parliamentary chambers, can be considered the EU’s executive, but it shares powers with those at the other levels.
The current institutional arrangements of the EU create new opportunities for representation and decision-making power of different territorial governments. The officially adopted principle of “subsidiarity” favors the allocation of decision-making power to the smallest political unit capable of dealing effectively with the corresponding issue, although the subsequent distribution of powers is subject to case-by-case specifications. Transnational cooperation also develops across state borders, leading to the formation of euro-regions and leagues of cities. As borders, customs, police controls, and exchange offices have vanished, neighboring regions located on either side of state frontiers tend to coordinate their common interests and develop “good practice” solutions.
In this multilevel framework, traditional interstate direct relations and cooperation, based on a mutual recognition of sovereignty, are being replaced with more complex relations among states, euro-regions, regions, metropolitan areas, cities, and other structures. The traditional model of the sovereign state was a Procrustean bed pretending that one size fits all. In contrast, different territorial scales appear to be efficient for the provision of different collective goods to be consumed and financed by human groups of different size.
New Public Management
In response to state failures, a number of proposals to improve corporate management of public administration in the provision of public services have been highlighted since the 1970s and 1980s. Specifically, there have been widely diffused proposals to introduce private sector management methods and market rules into the public sector. State managers should be made more accountable (a problem previously identified regarding managers of big private companies), public agencies should compete among them, and state-owned enterprises should be required to produce returns as if they were private firms operating in competitive markets, especially through contracting out, quasi-markets, and consumer choice.
With this, both politicians and citizens (or consumers) were bound to ask why, if state-owned enterprises were to work like private enterprises, should they be state owned at all. A new proposal was, thus, privatization (in fact, in many cases, reprivatization), a word that had been coined with this purpose in 1968. State governments have been indeed downloaded and downsized. During the 1980s and 1990s, there were more than 4,000 privatizing transactions, valued at more $1 trillion, in more than 100 countries. By 2000, the share of state-owned enterprises in the gross domestic product had been reduced to less than half its previous value in high-income countries (from 10 to 4 percent), less than one-third in low-income countries (from 16 to less than 5 percent), and less than one-sixth in former communist European countries (from more than 90 to less than 15 percent). Divested firms almost always became more efficient and more profitable, increased their capital investment spending, and became financially healthier than state-owned enterprises (with the major exception of Russia), according to a review of twenty-two empirical studies on privatization.
In a parallel campaign, international organizations, private think tanks, and certain political leaders argued that the civil service should reduce staffing, introduce budgetary discipline, decentralize administration, and make greater use of nongovernmental organizations. In a number of countries, public officers and bureaucrats were submitted to performance measures such as managing by results, value for money, and closeness to the consumers.
The creation of networks has been highlighted as a particularly innovative way to improve service delivery systems. Networks in this sense are combinations of government with the private and voluntary sectors, including local authority, central government, unions, and business. They can be conceived of as a form of social coordination and allocation of resources based on trust and cooperation among varied actors, and they differ from traditional models of policy making based on either hierarchy or markets. Networks are self-organizing and develop diplomacy, reciprocity, and interdependence. However, they have also been blamed for being unrepresentative, closed to outsiders, unaccountable for their actions, and prone to serve private rather than public interests.
Finally, the fiscal crisis of the state was responded to with claims for fiscal responsibility. The policy of balanced budgets—that is, to equate the public revenues with public expenditures over the business cycle—was adopted as mandatory by most states of the United States during the 1980s and the 1990s. The EU requires member states using the euro to have an annual deficit of no more than 3 percent of gross domestic product. The IMF has made balanced or near-balanced budgets a condition of aid to some low-income countries.
Successful States?
Among other virtues, the recent discussion on governance has challenged certain traditional statements about the advantages of statehood. Contrary to some conventional knowledge, sovereign statehood does not appear to be a necessary condition for good democratic governance. Indeed, democracy—in the sense of free elections and control of rulers by broad layers of citizens—had already existed in numerous local communities in the ancient and medieval world, long before the notion of state was invented, and democracy is now practiced in many private organizations, in several hundred democratic but nonsovereign local and regional governments, and in transnational institutions such as the European Parliament.
Historically, most of North America, Russia, and Asia kept very large compound republics or empires for long periods and were unacquainted with the Westphalian model of sovereign nation-state. It was in Western Europe that a few large, robust states were built by affirming their own sovereignty visà-vis other states. But, after long periods of continuous interstate and civil wars and conflicts, only in the second half of the twentieth century did Europe achieve an institutional equilibrium able to provide democratic governance, peace, and prosperity by building a very large union based on military, commercial, monetary, and political cooperation among states.
In large parts of Latin America, Africa, and the Arab region, former European colonies tried to replicate the Western European model of sovereign nation-states, but the failure of a high number of states in those regions seems unquestionable. Bad governance in these countries implies not excessive intervention, as is claimed for high-income countries, but lack of rule of law and insufficient provision of public goods. So far, institutions such as the Organization of American States (OAS), the African Union, and the League of Arab States have been revelations of intention and hope more than effective organizations. But, in the absence of operational states, building and putting into effect large institutional networks of this sort might be, as it was in Europe, the best way to attain stable good democratic governance in those parts of the world.
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