Governance Redux: The Empirircal Challenge

This paper is based on the governance chapter contribution to the 2003/04 Global Competitiveness Report (GCR). Building from the 2002/03 contribution to the GCR, it argues that governance continues to be at a crossroad, its underperformance being evident worldwide in most regions and across many countries. This ('governance policy gap') contrasts with the strides that have been made in many countries in improving macro- economic policies for well over a decade. Based on a worldwide survey of enterprises carried out for the GCR, we find that firms from emerging economies single out corruption and excessive bureaucracy among the top constraints to their business operations, while excessive bureaucracy and the tax regime are identified as top constraints by the respondent firms from the OECD. Many countries currently have levels of governance that are insufficient to support their income levels and/or growth path, namely they experience a 'governance deficit', which can be quantified. We also carry out a simple empirical exploration challenging the validity of legal-historical origins in determining governance performance in emerging economies nowadays, and provide a brief synthesis of the empirical importance of inequality of influence (by vested interests), as well as of governance at the city level.