Leadership in Governance and Accountability Prof Emil Bolongaita

“Poverty is not natural. It is people who have made poverty and tolerated poverty, and it is people who will overcome it. And overcoming poverty is not a gesture of charity. It is an act of justice.” - Nelson Mandela

Outline Governance and market failures Governance challenges in Nepal Government failures: controlling itself (corruption) Government failures: fostering enterprise (competition) Thoughts on personal effectiveness

“the manner in which power is exercised in the management of a country’s economic and social resources for development” - World Bank (1992) “the structure and functioning of the legal and social institutions that support economic activity and economic transactions by protecting property rights, enforcing contracts, and taking collective action to provide physical and organisational infrastructure” - Avinash Dixit (2009) “a government’s ability to make and enforce rules, and to deliver services, regardless of whether that government is democratic or not” - Francis Fukuyama (2013) Governance

Market failures If property rights are fully specified and transaction costs are zero, the allocation of resources will be efficient. - Coase theorem “a situation in which a market left on its own fails to allocate resources efficiently” - Gregory Mankiw “a situation in which a private economy lacks the incentives to create a potential market in some good, and the non existence of this good results in the loss of efficiency” - Kenneth Arrow 1969

Monopolies Externalities Public goods Asymmetric information Tragedy of commons Destructive competition Examples of market failures

Governance constraints Quality of governance of a country impacts on bureaucratic capacity to deal with market failures. Countries with higher quality of governance have more bureaucratic capacity to develop and implement effective responses to market failures. Countries with poorer quality of governance have more institutional and organizational limitations to effectively dealing with market failures.

Accountability matters Accountability for government responsibility to deal with market failures is diminished by corruption. Corruption purchases public officials and distorts the policy process – tackling wrong problems and seeking wrong solutions. Corruption co-opts regulators to favor the regulated, and disadvantages ordinary citizens, who pay disproportionately or even when they shouldn’t be paying at all. Corruption captures judges and law enforcers and destroys rule of law and prevents institutional development. Corruption prevents access of the poor and marginalizes them.

Low voice and accountability

High political instability and violence

Low government effectiveness

Poor regulatory quality

Weak rule of law

High level of corruption

% of people asked, in the past three years, how has the level of corruption in your country changed Government failure: corruption Source: Daily Lives and Corruption: Public Opinion in South Asia, Transparency International, 2011.

Citizen experiences of bribery by sector or agency Source: Daily Lives and Corruption: Public Opinion in South Asia, Transparency International, 2011.

Nepalis bribe to speed things up: efficiency calls! Source: Daily Lives and Corruption: Public Opinion in South Asia, Transparency International, 2011.

Many accountability agencies, but not enough accountability?

Limited jurisdiction CIAA cannot investigate judiciary, military, private sector, and impeachable officials Limited capability of investigators and prosecutors Seconded to CIAA with limited experience Recruitment options narrow Constrained by civil service rules, cannot recruit at large CIAA constrained

Nepalis trust media most to fight corruption Source: Daily Lives and Corruption: Public Opinion in South Asia, Transparency International, 2011.

Nepalis consider political parties and parliament most corrupt: legitimacy problem Source: Daily Lives and Corruption: Public Opinion in South Asia, Transparency International, 2011.

Ease of Doing Business in the World 2015 Source: Government can tackle market failures through more effective policymaking, regulation, enforcement, and service delivery in fostering competition and enterprise development.

Domains of government effectiveness POLICY REGULATION ENFORCEMENT SERVICE DELIVERY 1) Policy – government decision 2) Regulation – rules for implementing decision 3) Enforcement – incentives to ensure implementation 4) Service delivery – citizen benefits

Starting a business Best in category: New Zealand - # of procedures (1), # of days (0.5 day), cost (0.3% of per capita income) Source: In DB 2014: Nepal made starting a business easier by reducing administrative processing time at the company registrar and by establishing a data link between agencies involved in incorporation process.

Building a warehouse Best in category: Hong Kong - # of procedures (5), # of days (66 days), cost (0.4% of warehouse value) Source: In DB 2015, Nepal’s ratings improved after Kathmandu Metropolitan City (KMC) implemented an Electronic Building Permit System where permit and design plans and other docs can be submitted online and processing can also be tracked online.

Getting new electricity connection Best in category: South Korea - # of procedures (3), # of days (18), cost (41% of per capita income) Source:

Registering property Best in category: Georgia- # of procedures (1), # of days (1), cost (0.1% of property value) Source: In DB 2010, Nepal ranking improved when it made property transfer easier by reducing the registration fee.

Getting credit Best in category: New Zealand – strength of legal rights (12), depth of credit information (8), credit bureau coverage (100%) Source: In DB 2010, Nepal improved access to credit information by starting to distribute historical data IndicatorNepalSouth AsiaOECD Strength of legal rights index (0-12)756 Depth of credit information index (0-8)037 Credit registry coverage (% of adults) Credit bureau coverage (% of adults) DB 2015 Rank116DB 2014 Rank111Change in Rank-5

IndicatorNepalSouth Asia Payments (number per year) Time (hours per year) Profit tax (%) Labor tax and contributions (%) Other taxes (%) Total tax rate (% profit) DB 2015 Rank 126 DB 2014 Rank 120 Change in Rank -6 Paying taxes Best in category: United Arab Emirates – Payments (4x), Time (12 hours) Source:

Trading across borders IndicatorNepalSouth AsiaOECD Documents to export (number) 1184 Time to export (days) Cost to export (US$ per container) 2, , , Documents to import (number) 1194 Time to import (days) Cost to import (US$ per container) 2, , , DB 2015 Rank171DB 2014 Rank169 Change in Rank -2 Best in category: Singapore – docs to export and import (3), time to export (5 days), time to import (3 days), cost to export and import ($460) Source:

IndicatorNepalSouth AsiaOECD Time (days)9101, Cost (% of claim) Procedures (number) Enforcing contracts Best in category: Singapore – time (150 days), cost (25.8% of claim), procedures (21) DB 2015 Rank134DB 2014 Rank134Change in Rank0 Source: In DB 2012, Nepal’s ranking improved due to Better oversight and monitoring in the court, and speeding up the process for filing claims.

IndicatorNepalSouth AsiaOECD Time (years) Cost (% of estate) Recovery rate (cents on the dollar) Resolving insolvency DB 2015 Rank82DB 2014 Rank78Change in Rank-4 Best in category: Finland – time (0.9 years), cost (3.5% of estate), recovery rate (90.2 cents) Source:

Becoming a more effective leader 1.Ask what needs to be done? 2.Ask if is right for the organisation? 3.Develop an Action Plan 4.Assign responsibility for decisions 5.Communicate decisions and actions 6.Focus on opportunities, not problems 7.Be productive with your meetings 8.Say “We”, not “I” Source: Peter Drucker, The Effective Executive.