Imagine you wanted to build the most effective bureaucracy possible. Where might you look for inspiration? According to Daniel Rogger, a researcher at the World Bank, one of the best sources has been on our movie and television screens for over five decades—James Bond.
“James Bond is probably the most famous civil servant of all time,” said Rogger. “His approach toward officialdom is rooted in a strong sense of autonomy, a high mission orientation, a vibrant approach to seeking out detailed information on a case-by-case basis, and a culture of strong professional relationships.”
At a Policy Research Talk delivered earlier this year, Rogger unveiled the findings of a growing body of research and data that are helping identify how developing countries can create a bureaucracy that aspires to these kinds of ideals. Most civil servants will never chase villains across the globe like James Bond, but bureaucracies can still be places with a similar mission-driven orientation to serve the public.
Over the course of his presentation, Rogger took his audience on a whirlwind tour of the cutting edge of what researchers both inside and beyond the walls of the World Bank have learned about what shapes the functioning of bureaucracies. His findings fell under three broad headings: economics, politics, and culture.
One of the points that Rogger repeatedly drove home is that bureaucrats, like everyone else, respond to incentives—just not the usual ones. Rather, the incentives that lead to high-performing bureaucracies are influenced by the specific nature of bureaucratic work. Civil servants often carry out ambiguous tasks in uncertain environments and must multi-task across many types of work. In one study of the Ghanaian civil service, Rogger and his co-authors found that nearly 30 different government organizations work on policy, 23 work on physical infrastructure, and 20 work on permits and regulation.
The consequence of ambiguity and multi-tasking is that pay-for-performance incentives tied to easily measurable targets are likely to backfire. In a recent study of project completion rates in the Nigerian civil service, Rogger and his co-author found that the introduction of performance incentives actually slowed down project delivery, and this effect was more pronounced for those projects with higher complexity and ambiguity—for example, building a dam or a borehole.
Similarly, a study of government procurement in Russia soon to be published by London School of Economics Professor Oriana Bandiera and co-authors found that the introduction of performance incentives actually increased the prices paid by the government in the long run. In contrast, greater autonomy for bureaucrats sustainably reduced prices.
Instead of performance incentives, Rogger recommended two other types of reward systems that have been proven to improve outcomes. First, rewarding high-performing civil servants with their choice of posting or work program has been shown to improve outcomes in a number of settings. For example, in India promising postings to more desirable locations led police to increase the number and accuracy of sobriety checks. A second type of reward is the quality of management: staff are more motivated when their managers are effective, so tracking managerial practices across divisions could have substantial impacts on service delivery.
Yet Rogger pointed out that getting the right kind of incentives and people in place is not enough. Bureaucracies also operate within the constraints created by political systems. The key is for bureaucracies to remain responsive to political preferences without becoming politicized. A study of political interference in Nigeria demonstrates the trade-offs involved. In sectors where politicians have significant authority, projects are more likely to be started and completed. However, project quality also declines. Political pressure leads civil servants to shift contracts to companies preferred by the politician.
One remedy for this problem is greater transparency. In the United States, the Federal Employee Viewpoint Survey helps shine a spotlight on government departments that are underperforming. Likewise, audits in China have been shown to improve the selection of more competent mayors by utilizing more objective metrics to measure performance.
“Independent data on the public administration reduces the role for distortionary politics,” Rogger argued. Generating this independent data to improve the quality of government administration is part of the rationale for the Bureaucracy Lab that Rogger founded and co-leads.
The final piece of the bureaucratic puzzle is culture, but according to Rogger this is the area where research is still in its infancy. Creating a shared service identity with strong professional norms—think of James Bond as an exemplar of MI6—is the goal, but how best to create these norms is still an open question. Currently, a number of studies are under way in Liberia, Ghana, and Benin to find answers to this question.
“World Bank staff work hand in hand with civil servants from partner governments to end extreme poverty and build shared prosperity,” said Aart Kraay, Senior Adviser at the World Bank. “Better understanding what leads to high-performing bureaucracies is central to achieving our shared goals.”
The Path to Better Jobs in a Post Covid-19 Latin America
Economic crises like the one that Latin America and the Caribbean is suffering now, have long-lasting effects on the structure of employment and may permanently drive many from the formal economy, according to a new World Bank report.
