June 22, 2020 | by Matt Warner Print

Photo Credit: World Bank.

The events of 2020 have hardly strengthened our faith in big institutions. However, later this year the World Bank will have a chance to help restore our trust in one of its core functions: gathering and disseminating data.

A new dataset on public procurement promises to provide an unprecedented look into corrupt and ineffective practices in government spending. Representing 187 countries, the study will support the introduction of a new Doing Business report indicator “Contracting with Government.” Governments spend a combined $11 trillion, or 12 percent of global GDP, on public procurement much of which can be vulnerable to corruption and inefficiency. Accordingly, the widespread use of this new dataset could have a major, positive impact on institutional reforms throughout the world. 

The study, co-authored by Erica Bosio, Simeon Djankov, Edward Glaeser, and Andrei Schleifer, also includes new findings that help to explain why one-size-fits-all approaches to institutional change tend to fail. Low public sector capacity countries fared better with more regulation over their processes, but high public sector capacity countries got better outcomes with less regulation.

This highlights an underappreciated problem in development practice. In 2012 a team of researchers tested a near universal public policy related to mail handling. The team mailed multiple misaddressed letters to 159 countries and then waited to see which countries complied with their official policy to return the letters to the sender promptly. Only 60 percent did and for many it took up to six months for the letters to reappear. In this case, the stakes are trivial. But it helps us see the difference between legislation and the law, as Hayek so distinguished.

Historically, we have made too many simplistic assumptions about the workability of one-size-fits-all recipes for building strong institutions. As institutional scholar Richard Scott put it, institutions are both the cause and effect of the people they govern, meaning local context matters. This is why the work of local, independent think tanks is so important. Their vision for institutional change, rooted in the principles of individual liberty, is what stands the best chance for building a more prosperous and free society.

The Doing Business report is a good resource for that kind of effort. Big institutions like the World Bank may not be well positioned to engineer social change on behalf of local communities, but they can centralize and disseminate data and analysis that can benefit us in our work based on our own prerogatives. This new study and indicator will be a welcome boost to the good work of think tanks everywhere.

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Matt Warner is president of Atlas Network, a nonprofit grantmaking organization committed to supporting local NGOs in more than 90 countries. Matt is the editor of Poverty and Freedom: Case Studies on Global Economic Development and coined the term "the outsider's dilemma" to describe the challenge of helping low-income countries develop without getting in the way of their most viable paths to prosperity. Matt writes, speaks, and consults internationally on the topics of economics, institution building, nonprofit management, and impact philanthropy. Learn More about Matt Warner >