Public-Private Dialogue and Strategic Policy Councils: Good Governance of Them Matters

05 September 2016 Category: Topical Review

Policy makers supporting socio-economic development of their country must formulate medium-long term strategies that identify binding constraints to international competiveness and growth as well as formulate a package of sequenced public programs to address them. Private-public policy councils have proved to be a very useful tool in developing countries that have successfully closed the income gap with rich countries. However, good governance of those councils is a prerequisite for them to realize their potential for serving the public interest in development.

Public authorities face major challenges in formulating development strategies. First is the gathering of relevant information that allows identification of what are the true binding constraints to investment, competitiveness and growth at any given time and level of development.  This is no easy task as developing countries have a myriad of structural and policy constraints on growth. Just look at the World Economic Forum’s Global Competitiveness Index which ranks countries world-wide—there are 115 indicators! In a reality of limited public sector capabilities and finance it is impossible to seriously address improvements in all those areas at the same time. Moreover, many subpar indicators may not be the ones that are primarily binding investment, competitiveness and growth at any point in time. For instance as an illustration, take an overly simplified binary example. A country may have low investment levels. It also may have very low marks for infrastructure—a factor that can adversely affect the productivity of investment and competitiveness–, but concentrating scarce resources on that area may be an error if the primary bottleneck to attracting new investment is an educated workforce. Without relieving that constraint, new infrastructure investment will not have the desired impact.  In real life of course the package of decision variables is more complex than our binary example. The point is, however, that policy makers need to narrow their focus, time and limited human and financial resources on weaknesses that are binding constraints. Finding them is the challenging issue.

Second, once identified, policy makers need to design programs that relieve the primary binding constraints. However, programs will have to be aligned with incentive structures that actually encourage private market actors to invest, innovate and export. Policy makers must find what constitutes an optimal program design given the particular circumstances of firms and sectors.

Third, a development strategy will require public resources and often changes in the behavior of economic agents. Resources must be mobilized by reallocation of budgets or new taxes. New regulations may be needed and older ones discarded to realign incentives to the new objectives of the strategy. Changing the behavior of economic agents usually faces inertia due to vested interests or status quo bias. Here consensus building is a requirement to gain the political ground to make the changes and sustain them over political cycles.

It can be seen from the above that to launch a strategy policy makers face a challenge of search (identifying a synergetic bundle of binding constraints and optimal program design) and consensus building to reduce political resistance to change and to mobilize the necessary resources. This challenge is frequently addressed in successful countries through the setting up public-private policy councils that support dialogue and joined-up problem solving for strategic economic thinking and policy formulation.

In a globalizing world economy private firms have much contextual information about markets, opportunities and binding constraints they face, including “government failures”.  Governments do not necessarily have better market information, but they can have advantages in terms of assessing aggregate phenomena and proposing strategic directions and objectives, facilitating coordination of investments, providing public goods and support programs to help firms overcome constraints and, of course, overseeing public welfare.

Ultimately governments must choose among different policy options that enable private sector articulation with market opportunities.  Thus the idea is that working together in a socially constructive way to resolve problems, an alliance of government and business can contribute to the development of more intelligent strategies and more effective public programs to enable market–based productive transformations than if each addresses challenges individually (and possibly in a context of mutual distrust). In other words, the whole can become more than the sum of its parts in a joint governance of the market.

Other social actors may potentially contribute valuable insights and information depending on the issue(s) in question.  Due to this, and potential veto points in arriving to a functional policy consensus, councils typically incorporate other actors, especially labor and academia. In modern democracies NGOs also have become powerful players both as advocates and as a potential veto point for new policy.

In terms of strategies for economic transformation and development, these public-private councils can function at various levels and timeframes. One level is the public-private dialogue that supports relatively broad national strategic objectives for economic transformation and development of the economy as-a-whole. Others can support mid-level strategies for specific sectors (e.g., pharmaceuticals) or national thematic objectives such as innovation, attraction of foreign investment or regulatory reforms. These types of alliances also can be mirrored in lower level councils at the regional, state, or even municipal levels.  Meanwhile, focus on time horizons of councils can be short, medium or long term, or some combination thereof.

Today’s modern strategic public-private policy councils may have as their aim the simple transmission of information or points of view to government for its policy development; i.e., an advisory model in which the government has no obligation to accept the advice. Councils also can have as a primary role the horizontal coordination of the main public and private actors regarding agreements on policy and its implementation.  At a still higher level are councils that formally, or tacitly, constitute a social partnership or co-programing modality for policies and programs with rights and obligations for the participants. This latter model is of the highest order and was important in the Irish success story.

There are several striking characteristics of good governance that should be stressed in the formation and operation of a council. First, intangible and tangible dimensions of governance are equally important; both must work in tandem for success as weakness in one will negate good practice in the other. Second, effective governance faces many trade-offs for which a delicate balance has to be struck. Third, while councils must per force be sui generis in their governance given different cultural, historical, political and economic settings, international  experiences do insinuate available principles that can guide development of governance frameworks. Fourth, governance’s central objectives are (i) the representativeness and relevance of council appointments given the objectives at hand; (ii) the achievement of frank policy relevant problem-solving dialogue, communication and information exchange; (iii) quality neutral technical and administrative support for deliberations; (iv) the government’s commitment to mobilization of resources for support of agreed objectives; (v) monitoring and evaluation, and (vi) avoidance of rent-seeking. Fifth, behind these central objectives are many governance details involving the structure and process of a council, where failure in any one or combination of areas can be very detrimental to the council’s effectiveness. Finally, public-private councils are complex human endeavors involving interaction of multiple actors in fluid political and economic settings. Not surprisingly, even in very developed democratic societies councils are far from perfect in their governance and outcomes. The best public-private strategic policy councils are by their nature a project of trial and error of which governance must continuously evolve and be refined according to formal evaluations of the goals set out and the impact that the council is having on these objectives.

Communiqué International has considerable experience evaluating and prescribing the requirements of good governance of public-private councils, whether that involves reforms of an existing councils or the set-up of new ones. Our work experience in supporting governance of public-private councils is drawn from experiences in OECD countries and Latin America. Public-private councils are a recognized tool to support a national, regional or local social process of joined-up problem solving for formulation and implementation of development strategies. Many countries use them. But good governance of them matters if they are to become more than just political window dressing.

 

 

 

Robert Devlin