Public – Private Dialogue in developing countries Beyond mottos and mantras – Some introductory considerations Nicolas Pinaud, OECD Development Centre

Introduction Public - Private Dialogue (PPD): a definition PPD: What for? I will provide a definition of what we mean by PPD I will briefly review the reasons why PPD may be regarded as a particularly useful instrument However this presentation will lay the emphasis on … and will as a result make the case for a cautious approach to the use of this instrument Potential risks of PPD: make the case for a cautious approach

Public - Private Dialogue : a definition Actors: “Public” / “Private” Setting: uneven degree of institutionalisation Outcome: exchange of views to common-agreed decisions; Common component: ‘policy making’ understood in a broad sense; What are the actors? Public: elected officials & bureaucrats: important because this dualism of public authorities may create some additional complexity in the process of dialogue between the private sector and the State. They are indeed likely to have divergent interests. 2) What is the setting? PPD may take place in various settings everything from informal interaction in the context of social networks where politicians, civil servants and business men tend to socialize to well-defined institutional settings such as advisory councils of foreign and local investors to the government endowed with a permanent secretariat and analytical capacities. 3) What is the expected outcome: frpm… to… 4) But all the forms of dialogue have in common to touch upon policy-making, in a broad sense: from discussing the very specific provisions of a public private partnership schemes and setting the rates of electricity provision to the broad macroeconomic strategy of a country.

What for? For the public sector: Learn from the private sector Legitimize public strategies Leverage the impact of public policies Why do donors tend to put emphasis the necessity of having a vibrant PPD? Learn: Transfers of Information: information is scarce in developping countries and might be a strong transaction cost when the state intends to design a public policy: good case-in-point is Mexico and Nafta negociations (supply of knowledge by the private sector which then turns into a support for the gvt) = better policies, + create a sense of ownership on the side of the private sector 2) Therefore legitimize policies and enhance their credibility, may overcome legacies of distrust, and maximize chances of success 3) Leverage: relax the resource constraint faced by the State in developing countries, identification of complementarities between private and public investment, identifiy positive externalities stemming from private sector acitivity and mitigate negative ones, rely on private sector industrial and financial resources

What for? For the private sector: Influence the rules of the game Improve the business environment and State interventions Identify the optimal mix of market and government activities 1) Influence: the state holds the “monopoly of legitime violence” (Max Weber): design the law, regulate, enforce and make use of violence; The State sets the rules of the game. On principle, there is no way the private sector can afford to bypass the State: the state broadly defines the business environment the private sector is operating in: necessity to exert what Albert Hirshman calls the « voice option » (especially since in developping countries, the « exit » option in not available) even in a globalized world; 2) Influence to improve: not only the business environment but also to get the State make progress: make it more accountable and transparent, less corruption 3) Discuss with the State the optimal division of labour between the PS and the State: streamline the role of the state, match the role of the State with its the capacity (New Public Management Litterature, WB WDR 1997)

Just do it? « There are no real secrets to participation, just a whole lot of work », USAID (1994) Is it true? Risks, historical legacies, institutional specificities, strong prerequisites, etc.  Complex issues: necessity to go beyond mottos and mantras If we believe that PPD may indeed be very useful fr all the reasons which have just been highlighted, we tend to think that PPD is far from a “miracle recipe” and that sometimes donors may be prone to overlook the strong prerequisites for a a fruitful dialogue and the risks that are associated with it. This quote from a USAID document is telling in this respect. It evidences a kind of “just do it” approach. Much more complex than that and that we need to go beyond mantras and mottos in this respect.