The Covid-19 pandemic is having the biggest impact on low-skilled workers and exacerbating the region’s already high inequality, according to EMPLOYMENT IN CRISIS: The Path to Better Jobs in a Post Covid-19 Latin America. Low-skilled workers often suffer from lower earnings for a decade following a crisis, while high-skilled workers see a quick rebound. As a result, government labor policies should focus on providing social safety nets and retraining, as well as improving the macroeconomic and business environment to ensure long-term and inclusive economic growth.
“Economic recovery has often been a myth when it comes to jobs, but it doesn’t have to be that way,” said World Bank Vice President for Latin America and the Caribbean Carlos Felipe Jaramillo. “The right policies can help limit the impact crises have on employment and foster the creation of more jobs in recoveries.”
As some of the largest shocks that have shaken the region in recent decades show, the consequences of crisis in Latin America and the Caribbean are long-term and leave deep scars on employment. For example, employment data from before and after the Brazilian debt crisis, the effects of the Asian financial crisis in Chile, and the impact of the 2008-2009 global crisis in Mexico show that rapid recoveries did not materialize. In all three cases, the employment curve suffered a strongly negative deviation because of these crisis, which, far from reversing became more pronounced over time.
On average, after three years, major crisis cause a net loss of 1.5 million jobs, with a 3% contraction of formal work and an expansion of the informal. The current crisis could be even worse and cause a contraction in formal employment of up to 4%.
Low skilled workers tend to suffer the most, exacerbating persistent inequities in the region. For them, the scars of the crises can remain for up to a decade, with loss of income and greater vulnerability. In addition, two thirds of the countries in the region do not have national assistance or unemployment insurance programs. To minimize this long-term scarring, governments should adopt policies to support a sustainable recovery of economies and facilitate the recovery of employment.
“We need to seize the opportunity to build back better,” said Joana Silva, World Bank Senior Economist and the lead author of the report. “We should strengthen our labor markets so they are able to cope with and quickly reverse the impacts of future shocks.”
The key initial step is to put strong, prudent macroeconomic frameworks and automatic stabilizers in place to shield labor markets from potential crises. Sound fiscal and monetary policies can preserve macroeconomic stability and avert system-wide financial strain in the face of a shock. Fiscal reforms, including less distortive taxation, more efficient public spending, financially sustainable pension programs and clear fiscal rules are the first line of defense against crises.
Countercyclical income support programs, such as unemployment insurance and other transfers to households during downturns, limit the damage caused by contractions and help economies recover. One of the region’s challenges, though, is that large segments of the workforce are informal and thus cannot be reached through traditional unemployment insurance.
Also, it is crucial to increase the capacity of the region´s social protection and labor policies, blending these policies into systems that provide income support and prepare workers for new jobs through reskilling and reemployment assistance. Governments’ quick reaction to expand some social protection and labor programs in the wake of the pandemic can lead to progress in building better and more integrated social registries. This is feasible in the short run and can make a difference in the reach of these programs.
But stronger macroeconomic stabilizers and reforms to social protection and labor systems are not enough. Jump-starting job recovery by supporting vigorous job creation is also needed. This effort will require tackling structural issues. Competition policies, regional policies and labor regulations are key areas. If countries don’t address these fundamental issues, recoveries will remain characterized by sluggish job creation.
Critical Reforms Needed to Reduce Inflation and Accelerate the Recovery
While the government took measures to protect the economy against a much deeper recession, it would be essential to set policy foundations for a strong recovery, according to the latest World Bank Nigeria Development Update (NDU).
The NDU, titled “Resilience through Reforms”, notes that in 2020 the Nigerian economy experienced a shallower contraction of -1.8% than had been projected at the beginning of the pandemic (-3.2%). Although the economy started to grow again, prices are increasing rapidly, severely impacting Nigerian households. As of April 2021, the inflation rate was the highest in four years. Food prices accounted for over 60% of the total increase in inflation. Rising prices have pushed an estimated 7 million Nigerians below the poverty line in 2020 alone.
The report acknowledges notable government’s policy reforms aimed at mitigating the impact of the crisis and supporting the recovery; including steps taken towards reducing gasoline subsidies and adjusting electricity tariffs towards more cost-reflective levels, both aimed at expanding the fiscal space for pro-poor spending. In addition, the report highlights that both the Federal and State governments cut nonessential spending and redirected resources towards the COVID-19 response. At the same time, public-sector transparency has improved, in particular around the operations of the oil and gas sector.
