Are governance and education factors in development?

In this final note in a five-part series*, Ron Sandrey, tralac Associate, discusses whether governance and education play a role in economic development

Governance is a much bandied-about term in economic development circles and can perhaps mean different things to different people. The World Bank describes it as follows: ‘Governance is the process and institutions through which decisions are made and authority in a country is exercised. Governance rests on the twin values of inclusiveness and accountability’. And as Dervis (2014) writes: ‘Lack of reasonably independent regulation and competent public administration – or, worse, one-person dictatorships – lead inexorably to economic waste and inefficiency, and eventually to political turmoil. In the complex global economy of the twenty-first century, sustained good economic performance requires a panoply of well-functioning institutions that do not fall within a single leader’s purview’.

Where does Africa in general and South Africa in particular stand on governance? There is a proliferation of research on governance, but we use data from Kaufmann et.al (2010, updated to 2016) from the World Bank. Their analysis of the Worldwide Governance Indicators (WGI) resulted in a research dataset summarising the views on the quality of governance provided by a large number of enterprise, citizen and expert survey respondents in industrial and developing countries. This data is gathered from a number of survey institutes, think tanks, nongovernmental organisations, international organisations, and private-sector firms. The WGI project constructs aggregate indicators of six broad dimensions of governance:

• voice and accountability
• political stability and absence of violence/terrorism
• government effectiveness
• regulatory quality
• rule of law
• control of corruption.

These six aggregate indicators are based on 31 underlying data sources reporting the perceptions about governance of a large number of survey respondents and expert assessments worldwide. The top-20 aggregate list of 183 useable countries was (narrowly) headed by Finland, followed by New Zealand and Switzerland. There were 11 EU members in this top-20 list, along with Norway (5), Iceland (9), Canada (11), Australia (13) and the first Asian country (Singapore) at 18. The US could not make the top 20, but was ranked at number 22.

The first thing to note is that there are some Asian growth economies in the bottom third of the overall governance table by global rank. In theory, this is not a good place and should inhibit growth if what we are told is true. The next thing to note is that even China, the Asian champion, is itself set firmly in the lower half of the table. The three Southern African Customs Union (SACU) economies of Botswana, Namibia and South Africa do, however, just about make the top third. Therefore there does not seem to be a simple correlation between governance and development here. Perhaps we can suggest that good governance comes with and even after development rather than being a significant factor in promoting development.

Rodrik (2014) examines this governance factor with respect to Africa’s futures prospects. He concludes that improvement in the policy and institutional environment can be expected to generate greater economic stability and prevent deep crises arising from mismanagement, but it is not clear that these changes alone will serve as the engine for a growth miracle. He considers that the relationship between standard measures of good policy and economic growth is not particularly strong. There is, for example, no significant, predictable difference in growth between an economy suffering inflation of 5 percent rather than 15 percent, or an average tariff rate of 10 percent rather than 25 percent. Indeed, as we have shown, many of the high-performing Asian economies such as the early periods for South Korea and China have exhibited institutional shortcomings but have done exceedingly well in the growth stakes.

Is Education a factor?

This is generally considered important in the overall capacity building and technological improvement in a developing country. Permani surveyed the literature on the links between education and economic growth in East Asia and found that education is important for economic growth but it is not a sufficient condition. The complementarity between education and other factors in enhancing productivity and efficiency is commonly seen as the driving force of economic growth, but empirical evidence is ambiguous due to what is considered econometric problems. Analysis suggests that education and economic growth in East Asia have a two-way causality. Nevertheless, valuing education is a part of Asian values, and education consistently presents as a significant income determinant and consequentially a growth factor regardless of whether education can increase productivity or not. Finally, the linkage shows a close relationship to the stages of East Asian economic development in that the higher the level of economic development, the greater the demand for better and higher education systems.

The OECD are more forthright in their assessment of the role of education in Singapore’s growth, as they consider the country to be the “poster child” for the education development continuum. From a standing start in 1960, this small country steadily advanced to the point at which it is now widely recognised as having one of the world’s leading economies and most advanced and successful education systems. That was no accident, as Singapore’s leaders were determined from the beginning not just to attract foreign business investment with low-cost labour, but to raise incomes in Singapore as rapidly and widely as possible. They knew that education and training had to be key elements in their strategy. More than any other country in the world, Singapore has aggressively pursued a policy of advancing in education and other arenas by systematically benchmarking the world’s best performance and creating a world class education system based on what they have learned through their benchmarking.

Unfortunately we are not seeing an increase in the quality of the education system in South Africa. At the top level Pillay 2016 reports that South Africa’s cash-strapped universities are suffering a slide on global rankings‚ with the South Africa’s top University, the University of Cape Town (UCT), dropping 20 places in the latest QS World University Rankings to 191st worldwide. Meanwhile, Singapore has two ranked in the top 20 world-wide.

* This Discussion is part of a series prepared by Ron Sandrey examining specific issues raised in a new tralac Working Paper of the same title, available to download here: While South Africa slept: why is it not like an Asian economy?

Tell us what you think.

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References

Kaufmann, D., Kray, A. and M. Mastruzzi, 2010. The Worldwide Governance Indicators: Methodology and Analytical Issues. World Bank Policy Research Working Paper No. 5430, World Bank Institute, September 2010.

OECD, 2010, “Singapore: Rapid Improvement Followed by Strong Performance”, in Strong Performers and Successful Reformers in Education: Lessons from PISA for the United States. At https://www.oecd.org/countries/singapore/46581101.pdf

Permani, R. 2009. The role of education in economic growth in East Asia: a survey. Asian-Pacific Economic Literature, 23(1). pp. 1-20.

Pillay, D. 2016. Are South Africa’s universities on the slippery slope? Rand Daily Mail, September 6, 2016. At http://www.rdm.co.za/lifestyle/2016/09/06/are-south-africa-s-universities-on-the-slippery-slope

Rodrik, D., 2014. Why an African Growth Miracle Is Unlikely, Milken Institute Review, October 20, 2014. At http://www.milkenreview.org/articles/why-an-african-growth-miracles-unlikely