Sunday 24 February 2013

Private innovation, public goods: leapfrogs, short-cuts and pragmatic principles

If they both reflect a kind of innovation, how do we distinguish 'corruption' from 'entrepreneurship' -- and encourage only the latter?

In my day job covering contemporary Africa's political economy, two distinct narratives have consistently high prominence -- and I wonder about the link between them.

One is the hugely debilitating effect of various forms of corruption -- manipulating public goods and processes for private ends. The other is the much-praised capacity of individuals and groups to make ends meet (or even multiply) despite poor or problematic public services and systems; one constantly encounters anecdotes about how this is a continent filled with highly innovative and enterprising people whose irrepressible spirit of commerce and exchange holds great promise whatever the state does or fails to do.(*)

How can we see these as part of the same issue, not as unrelated parallel stories?

Is it possible to find -- in admiring the ingenuity involved in some corrupt or illicit practices -- some silver lining about the scope for more efficient, effective or legitimate relations between those in public office and private firms or individuals? (**) Can the same spirit-of-enterprise that sometimes manifests as corruption be harnessed to increase not constrict public choice? Can the particularised trust that enables corrupt relationships be seen as the same raw material from which one can envisage a richer reservoir of generalised trust in which greater and wider prosperity is possible for more people?

Most literature focusses on how corruption stifles innovation because, for instance, it undermines trust in how a partial state might treat the fruits of any enterprise (see for example Mauro 1995; Mbaku 2007; Anokhin and Schulze 2009; cf. Mironov 2005). But what if at least some of the same creative thinking that goes into corrupt practices is from the same pool or resource of spirit-of-enterprise that might be capable of finding useful good short-cuts or leapfrogs that make government more efficient and responsive and better able to serve the wider public interest? (***)

Thus how do we foster 'good' creativity and innovation by private entities and individuals not just in commerce or social services but also in designing or influencing the provision of public goods such as security, public financial integrity or the rule of law?

You will see that I have no idea! This post involves fumbling about in the hope of stumbling upon the beginnings of a theory that manifests principled pragmatism and looks for ways to see how transactions and relationships that appear illicit and damaging may have lessons in terms of regulating the interface of private interests and public authorisation, which is where corruption occurs. If I find it I will also find a neater name than 'Governance-by-outcome-not-process'. It is in procedures that opportunities for corruption lie; those who seek to short-cut such procedures (for nefarious or even just frustrated reasons) may be telling us something about designing institutions and regulations to minimise opportunities for rent-seeking by officials.

There are familiar balances involved in idealising forms of regulation and governance: for example, one wants public servants to be responsive and pragmatic (accessible and clean), but not too responsive and malleable (accessible but corrupt). Moreover, of course, not all the regulation that matters or works comes from the state. We talk about fostering 'bottom-up' initiatives, but are also typically sceptical about those that come from non-state sources.

But I don't mean this -- rather I mean being prepared to accept (a) that some corruption fosters growth or distribution, or indicates that formal licit approval is too hard for some sectors of the public (ie, corruption could represent a reaction to bad policy, a sign that governance is not working or is requiring anti-social short-cut actions which could instead be investigated and the innovative approaches directed towards pro-social outcomes); (b) some corruption nodes indicate bureaucratic bottlenecks that simply should be relaxed or removed (rather than 'strengthened' by anti-corruption measures) and (c) corruption sometimes indicates that individual actors have found a more efficient route than policymakers prescribe, which may have virtuous implications (see for example Leff 1964; Bailey 1966).

This is all rather undercooked, but represents an attempt to think about how to design systems of governance and development-promotion that instead of requiring innovation in terms of ways to get around regulations, designs regulations that stimulate 'good' short-cuts and leapfrogs that help point officials towards making government both responsive and responsible. I stand ready to be accused of rank naivety...

Jo

* = Often, of course, it is less romantic things at work, and what is cast as 'enterprising' is instead just about survival or subsistence; that is, adversity and necessity -- not just curiosity or the promise of commercial gain -- are a major source of inventiveness.

