Good governance matters

Two weeks ago, the World Bank released its Worldwide Governance Indicators (WGI) report. It contains perceived governance indicators for 212 countries and territories for the period 1996-2006 across six key political, economic and institutional dimensions of governance: (1) Voice and Accountability in terms of freedom to elect governments, freedom of expression, freedom of association and free media; (2) Political Stability and Absence of Violence in terms of the perceived likelihood that governments will lose stability or power through unconstitutional or violent actions, including terrorism; (3) Government Effectiveness in terms of the quality and political independence of the civil service, the quality of public services, the quality and the credibility of the way governments formulate and execute policies; (4) Regulatory Quality in terms of the government’s ability and willingness to permit and promote private sector development; (5) Rule of Law in terms of how well the laws are obeyed and enforced on the basis of the citizens’ confidence in the law as well as the independence of the police and the judiciary; and (6) Control of Corruption in terms of the extent individuals or groups use public power for their private benefit. These six key dimensions of governance are not independent. For example, a strong statistical correlation exists between Voice and Accountability and Control of Corruption.

The WGI report is predicated on British scientist Lord Kelvin’s famous remark that “if you cannot measure it, you cannot improve it.” The report’s underlying data, based 310 individual variables measuring the different dimensions of governance, come from 33 data sources of 30 different organizations, private as well as public. Each of the six WGI is measured globally in units that follow in every period a normal distribution with a mean of zero and a standard deviation of one. Therefore, a country’s rating would be between -2.5 and +2.5 with a probability of 99 percent, with higher scores denoting better results. It is important to note that the WGI in the way they are calibrated do not contain any information about the global averages of governance over time. They merely show, as benchmarking measures, the changes in the relative position of individual countries vis-à-vis other countries. Based on their overall evidence, however, the authors of the WGI report did not find a significant trend of improvements in governance worldwide during the last decade. The WGI data, aggregated from individual specific variables according to formal statistical methodology (Unobserved Components model) and subject to measurable margins of error, enable comparisons of the quality of governance across countries as well as across time. The WGI are available biannually since 1996 and annually for the period 2002-2006. The country-specific data, including those for Turkey, can be accessed interactively on the World Bank’s Worldwide Governance Indicators Web site.

Despite continuing academic debates about the validity of the WGI with regard to the way they are constructed and calibrated, the consensus is that good governance, as measured by the WGI, matters for economic development. For example, when governance improves by one standard deviation, per capita income is estimated to rise three-fold and infant mortality to fall by two-thirds. The “development dividend” of good governance goes well beyond those benefits. It is also now widely accepted that improving governance need not take many years, and a country need not necessarily be a developed country to have good governance.

The six charts below show the six aggregate governance indicators for Turkey during 1996-2006. Percentile ranks indicate the percentage of countries rating below Turkey; so, the higher values indicate better governance ratings. The margins of error are shown by the dashed lines, corresponding to a 90 percent confidence interval, i.e., 90 percent probability that the indicator measured is within the indicated range. These charts suggest that: (1) Turkey’s governance indicators have not changed drastically relative to the rest of the world during 1996-2006. This is somewhat at odds with the widely held belief that Turkey’s governance has improved significantly since 2002 under the Justice and Development Party (AK Party) government relative to the earlier periods. (2) Turkey’s relative position is below the 50th percentile in terms of the first two indicators but in the 50th -75th percentile in terms of the last four indicators. (3) Its relative position worsened after 1998 but has remained stable since 2000 in terms of Regulatory Quality. (4) Its relative position has improved, however, since 2002 in terms of the other five indicators, especially in the Control of Corruption. (5) Its worst relative position among the six indicators is in Political Stability & Absence of Violence, which shows further deterioration during 2005-2006. (6) Its best relative position among the six indicators is in Government Effectiveness, which shows further improvement during 2005-2006.