The ‘Good Governance’ agenda identifies a host of desirable governance goals for developing countries but its implementation and results have been very poor. An important reason is that the framework confuses means and ends, and ignores very significant historical facts about growth in the last century. Its position as the dominant consensus sets poor countries infeasible and unachievable agendas, creating dismay and disillusion, and takes our attention away from achievable and critical governance agendas. Mushtaq Khan’s presentation examines the theoretical and empirical limits of the consensus agenda and identifies the types of governance reforms that are supported by historically informed theory.

1. the illusory lure of “good governance” and the hard realities of growth in poor countries http:// mercury.soas.ac.uk/users/mk17 Mushtaq H. Khan

6. Theoretical linkages in the new consensus

7. The New Policy Agenda

9. Cross-Country Evidence

10. Cross-Country Evidence

11. Cross-Country Evidence

12. Cross-Country Evidence

13. Growth-Enhancing Governance versus Good Governance

14. Structural Constraints Facing Property Rights in Developing countries Stabilizing and protecting property rights is costly and assumes that most assets are already productive. Absence of tacit knowledge about modern production and associated low productivity requires business-government relationships to support ‘learning’ The demand for political redistribution outstrips supply of fiscal resources: political stability requires off-budget resource allocations (patron-client politics)

15. Stable property rights are absent in ALL developing countries

16. Achieving stable property rights across the board infeasible in developing countries Evidence from the transformational states in East Asia and China: Developmental states did not attempt to enforce all property rights equally at early stages of development Prioritized protection of rights of critical growth sectors/investors and vulnerable groups with appropriate enforcement capabilities Corrected allocations of assets that could not be corrected by inefficient markets (using land reform, land acquisition, zoning laws, often using informal processes) Institutions and politics created incentives for primitive accumulators to invest in productive activities

17. Rents, Rent seeking and Corruption endemic in ALL developing countries

18. The catching up problem

19. Credibility of withdrawal and effort If effort is high, investments in learning are viable. But if the financier lacks the credibility to withdraw effort may be so low that a subsidy is permanently required

21. Successful catching up may co-exist with rent seeking and corruption

22. Democracy is desirable but is based on patron-client politics in LDCs

24. Growth-enhancing governance capabilities Property Rights Rents and Rent seeking Political Stabilization for Technology Acquisition Dynamic Transformation States (possessing governance capabilities for growth) Slow or Unsustainable Transformations (absence of governance capabilities for growth) Protection and transfer of rights to unproductive groups Destruction or loss of rights of productive groups (absence of capabilities to discipline politically powerful) Fails to maintain systemic stability or results in damaging property rights or rent outcomes Protection, creation and transfer of rights to productive groups Destruction or loss of rights of unproductive groups (ex post flexibility) Provides sufficient systemic stability and allows productive outcomes in property rights and rents Business-government relationships allow emerging entrepreneurs to engage in catching-up strategies (effective rent management capabilities) Political interests and weak institutions protect growth-reducing rents AND fail to protect or manage growth-enhancing rents (state lacks capabilities to prevent rent capture)

25. Market-led growth strategies are working in some countries but they remain vulnerable