Good governance as expressed through factors like reliability, predictability and accountability is increasingly seen as a key factor in ensuring national prosperity. However, many aspects of the relationship between good governance and national prosperity are still poorly understood and may indeed vary across countries.

Some basic questions include:

• What is good governance and why is it important for economic and social development?
• What is the role of such factors as the rule of law, transparency, accountability and public service ethics in promoting good governance?
• How can good governance be promoted in transition to more open and democratic societies?

Recent economic and social developments have increased attention given to the role that good governance plays in achieving social and economic development.

• Public management reforms have been a key factor in improving capacities of OECD countries to address issues such as budget deficits; external pressures on competitiveness, not least as a result of growing globalisation; perceived lack of public confidence in government; growing needs for services; and increasing demands for better and more responsive services.

• There is also a growing recognition that the current world financial crisis stems from weaknesses in the institutions of governance, and that durable solutions to this crisis need to address these governance problems.

Systems of governance affect the performance of the state in executing its core functions and through this, the performance of countries in meeting their major economic and social goals.

• Governments create the conditions for functioning of markets, operation of private firms, strength of civil society, and welfare of communities and individuals.

• The quality of governance is recognised as fundamental to ensuring the quality of life of citizens.

• In its own right, good governance is important as a determinant of the sustainability and strength of democracies.

Aspects of Good Governance

Good government depends on an ability to exercise power, and to make good decisions over time, across a spectrum of economic, social, environmental and other areas. This is linked with the government’s capacity for knowledge, mediation, resource allocation, implementation and maintenance of key relationships.

There are many ways to define governance and good governance. However, there seems to be a general consensus that key factors include :

• Technical and managerial competence
• Organisational capacity
• Reliability, predictability and the rule of law
• Accountability
• Transparency and open information systems
• Participation

Technical and Managerial Competence

Technical and managerial competence of civil servants is an obvious factor of good governance. This may be less of a constraint than it used to be, as access to education has improved, but rapid changes require ongoing development of skills.

Organisational Capacity

Good governance has to be built on the quality of organisations so that development is based on this rather than simply relying only on political will, personal will of a strong leader and state power, which may not be sustainable over the longer term.

Having skilled staff is not sufficient if the government organisations do not have the capacity to make good use of these skills. Capacity of government organisations is a key factor in the provision of many important services to businesses and the public, and in creating conditions for economic progress and social cohesion.

The organisational structure and management systems of government have been reformed in many OECD countries. The problem was often seen as excessive centralisation, inflexibility and lack of efficiency. The key response to this has been to provide managers and staff with more autonomy in operational issues in return for more accountability for performance. In other countries the problem may be a lack of regularity and discipline in the administration, often with associated corruption. In such situations the response typically will need to focus on strengthening the basic management systems of government, involving to a certain extent increased bureaucratisation.

Reliability, Predictability and the Rule of Law

The rule of law refers to the institutional process of setting, interpreting and implementing laws and other regulations. It means that decisions taken by government must be founded in law and that private firms and individuals are protected from arbitrary decisions. Reliability requires governance that is free from distortionary incentives - through corruption, nepotism, patronage or capture by narrow private interest groups; guarantees property and personal rights; and achieves some sort of social stability. This provides a degree of reliability and predictability that is essential for firms and individuals to take good decisions.

Reliability and predictability do not mean that the more specific the regulations are the better. Excessive specification can lead to rigidities and risk of selective application of regulations. Interpretation and effective implementation of individual regulations requires a degree of discretion. This discretion can be counterbalanced by administrative procedure legislation and external reviews of decisions (appeal mechanisms, judicial review, ombudsmen etc.).

Reliability and predictability require certain degree of political stability. Governments need to be able to make credible commitments and persuade the private sector that decisions will not ultimately be reversed due to political uncertainty. While this is not necessarily related to a particular political system in the short term, over the longer term democracy enhances stability by giving a voice to citizens to express their preferences through an open competition.

Accountability

Accountability can be both an end in itself -- representing democratic values -- and a means towards the development of more efficient and effective organisations. Politicians and public servants are given enormous power through the laws and regulations they implement, resources they control and the organisations they manage. Accountability is a key way to ensure that this power is used appropriately and in accordance with the public interest. Accountability requires clarity about who is accountable to whom for what and that civil servants, organisations and politicians are held accountable for their decisions and performance.

Accountability can be strengthened through formal reporting requirements and external scrutiny (such as an independent Audit Office, Ombudsmen, etc.). Democratic accountability, as represented by accountability of ministers to parliament and the parliament to voters, can be seen as objective in itself, but it also strengthens accountability in general. Many OECD countries are strengthening accountability through more focus on accountability for performance as opposed to limiting accountability to regularity of decisions.

Transparency and Open Information Systems

Transparency is an important aspect of good governance, and transparent decision making is critical for the private sector to make sound decisions and investments. Accountability and the rule of law require openness and good information so higher levels of administration, external reviewers and the general public can verify performance and compliance to law.

Governments have access to a vast amount of important information. Dissemination of this information through transparency and open information systems can provide specific information that firms and individuals need to have to be able to make good decisions. Capital markets depend for example on information openness.

Participation

Participation can involve consultation in the development of policies and decision-making, elections and other democratic processes. Participation gives governments access to important information about the needs and priorities of individuals, communities and private businesses. Governments that involve the public, will be in a better position to make good decisions, and decisions will enjoy more support once taken. While there may not be direct links between democracy and every aspect of good governance, clearly accountability, transparency and participation are reinforced by democracy, and themselves are factors in support of democratic quality.

Relations Between Different Aspects of Good Governance

There are complex relations between the different aspects of good governance. In many ways some factors can be seen as preconditions of others (e.g. technical and managerial competence is one precondition of organisational capacity, and organisational capacity is one precondition of maintaining the rule of law). But there are also important effects in the other direction (e.g. organisational capacity reinforces technical and managerial competence, accountability reinforces the rule of law).