** = The other point to note is that much of the most damaging corruption (in Africa and around the world) is not particularly innovative: often it is just a blunt and blatant act of taking (or withholding, for example of tax obligations) that does not require strong entrepreneurial skills to find ways around barriers, it only requires weak systems of oversight and accountability. Moreover, from the perspective of those marginalised from their proceeds or benefits, formalised systems of governance may be seen simply as private enrichment systems dressed up as public order. It depends on one's view of the legitimacy of the state and its processes in any one setting.

*** = A somewhat related question is the opportunity cost of anti-corruption and accountability systems -- some (eg Anechiarico and Jacobs 1996) argue, in effect, that effort should rather be directed to supporting 'good' creativity in governance rather than trying to stamp out 'bad' creativity...

Sunday 17 February 2013

'Revolving Doors': the private sector and public service integrity in Africa

African countries' current high growth rates raise a host of governance issues, too.

One contemporary African policy dilemma is to facilitate greater understanding and cooperation across the public-private divide, without familiar problems such as firms 'capturing' (unduly influencing) their own regulators.

Given the pan-continental shortage of skilled management-level staff, one current under-played strategic issue is how to build (and retain) a competent cohort of public sector regulators and policymakers, when local and global firms (and, importantly, state-owned 'private' enteprises) expanding in Africa seek to hire people from the same shallow skills pool.

Related to competency questions are integrity ones when firms seek to hire public servants precisely because of their political / policymaking contacts and influence.

Yet there is nothing new, nor unique to developing countries, about such patterns of moving across to the private sector -- just visit Washington DC's massive defence procurement establishment. Moreover, with all the focus now on the private sector's role in meeting public ends, there are strong arguments for encouraging public servants to understand and experience the private sector better, and vice versa; indeed, in a late-2012 post I wrote to that effect on 'building trust' between government and business -- here. In various other posts I've argued for more flexibility about secondments and business support to developing regulators' capacity (see here, for example, in post-conflict weak governance settings).

Of course, such ideas come with a risk of regulatory capture or corruption. What can Africa learn from Asia in terms of the 'revolving door' -- maintaining integrity and performance when officials move seamlessly between 'private' roles and public office?

My work colleagues have published various insights on these issues -- in relation to India, for example, where conflict of interest arise given how readily ex-officials join semi-privatised or fully private conglomerates. But how -- even without the benefits of public-private movement of staff, or the inevitability of it -- are such issues to be policed in African settings? Western practices do not necessarily offer an example, and non-Western practices may reflect a genuinely different (less rigid) perception of distinct public and private business spheres. Moreover, a recent analysis by one of our firm's experts noted that curtailing the prospects of entering the private sector later in life would deter talented people from joining the public sector in the first place, and why shouldn't they be free to 'cash-in' on their skills if the private sector find these of value?

That analysis looked at the growing tendency towards measures such as insisting on 'cooling off' periods (before taking up a private sector job), or undertakings to refrain from direct lobbying of one's former government colleagues.

In African settings, a company would weigh the reputational risk it faces by hiring from its regulator or relevant ministry with the benefits such person would bring in understanding official positions and postures. From a public policy perspective, the fear is that fast-growing economies see their best and brightest officials poached to the private sector or parastatals, or a very blurred set of networks and lines of influence that, in the long term, obscure the chances of building a more competitive, transparent economy capable of sustaining higher growth and widening it to beyond just a few sectors like mining or oil-gas.

This dilemma (foster greater public-private dialogue, but gaurd against undue influence) will not be resolved easily, if at all.

Jo

Ps -- See here for one interesting read / guidelines on the dilemmas of what is proper in engaging in public-private dialogue. This relates to the wider issue rather than the revolving door dimension of it.

Friday 8 February 2013

Mining and development: 'A' to 'Z' of the 2013 Mining Indaba

The nature and extent of mining firms' role in meeting host country / community development aspirations is a daunting and complex topic.

This post comes from South Africa, where yesterday I attended the final day of the mammoth African Mining Indaba (investment conference).