The report however, notes that despite the more favorable external environment, with recovering oil prices and growth in advanced economies, a failure to sustain and deepen reforms would threaten both macroeconomic sustainability and policy credibility, thereby limiting the government’s ability to address gaps in human and physical capital which is needed to attract private investment.
“Nigeria faces interlinked challenges in relation to inflation, limited job opportunities, and insecurity”, said Shubham Chaudhuri, the World Bank Country Director for Nigeria. ”While the government has made efforts to reduce the effect of these by advancing long-delayed policy reforms, it is clear that these reforms will have to be sustained and deepened for Nigeria to realize its development potential.”
This edition of the Nigeria Development Update proposes near-term policy option organized around three priority objectives:
- Reduce inflation by implementing policies that support macroeconomic stability, inclusive growth, and job creation;
- Protect poor households from the impacts of inflation;
- Facilitate access to financing for small and medium enterprises in key sectors to mitigate the effects of inflation and accelerate the recovery.
“Given the urgency to reduce inflation amidst the pandemic, a policy consensus and expedite reform implementation on exchange-rate management, monetary policy, trade policy, fiscal policy, and social protection would help save lives, protect livelihoods, and ensure a faster and sustained recovery” said Marco Hernandez, the World Bank Lead Economist for Nigeria and co-author of the report.
In addition to assessing Nigeria’s economic situation, this edition of the NDU also discusses how the COVID-19 crisis has affected employment; how inflation is exacerbating poverty in Nigeria; how reforming the power sector can ignite economic growth; and how Nigeria can mobilize revenues in a time of crisis.
Indonesia: How to Boost the Economic Recovery
Indonesia’s economy is projected to rebound from the 2020 recession with 4.4 percent growth in 2021. The rebound is predicated on the pandemic being contained and the global economy continuing to strengthen, according to the World Bank’s latest Indonesia Economic Prospects report (“Boosting the Recovery”), released today.
The report highlights that although consumption and investment growth were subdued during the first quarter of 2021, consumer sentiment and retail sales started to improve during the second quarter suggesting stronger growth momentum. However, it also notes that pandemic related uncertainty remains elevated due to risks of higher viral transmission.
“Accelerating the vaccine rollout, ensuring adequate testing and other public health measures, and maintaining strong monetary and fiscal support in the near term are essential to boosting Indonesia’s recovery,” said Satu Kahkonen, World Bank Country Director for Indonesia and Timor-Leste. “Parallel reforms to strengthen the investment climate, deepen financial markets, and improve fiscal space for longer-term sustainability and growth will be important to further build consumer and investor confidence.”
The report recommends the government to develop a well sequenced medium-term fiscal strategy, including clear plans to improve tax revenues and fiscal space for priority spending. It also highlights the importance of maintaining accommodative monetary policy and stimulating private credit to support the real sector while monitoring external and financial vulnerabilities.
The report highlights the critical role of adequate social assistance in mitigating rising poverty risks. It finds that maintaining the 2020 social assistance package in 2021 could potentially keep 4.7 million Indonesians out of poverty.
This edition of the report also looks at the possibilities for Indonesia to boost higher productivity jobs and women’s economic participation.
“Indonesia has reduced poverty through job creation and rising labor incomes over the past decade. The next stage is to create middle-class jobs that are more productive, earn higher incomes, and provide social benefits,” said Habib Rab, World Bank Lead Economist for Indonesia. “While the crisis risks have exacerbated Indonesia’s employment challenges, it is also an opportunity to address the competitiveness and inclusion bottlenecks to creating middle-class jobs and strengthening women’s participation in the economy.”
The report recommends a four-pronged reform strategy to address these jobs-related challenges:
- Mitigate employment losses by maintaining adequate job retention programs, social assistance, training, and reskilling programs until the recovery is stronger.
- Boost productivity and middle-class jobs by promoting competition, investment, and trade.
- Equip the Indonesian workforce to hold middle-class jobs by investing in education and training systems and programs to improve workers’ skills.
- Bring more women into the labor force and reduce earning gaps between men and women by investing in child and elderly care and promoting private sector development in the care economy.
The Indonesia Economic Prospects Report is supported by the Australian Department of Foreign Affairs and Trade.
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