Can the World Bank Promote Innovation

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Can the World Bank Promote Innovation?

• Lant Pritchett
• August 24, 2009

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Overview

• Development as accelerated four-fold
  modernization
• Development strategy of transplanted best
  practice
• Risks of transplanted best practice
• Isomorphic mimicry
• Pre-mature load bearing
• Closing off space for innovation
• Cocooning for success
• Innovation versus isomorphic mimicry Agents,
  organizations, and systems
• Can external assistance be part of solutions?

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Development As Four-Fold Transformation
Trajectories in Functional Space
Economic Prosperity, High Productivity
2000
1900
1800
Polity represents will of the citizens
High Administrative Capability
Social Equality and Tolerance
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Divergence, Big Time in current levels of output,
mapped into history China is in the 19th
century, India pre-USA Civil War, and Ethiopia in
the middle ages.
Current Cross Section
Economic Trajectory of Leading Country
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Development as accelerated modernization,
economic outcomes space
GDP per capita (GK 1990)
USA(29000)
Maximally feasible pace (fastest observed
sustained growth
2 ppa Long term
KOR(15732)
Wishful thinkingtoo Optimistic
Accelerated Modernization Growth Faster than the
Leaders
USA at G854 In 18th Century
Sustained rapid (5-6 ppa)
Leaders pace
Optimistic
KOR(854)
BAU (continuation of current Pace/levellack
of development
AFG(645)
AFG(668)
1950
Now
Time
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Getting to Denmark What do governance
trajectories in the functions space look like?
When was Denmark at Pakistans current
level? 1900? 1800? 1700?
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Governance trajectories When Can Afghanistan be
Egypt? India? (the median failed state country)
Denmark?
What is a maximal feasible improvement in
governance?
?
?
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Four-fold transformation Theories of
development are about components and their
inter-relationships (e.g. one waywhat causes
what--or two way causationvirtuous/vicious
circles)

• Developed
• Prosperous (and
• High Human Capital)
• State responsive to citizens
• State high capability
• Fair and Tolerant Society

Better
Bad Old Days
Time
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Development Strategy as Transplanted Best
Practice in the forms space
Market economies with good Policies and
institutions
Policy reform (Washington Consensus)
Democratization
Capacity Building
Now
Democracy
Civil service Bureaucracies that are well
managed
Social Agenda(s)
Theory of change Adoption of forms that
have proved successful will lead to
success (function follows form)
Legal equality Across races, genders
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Risks of Transplanted Best Practice

• Isomorphic mimicry
• Pre-mature load bearing
• Closing off space for innovation
• Cocooning for success

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Agents, organizations, systems
Closed
Space for novelty
Open
System Characteristics
(E)Valuation of novelty
Functionality
Agenda promotion
Demonstrated Success
Organizations (firms, ministries, NGOs)
Legitimation
Isomorphic mimicry
Leadership
Rent Seeking/ Distribution
Wealth Creation
Agents (leaders, managers, Front-line workers
Concerned Flexibility
Compliance
Front-line worker use of capacity
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Markets and the creative destruction of
ecological learning
Conditions for successful Creative destruction
Closed
Space for novelty
Competitive markets
System Characteristics
(E)Valuation of novelty
Will customers buy it
Agenda promotion
High growth (profits, revenues)
Organizations (firms, ministries, NGOs)
Legitimation
Isomorphic mimicry
Leadership
Rent Seeking/ Distribution
Entrepreneurial Wealth Creation
Agents (leaders, managers, Front-line workers
Workers committed to Organization vision and
mission
Compliance
Front-line worker use of capacity
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Two different modes of the scaling of innovation

• Organizational learning (existing firm with
  dominant position adopts new technology/technique)
  
• Ecological learning (each firm has one idea and
  never learns but the system weeds out
  unsuccessful ideas so that the system
  productivity rises even if no single firm ever
  learns)

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What is isomorphic mimicry?

