Public Sector Institutional Reform Topic Guide

Joshi, Anu, and Carter, Becky
Governance and Social Development Resource Centre, University of Birmingham
Year of publication: 

Institutions – formal and informal rules and norms – matter because they create incentives that shape behaviour. Many aid interventions have failed because they did not take into account governance and institutional issues. It is now widely accepted that institutions play a critical role in poverty reduction and growth. Influential econometric evidence has been important in showing the links between institutions and growth in particular.

The public sector is the single most important investment instrument for the state, and improving the way it is managed is critical for development outcomes including service delivery, social protection and private sector regulation. Public sector governance reform involves institutional reform – that is, changing the rules and norms that govern public sector activity. Donor support to institutional reform aims to improve the performance of the state through changing institutions and generating greater capacity, commitment, efficiency, integrity, and/or responsiveness to achieve poverty reduction and other developmental goals (Bunse & Fritz, 2012, p. 4).

However, while understanding of institutions and the role of aid has deepened in recent decades, critical knowledge gaps and unresolved debates remain. There is little rigorous and systematic evidence on how to design effective institutional support. The distribution of economic, social and political power influences the way institutions work in practice (Booth, 2013). The key challenge in this area is measurement and attribution—how to measure the effectiveness of institutional reform interventions in achieving poverty reduction and growth (Fukuyama, 2013).

Common challenges that need to be taken into account in public sector institutional reform are:

  • Embedding a ‘thinking and working politically’ approach to reform
  • Resolving the tension between the long-term processes of institutional change and short-term political horizons
  • Ensuring reforms tackle problems with underlying functional effectiveness as opposed to simply adopting institutional forms
  • Finding the right balance between a large scale centre of government approach and a small scale islands of effectiveness approach in specific contexts
  • Achieving sustainable and systemic change through changes in the motivation and incentives of individuals, groups and organisations
  • Ensuring that public sector institutions are inclusive and integrate a gendered perspective
  • Working with non-state institutions, including informal norms and clientelism
  • Fostering political support and local ownership to open space for reforms
  • Building the capacity of individuals, organisations and the broader institutional framework

The following emerging lessons have been identified by experts:

  • To be effective, reform processes need to work within the political logic of the context
  • Informal institutions are pervasive, and can undermine reforms unless they are taken into account
  • Building on what’s there can help to maximise existing capacity and develop contextually appropriate reform
  • The process of reform may be more important than its content
  • Incremental, adaptive reforms can generate learning and momentum for change
  • Successful reforms have started by identifying and framing the problem
  • Power and political economy analysis can help in the ongoing process of identifying windows of opportunity
  • Broad engagement with leaders and networks can help to build constituencies for change
  • Brokering and convening change can provide effective assistance
  • Institutional reform processes need to be aware of, and work with, the organisational constraints of donor agencies
  • Complementary long-term, flexible and ‘hands-on’ aid modalities and instruments have been required to address institutional blockages