The final day focusses on sustainability issues in large-scale mining -- but the 'A' to 'Z' title of this post over-promises, since I have no intention on summarising the conference.

I propose only to mention two thoughts I had while listening to experienced CEOs, the ICMM and others on sustainability / mining-for-development / mining-as-development issues. One ('A') is an Australia-related thought (or attempted analogy); the other ('Z') is Zimbabwe related. Mining has been a big part of the industrial history of both these vastly different countries that have in common only that I happen to have lived in each!

Scaling-up social investment

How do firms under pressure to improve livelihoods balance payments to appease individual workers (and so the collective labour-force), with large-scale social investment that benefits such a group but in a less direct fashion?

The Australia example is this. In 2009, in an effort to stimulate consumer spending and stave off recession, the government offered individuals small packages of cash that together amounted to billions of dollars. I was able to buy the predecessor to this laptop. Yet the pay-outs were criticised on the basis that one-off cash to individuals could not be justified relative to the large, once-in-a-generation infrastructure project that the same cash total could fund (with ancillary job-creation and other benefits).

Major South African platinum (and other) mining firms last year offered wage increases in response to stoppages partly caused by complaints about cost-of-living and access-to-basic-services issues in the mine site area. Such strategies may come at the cost of longer-term ones, where the same funds are used to build shared infrastructure (such as water and sanitation). The latter strategy raises a host of difficult, familiar issues about distinguishing corporate from government duties. Nevertheless, yesterday's discussion at times seemed apolitical: it will be intensely political, for example, to persuade local authorities in the Rustenberg area of South Africa to build (or allow companies to build) more permanent housing for a workforce that local residents sees as foreign (being heavily comprised of migrants from the eastern Cape, Lesotho and elsewhere).

Scaling up research on social investment

The Zimbabwe analogy is this -- and it relates to the need, in my view, for more research on the empirical links between social investment and reduced political risk.

It is routinely -- as at Indaba -- stated that increased corporate investment in social services builds the social license to operate, and it is inferred that this lessens the overall risk of sudden or catastrophic governmental interference with a mining asset. As well as reducing the prospects of local friction and resulting disruption (although spending and local procurement or hiring can create or worsen local grievances and competition, too), it is certainly arguable that investment that consolidates the social license also reduces the likelihood that a mining or oil/gas site will provoke local political energies that lead to national adverse political attention, thus putting the overall formal license to operate at risk of political scapegoating.

Yet this link is not a necessary one -- hence the need for more empirical studies. It is not necessarily the case (look at platinum firms' experiences in Zimbabwe recently) that a better social performance profile immunises a firm from high-level political pressures. Many of the processes at work are driven by issues and forces far bigger than an individual site or firm; the company's reputation and goodwill might be irrelevant in terms of how government treats it.

The actual Zimbabwe analogy I meant is from white commercial farming in the 2000s. Others have studied this far more closely, but it seems to me that there was no necessary link between farmers who had refrained from developing their workers' livelihoods (electrifying compounds, water, clinics, etc) and the likelihood of their properties being subject to formal compulsory requisition (or informal and illegal seizure by political elites or groups). Being a better citizen farmer might have helped reduce the scope for scapegoating any individual, but most farmers were at the mercy of a much wider and more complex, irresistible set of forces. In that process, their responsible actions in social investment terms often had little impact on whether they retained their property or not.

The point is that social investment strategies are both right, and make business sense. Yet more research is needed on the link between them and reduced political risk. Indaba speakers merely asserted this link.

So what?

Each year that I've been, the Indaba highlights how intensely political, ultimately, it is to enter another country and extract its resources. Navigating the risks and opportunities involved is part of my day job; thinking about the duties and dilemmas of the private sector (vis a vis government) is this blog's subject. No-one has a monopoly on solutions to these pressing, difficult issues.

Input welcome!

Jo

See previous posts on resource nationalism and other topics for discussion of related issues, both in South Africa's (rather unique, yet also not) context and more broadly.