• Evolutionary analogy bugs avoid being eaten by
  birds by (a) developing glands that secrete
  poison and (b) signal that they are poisonous
• Once established other bugs may simply develop
  the signal, not the poison

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When is isomorphic mimicry an optimal
organizational strategy?
Closed
Space for novelty
Open
System Characteristics
(E)Valuation of novelty
Functionality
Agenda promotion
Demonstrated Success
Organizations (firms, ministries, NGOs)
Legitimation
Isomorphic mimicry
Leadership
Rent Seeking/ Distribution
Wealth Creation
Agents (leaders, managers, Front-line workers
Concerned Flexibility
Compliance
Front-line worker use of capacity
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Three types of isomorphism (Dimaggio and Powell)

• Normative
• Coercive
• Mimetic

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Where are governance reforms (e.g. civil
service reform, procurement) in their effect on
the environment for functional development?
Closed
Space for novelty
Open
System Characteristics
(E)Valuation of novelty
Functionality
Agenda promotion
Replicating existing forms and processes or
actual Functionality?
Demonstrated Success
Organizations (firms, ministries, NGOs)
Legitimation
Isomorphic mimicry
Leadership
Rent Seeking/ Budget maximizing
Wealth Creation
Agents (leaders, managers, Front-line workers
Concerned Flexibility
Compliance
Front-line worker use of capacity
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Dubash (2008) Independent regulation of
electricity

• Pushed by WB as coercive isomorphismconditioned
  adoption of best practice (with domestic allies
  with mixed motives)
• Adopted in mimetic fashion in other contexts
  (AP, Delhi)
• Since this was a transplanted best practice
  that did not arise as an endogenous solution in
  existing conditions it has not functioned as
  planned (though may eventually function as not
  plannted)

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Pre-mature load bearing Spartans, Paper Tigers
and Keystone Cops
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What is administrative capability? Notional
Policy is Designed, Realized Policy is an outcome
Notional policy (de jure)
Realized States of the World
Actions by agents of the state
Direct organizations of implementation (e.g.
agencies, Ministries)
Front-line Providers (e.g. policemen, Teachers)
Realized policy (de facto)
Background institutions (e.g. judiciary,
legislative oversight, professional
associations, civil society
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What is organizational capability?

• Policies are mappings from factual conditions of
  the world to actions by agents of the state
• Organizational capability is the extent to which
  realized policyactions actually taken by the
  agents--achieves the organizations goals
• Individual capacitythe ability to recognize
  the state of the world and the optimal action
  w.r.t. to that state is just one element of
  organizational capability

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Two dimensions of organizational capability in
theory and in practice
Ability to inflict damage on the enemy
Maximum
Sharply non-linear dynamic of army capability
under engagement stress
Army
Spartans
Paper Tiger
Disorganized Mob
Battlefield stress (e.g. fog of war, casualties)
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How do you build organizational capability?
Compliance with tax collectors (lack of bribery)
Build individual capacity to build
Organizational Capability
Build organizational Capability (ability to
withstand stress) professionalization, identity,
unit cohesion
Incentives for agents from tax (rate, complexity)
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How do you destroy organizational capability?
Premature load bearing
Law enforcement
Sharply non-linear dynamic of capability under
stress
Police Force
Organized crime in uniform
Available rewards to Non-compliance for
individual agents
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How do you destroy organizational capability?
Premature load bearing
Maximally Feasible tax code
Tax collection agency
Existing tax code
Training
Sharply non-linear dynamic of capability under
stress
Customs
No amount of training Is going to increase
organizational Capability when the stress of
existing Regulation far exceeds capacity
Rent collectors
Available rewards to Non-compliance for
individual agents
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India examples (rigorous studies)

• Drivers licenses
• Health worker (ANM) attendance in Rajasthan
  (Band-aid on a corpse)
• Hammer and Das on health workers

