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Key Text Political Economy

Author: World Bank
Date: 2007
Size: 30 pages (1.45MB)

Summary

What hinders growth-supporting policy reform in Ghana, and how can these obstacles be addressed? In recent years, Ghana has experienced relative macroeconomic stability and growth. However, accelerating and sustaining growth requires significant policy change across a range of areas. This extract from the World Bank’s Country Economic Memorandum of Ghana examines the political incentives of policymakers to pursue such change. Clientelism undermines progress in pro-growth reforms. Reform should focus on: education; improving the collection of and access to government information; and ensuring that policy does not favour particular ethnic groups.

Ghana has enjoyed relative macroeconomic stability and growth since the transition to democracy in 2000. However, many citizens are disappointed with the pace of poverty reduction. A closer look at Ghana’s policy performance reveals that it falls short in a range of areas such as education and the business environment, and is below average in comparison to other countries.

Analysis of policies for growth in Ghana reveal that the political incentives to provide broad public goods and a regulatory and legal environment conducive to accelerated growth have been weak, whereas incentives to provide services to narrow groups in society (i.e. clientelist policies) appear to be strong relative to comparable countries.

Two key issues are central to understanding the political incentives that drive Ghana’s policy performance: the impact of competitive elections on public policies; and the role of political market imperfections. Key findings include:

Governments have become increasingly sensitive to distributional issues since the introduction of competitive elections, however, the pressure to spend resources on narrow, targetable groups of citizens remains the same or has increased. Many policy areas did not improve as one might have expected and governance indicators showed no change or indeed deteriorated.
Possible explanations suggest that pre-democratic governments had stronger political incentives to serve the broad public interest, or that distortions in competition for votes or political market imperfections affect the ability of citizens to hold politicians to account and undermine incentives for broad-based public policies.
Political market imperfections include: firstly, the inability of politicians to make credible policy promises to voters regarding broad-based, programmatic policies; secondly, the lack of voter information about government decision-making and its effects; and thirdly, social and ethnic polarisation, which has an impact on the electoral choices of citizens.

Clientelism and related phenomena reduce the prospects for reform and accelerated economic growth in Ghana. Reform to tackle political market imperfections should take account of the following:

Reform should focus on three pillars, namely: (i) education - which is essential not only to increase human capital input and build new skills but also to hold politicians to account; (ii) improving the collection of and access to government information; and (iii) ensuring public policies are free of bias and benefit all ethnic groups equally.
Improvements in any of these three areas should trigger a virtuous cycle and be self-enforcing. For example, when voters are better informed, politicians have greater incentives to pursue and invest in credible, broad-based policies.
In the long-term, political competitors who are capable of making credible promises to the broad electorate have an advantage over those whose credibility only extends to narrow groups.
The reform agenda should complement other reforms under discussion such as the need to strengthen civil society.

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Source: World Bank, 2007, ‘Political Economy’, Section 4 in: Ghana: Meeting the Challenge of Accelerated and Shared Growth, Country Economic Memorandum Ghana, Volume III: Background Papers, World Bank, Washington D.C., pp 171-200.
Organisation: World Bank, http://www.worldbank.org/