Applying good governance concept to promote local economic development: contribution and challenge.

• Author: Liou, Kuotsai Tom
• Position: Report

Abstract

This paper examines the application of good governance concept in the area of local economic development and focuses on contribution and challenge issues. The paper includes a review of major concepts of the good governance, the role of government, and the importance of public management reform. On the contribution issues, the paper emphasizes such concepts as the devolution and decentralization policy, the flexibility and choice principle, and the networking and partnership strategy. On the challenge issues, the paper identifies potential problems of the limitation of managerial capacity, the lack of accountability, and the inconsistence of leadership and policy. The implications of both contribution and challenge issues are summarized in the conclusion section.

Key words: good governance, economic development, public management and reform, and public policy.

Introduction

Local economic development has been one major public policy emphasized by many governments for the past several decades. In the United States, for example, local governments are interested in economic development policy because of the changing domestic and international political and economic environment. In the domestic environment, local governments have to find additional resources when they experienced such events as the economic recession, the rise of tax revolt, the federal budget deficit, and the cutback of federal aid. In the international environment, the globalization of the world economy, the increase of foreign investment, the end of Cold War, and the advancement of communication technologies have provided local governments good opportunities to seek new markets for the development. To support the goal of economic development, policymakers have to emphasize reform ideas to improve the operation of their local government systems.

Among various reform ideas, the good governance approach has become a popular reform model in recent years. Researchers have examined the application of governance concepts in various aspects of public administration. For example, Peter and Pierre (1998) study changes of governance to traditional public administration concepts and compare similarities and differences between the New Public Management and the governance model. Kettle (2000) explains the transformation of governances in the areas of globalization, devolution, and the role of government. Hague (2001) discusses the problem of demising publicness of public service under the mode of governance. Lynn, Heinrich, and Hill (2000) promote the theory-based governance research by addressing the need to review the literature of political economy.

To promote economic and social development, researchers have also studied the application of good governance concepts in many developed and developing countries. For example, OECD researchers explain that many governance concepts have been emphasized in various public management reforms of their member countries to support their social and economic development (OECD, 1995a; 1995b; Keating, 1998). In the process of development, Werline (2003) argues that the difference between poor countries and rich countries has to do with governance challenges rather than resource issues. Shepherd (2000) believes that good government may be necessary for economic development, but it is not enough for poverty reduction of social development. Kliksberg (2000) further argues a need to rebuild the state to create a "smart government" for social development. The smart government focuses on the state's strategic role in the society and in the development of an institutional design and managerial capacities to improve the effectiveness of the state performance.

The purpose of this paper is to examine the application of governance concepts in the field of local economic development. The paper consists of three sections: (1) summaries of literature review about the role of government in economic development and good governance concepts; (2) discussions of major contributions of good governance to local economic development; and (3) comments on potential challenges associated with the governance model. Implications and suggestions about the relationship between good governance and economic development are summarized in the conclusion section.

Governance Concept and Economic Development

1. Governance Concept

   Since the 1990s, many international aid organizations (e.g., World Bank, 1989) have recognized governance problems in their efforts to promote economic and social development in many developing countries. The governance problems refer to two issues: (1) the abuse of public funds by local elite groups and (2) the ignorance of local political practices by the international donors. The donor organizations believe that good governance is necessary for economic development in these countries. They promote good governance concepts and emphasize the importance of governance reform in these countries.

   While supporting the governance model, researchers have provided different explanations about good governance concepts. For example, World Bank researchers (1994) explain that governance refers to the exercise of the power of the state in managing a country's social and economic resources, as well as other related mechanisms for public accountability, rule of law, transparency, and citizen participation. Four specific elements of governance are: (1) accountability (i.e., officials being answerable for government behavior), (2) participation (i.e., the involvement of citizens in the development process), (3) predictability (i.e., legal environment being conducive to development), and (4) transparency (i.e., the availability of information to the public and the clarification of government rules, regulations, and decisions) (Asian Development Bank, n.d.).

   Pierre and Peters (2000) maintain that governance is about government's changing role in society and its changing capacity to pursue collective interests under severe external and internal constraints. They identify four elements of governance: (1) the importance of networks (i.e., the use of networks to dominate public policy), (2) the change from control to influence (i.e., government's influence through a continual process of bargaining and persuasion), (3) the blending of public and private resources (i.e., the importance of network framework), and (4) the use of multiple instruments (in developing and implementing public policies) (Peters & Pierre, 1998).

   Unlike previous researchers, Salamon (2002) has emphasized the tool and skill issues in the new governance model. On the tool issue, he explains that the unit of analysis in the governance approach is not the public agency or the individual program but the distinctive tools or instruments through which public purposes are pursued. On the skill issue, he explains that the new approach shifts the emphasis form management skills (i.e., the control of large bureaucratic organizations) to enablement skills (i.e., the skills required to engage partners in networks and to bring multiple stakeholders together for a common goal). To support public policy and action, Salamon introduces such governance tools as direct government involvement, social and economic regulation, contract and grant, direct loan and loan guarantee, insurance and tax expenditure, fees and charges, liability law, government corporations, and vouchers.

2. The Role of Government in Economic Development

   One major issue regarding the application of governance concepts to economic development is the role of government in economic development. The neoclassical arguments of development emphasize the role of foreign trade and investment and the importance of a free market in stimulating competition during the development process (e.g., Galenson, 1985; Haggard, 1990; Wade, 1990, 1992). They explain that the problems of less developed countries result from extensive government intervention in promoting import-substitution policies that limit the scope of industrialization. They argue that one of the major factors contributing to the success of East Asia s newly industrialized countries is the adoption of export-oriented policies that encourage the process of technological adaptation and entrepreneurial maturation. They recognize the role of state in the process of development but emphasize a passive and limited role of government in such activities as maintaining stability and providing physical infrastructure.

   The statist arguments of development indicate that the successful experience of newly industrialized countries is related not only to the operation of the free market but also to the active role of government in directing public and private resources to change the structure of their economy (Johnson, 1982; Ho, 1981; Wade, 1990) For example, many of the successful newly industrialized countries emphasize a general incentive policy to encourage the accumulation of production factors (tax measures, research and development) and an industrial targeting policy to promote the growth of particular industries (e.g., subsidizing credit or import protection).

   Considering the market and state arguments, Aoki, Kim, and Fujiwara (1997) promote a market-enhancing view, which emphasizes the role of government policy to facilitate or complement private-sector coordination. They indicate that previous approaches viewed the market and government as the only alternative and as mutually exclusive substitutes. They argue that the market-enhancing approach stresses the mechanisms whereby government policy is directed at improving the ability of the private sector to solve coordination problems and overcome other market imperfections. One example of the mechanisms is the important role of government private-sector intermediaries (e.g., deliberation councils, national wages council) in facilitating information change to avoid possible market coordination failures.

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