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What does training as the augmentation of
individual capacities do to realized policy
when organizational capability is weak?
The private sector outperforms in red triangles
with much lower blue dots already
Training can (possibly) Slide the blue dots,
when.
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Premature load bearing destroys organizational
capability Water in the Regulations
A 45 degree line in this Graphperfect and
uniform compliance
The worst reported actual delays are ¼ the
official reported minimum
Realized policy as told by firms
De jure policy from official regulations
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Pre-mature load bearing leads to complete
Divergence ofde jure and de facto

• The actual and realized policy diverge
• The de jure appearances are maintained in
  engagements with external actors to maintain
  legitimacy
• Destroys morale, cynicism, potential leadership
  flees the sectormanagerial reform no longer
  possible
• Perfect Storm Both users and front-line
  providers are dissatisfied.

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Existing actual distribution on Failed state
index, with Egypt As 25th percentile, Turkey as
50th)
What is possible in forms space
Rate of improvement Implied by international commu
nity actions in post conflict (e.g in and out in
three years with forms of good governance in
place)
Wishful thinking
25th percentile
Fastest observed Trajectory in historical
experience in functional space
Start with AFG In 2009
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Three useful aphorisms closing off space for
innovation
It aint what you dont know that gets you, its
what you do know that just aint so
The state
Crazy is doing the same thing and expecting
different results
Politicians
Policymakers
Compact
Politics
Long route of accountability
Flow of Services (in transaction intensive
service provision)
Short route
Providers
Citizens/Clients
Client Power
Frontline
organizations
Non poor
Poor
Management
Coalition/Inclusion
Just because the tire is flat doesnt mean the
hole is on the bottom
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What is the response to demonstrable weak policy
implementation (e.g. poor services, corruption)

• More of the same (more funding into existing
  organizations)
• Capacity building (training, more technical
  assistance)
• Organizational Reform (org chart changes,
  process re-engineering)
• Cocooning (channeling aid efforts through
  project specific parallel mechanisms (e.g.
  community driven development))

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Cocooning for success

• Scheme based project implementation in order
  for rapid implementation of asset creation
• Parallel institutional structureswith no plan
  for eventual convgence
• Wall and scaffolding

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External actors are part of the solutionwhen
the solution (TBPw/IM is the problem)
Closed
Space for novelty
Open
System Characteristics
(E)Valuation of novelty
Functionality
Agenda promotion
Demonstrated Success
Organizations (firms, ministries, NGOs)
Legitimation
Isomorphic mimicry
Leadership
Rent Seeking/ Distribution
Wealth Creation
Agents (leaders, managers, Front-line workers
Concerned Flexibility
Compliance
Front-line worker use of capacity
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Easy to say.

• Have an articulated theory of functional change
  that can answer the why question for all actors
  in the critical path of arrows of accountability
• Increase space for noveltywith the potential for
  ecological learning (e.g. NGO experimentation,
  pilots, etc. dont help if all the grass is being
  eaten)
• Increase the way in which novelty is evaluated
  (from development fad fetish to evaluation on
  function (NOT Big E)
• Decrease the scope for isomorphic
  legitimatione.g. no points for org-chart
  convergence, adoption of best practice
  processes, etc.
• Make space for risk taking, value creating,
  leadership

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Work drawn on

• Pritchett and Woolcock (2004), Solutions when
  the solution is the problem
• World Development Report 2004, Chapter 3
• Is India A Flailing State? Detours on the Four
  Lane Highway to Modernization
• Deals versus Rules (w/Mary Hallward)
• Water in the Regulations (w/Mary Hallward)not
  written
• Spartans, Paper Tigers, and Keystone Cops
  Lessons from the finanical crisis for
  development
• The Dangers of Daydreaming (with Michael
  Clemens) (not written)
• Agents, Organizations, Systems Creating
  Creative Destruction through Good Struggles
  (with Matthew Andrews and Michael Woolcock) (not
  written)