Just do it? PPD as a problematic “transaction” Quis custodiet ipsos custodes? The State as a problematic interlocutor PPD as a “smokescreen” for capture and predatory behaviours Like any other transaction, you have standard transaction costs (moral hazard, problem of measurement, enforcement, impossibility to design contingent contracts to encompass all the possible states of nature). Who will guard the guardians? As highlighted by North, there is no fully efficient commitment technology when it comes to compell the State to stick to its commitment. Always a risk of time and dynamic inconsistency. Even in democracies with electoral cycles. Even more relevant for developing countries where the rule of law is always somewhat shaky. = an issue which is as old as theories of the social contract (from Hobbes to Walzer!) 3) Smokescreen: Also a risk of imbalances between the State and the private sector: strong State and fragmented weak private sector or strong vested interest within the private sector and weak State apparatus = rent-seeking, corruption, capture, collusion, clientelism [Firms need selective benefits to get organized. If in an economic sector, a business association is not in a position to provide its members with selective benefits (like rents), that is benefits that are not public goods and that can not therefore be obtained by free-riding, the organization will simply « crumble ». The lobbys are rent-seeking driven: they tend monopolize the dialogue between the state and the private sector while their demands are usually strongly biased against growth. The dialogue is once again Should the state be to too weak or too strong, PPPD may boil down to mere “smoke and mirrors” : token dialogue / predatory behaviour of the administration / capture of the State by vested private interests; - Problems on the side of the private sector: paradoxes of collective action (Mancur Olson, 1962 & 1982) . “trap of inorganization” for a large part of the p.s. . Small but powerfull lobbys driven by rent-seeking]

Just do it? Prerequisite 1 : a developmental State 1) “Weberian bureaucracy”, i.e. autonomy / private interests  South-East Asia AND 2) proximity with the private sector (shared networks, similar background, ethnic proximity etc.) 3) Commitment and reliability: deeds must meet words Gradual process of credibility building In the following, our aim is to briefly pinpoint some basic prerequisites for a fruitful and positive dialogue between P and P that are difficult to fullfill: both autonomy / proximity

Just do it? Prerequisite 2: an “appropriate” private sector . Strong and well organized private sector Paradoxes of collective action (Olson, 1962), “trap of inorganization” . “Good” vs “Bad” Private sector  Political economy of sectoral interests 1) . Strong and well organized private sector: Olson evidences how difficult it is, due to free-riding phenomena and paradoxes of collective action, for a fragmented private sector to get organized; especially in developing countries, a fragmented private sector may be trapped into a vicious of inorganization 2) Those sectors which are likely to get the more easily organized are those where strong selective benefits (most of the time rents) and not public goods are provided by BA: the sections of the PS which are likely to be organized in strong BA are likely to be strong vested interests inimical to welfare maximising reforms, growth, and rent removal. = the dialogue risks being captured by powerful vested interest. This makes the case for a careful political economy investigation of sectoral interests.

Just do it? Prerequisite 3: dictatorship vs. democracy? No clear evidence Chile & South-East Asia / Mauritius / Zambia; Dictatorship may be supportive of the emergence of a “Weberian bureaucracy”(Geddes, 1990)… But may also end up in pervasive corruption and haziness : cf. South Korean authoritarian regime and chaebols (Woo-Cummings, 2001) Rule of law might be key.

Just give it up? Sub-Saharan Africa: a worst-case scenario? State in Africa is not developmental ”patrimonial state” vs weberian state Weak and hardly structured private sector: ‘missing middle’  no incentive for the state to embark on a complex PPPD « Democracy » in Africa does not mean « rule of law » Legacy of distrust (central planning, populist or/and socialist ideology, top-down policy-making process, etc.) ”credibility trap” So should we be skeptical regarding the possibility of eliciting a fruitful and transparent PPD, especially in LDcs whihc are far from fullfilling all the requirements of institutionnal development Take a basket case: Africa. No scope for a fruitful PPD? On the face of it, certainly not...

There is room for action Room for a hands-on approach to PPD educating local authorities identifying “policy champions” and “pocket of efficiencies” providing organizational, material and analytical support Failure can have durable negative consequences Risks make the case for a cautious approach Corner stone is ownership from local actors in due course Need for a “toolkit”? Still, there is room for a hands-on approach to PPD by local authorities and donors They can help albeit with caution and in a pragmatic way: need for a tailored approach, and donors must refrain from implementing one size fits all framework: in this respect our two following speakers will certainly highlight the historical specificities of each experience of State – Business interaction. And therefore to consider the institutional and historical specificities of each country. Donors must be especially cautious since … by breeding distrust and wideing the credibility gap between partners

PPD in developing countries: Follow-up DFID - World Bank Group – OECD conference early February in Paris (Postcards at your disposal) Review of country experiments Charter of best practices Design of an evaluation and monitoring framework Thank you! Still, there is room for a hands-on approach to PPD by local authorities and donors can help albeit with caution and in a pragmatic way.