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Anderson (2006: 31) argues that the rigid rules have not stemmed expenditures at the local level (not covered by rules) and have led to increased use of tax expenditures ‘to introduce new policies without breaching the ceiling or requiring balancing measures’. Posen (2005: 5) writes that ‘Germany, along with other Eurozone members France, Portugal, and more recently Italy, has been in repeated violation of these rules.’ Posen argues that this is partly because ‘Germany has of course suffered from a prolonged recession and historically high unemployment since 2001, which has put significant pressure on fiscal policy.’ The US experience is well discussed in Anderson (2006) and in Schick (2005), who discusses the situation as such: ‘The Gramm-Rudman-Hollings laws (GRH) enacted in 1985 and 1987 purported to limit annual budget deficits; the 1990 Budget Enforcement Act (BEA) capped annual appropriations and required that any legislation increasing the deficit – or decreasing the surplus – be offset. BEA expired at the end of fiscal 2002, but some of its rules have been re-imposed in congressional budget resolutions. These have not been effective.’ Interestingly, a country like Sweden may face less pressure from such costs because of the historical role government has played in providing social welfare (something criticized in the deficit years of the early 1990s). This established role decreases uncertainty about future demands. In some instances, this will be reflected in structural deficit measures, which should account for economic cycles, but these measures do not reflect potential social challenges that may be demographically induced or other challenges governments may face. Counter-cyclical budget management approaches are increasingly being introduced to facilitate policy continuity and guide spending. I am aware that the choice of words here will create problems for many readers. The idea that a country actively chooses one form over another is obviously controversial and requires greater analysis. I do not propose to do this here, but believe the issue is how, along paths of development, countries do adopt highly varying government structures.
Chapter 6 Is governance reform a catalyst for development? 1 2
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Book 1.indb 188
This is a revised version of a paper that appeared in the April 2007 issue of Governance. Institutions have two overlapping meanings in the literature. One definition covers formal or informal rules that induce people to do what they would otherwise avoid (or dissuade them from doing what they would otherwise prefer). Another definition emphasizes the public and private organizations in which these rules are embedded. My focus in this article is on the latter. Governance concerns the mechanisms and processes through which political actors pursue their interests. The governance reforms of interest to me are conscious changes in formal rules intended to allow citizens, politicians and bureaucrats to interact in fair, responsive and encompassing modes of conduct. On the donor side, interest in good governance is as a proviso for disbursing development assistance, the terms of which can be made more politically correct by linking governance to development and poverty reduction. On the aid recipient side, policymakers find it prudent to echo the donors’ rhetoric so as to have continued access to aid. These interests create a divide between political speech at the United
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