Although the experts who view good governance as essential to economic prosperity have been gaining ground, they are divided among themselves on another fundamental question: What exactly accounts for good governance? One major reason for the lack of consensus is that only a small minority of these experts has delved into the details of governance in the real world. The remainder prefer to operate at a higher, more abstract level, from which they purport to have the best view of the forest. But this chapter, and several that follow it, shows that we cannot fully comprehend the governance forest until we walk into it and look closely at the trees.

THE INSTITUTION SCHOOL

One leading academic school of thought attributes the quality of governance to the quality of a country's political institutions, including its political organizations, laws, and practices. Within this school, a subgroup views the quality of institutions as primarily a matter of resources and hence concludes that bad governance is the result of geographic disadvantages or acts of foreign oppression that have prevented the economic growth required to provide a sufficient tax base. “Many well-intentioned governments simply lack the fiscal resources to invest in the infrastructure, social services, and even the public administration necessary to improve governance or to lay the foundations for economic development and private sector-led growth,” asserted a 2006 report of the United Nations Millennium Project.

Achieving good governance does require substantial financial resources, to pay for salaries, facilities, and other essentials, and thus is more difficult for poor nations than for rich nations. But it is still very possible for poor nations to attain reasonably good governance; were it otherwise, then most of the world would still be mired in bad governance and poverty. Many of the recent success stories – countries such as Botswana, Singapore, and South Korea – achieved good governance before becoming wealthy. These countries benefited from considerable foreign assistance – which provides strong evidence that foreign assistance in the realm of governance can reap large rewards.

At the same time, large transfers of resources to poor countries for the purpose of governance have often failed to yield improvements. Bad governments have a penchant for absorbing foreign aid without becoming any less bad.