Journal Issue

Management and institutional development: A long, hard task, especially in the social sectors

International Monetary Fund. External Relations Dept.
Published Date:
September 1983
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Arturo Israel

Institutional development, the effective management of institutions, can be broadly defined as increasing their ability to formulate practicable development objectives and to meet them, while making full use of their available human, financial, and other resources. It can also include the establishment of new institutions. The Bank has promoted this process since its early days. It involves improving capabilities at all levels: throughout the central government; within a project; within the public and private agency or ministry; and, at the grassroots level, throughout local government and private organizations. The capabilities promoted are diverse; they include those for policy development, planning, organizational design, financial management (including programming and budgeting), procurement, personnel management, training, management coordination, and so on.

It has always been clear from the Bank’s extensive operations that investments and financial resources are a necessary but not a sufficient condition for achieving development; the effective use of available resources is also important. Although the Bank has accumulated extensive experience in this field and has considerable achievements to show, institutional and managerial problems continue to be the most pervasive and serious constraints on project implementation; its efforts at solving them have not been as successful as its attempts to solve difficulties arising from investments. Institutional development requires long-term programs that transcend individual projects, and its basically qualitative character makes it hard to program, budget, and control.

The difficulties are likely to increase. Development strategies over the past 20 years have evolved from relying primarily on growth from capital investments to a more direct attack on the problems of poverty and income distribution. This shift has greatly increased the implementation difficulties of projects. Projects, and even institutions dealing with infrastructure or industrial activities, could be treated as enclave operations. Poverty-oriented programs, however, and in general those trying to reach and involve large numbers of people, are more “institution-intensive” because they are based extensively on the provision of services. Also, the institutions involved are the most difficult to improve and are more open than others to political and cultural influences. The central role assigned to institutions in the development process and the increasing attention paid to absorptive capacity and local capabilities reflects an increased awareness of these difficulties.

The “art” of institutional development is incorporated in several guises—public or development administration, business administration, management science—but none has been truly successful in dealing with institutional issues in developing countries. Nor have the Bank and other development agencies had any greater success, and progress in the countries themselves has been mixed at best. The state of this art has major shortcomings. First, it has developed along two main lines, the private sector industrial or financial line of management science and business administration and the largely formalistic, legalistic approach of public or development administration. In spite of recent efforts, specific agencies and activities in the public sector, especially in the social field, fall in between these two lines. Second, the existing approach still concentrates on institutions at the national and sectoral levels but gives less attention to local governments or the organization of clients or constituents of these institutions. Third, quantitative techniques are often applied in situations where behavioral methods would be more appropriate, generating many instances of spurious quantification. And, finally, few successful approaches are available for linking particular cultural traits and political patterns to specific organizational and managerial issues.

The Bank’s experience

A review of nearly 200 Bank projects showed a whole range of institutional development objectives—from rather narrow ones, aimed at strengthening only those institutional aspects that influenced project implementation, to broader purposes designed to strengthen the whole institution over long periods and usually encompassing several lending operations. Staffing and training objectives were included in more than three quarters of the projects; support for financial management, technical and economic planning, and maintenance systems was also particularly important. Of course, the objectives varied among sectors and with the special circumstances of each country and agency. Only in 12 per cent of the projects were the institutional objectives limited to getting the project implemented. The rest aimed at long-term strengthening of the agencies involved. In spite of the increase of complex projects requiring the participation of several agencies, about two thirds were still implemented basically by one institution.

The review revealed a pattern of results by activity and subsector and not by country, except in a few cases. Generally, the criterion for success was to compare the institutional development objectives set at appraisal (when available) with those actually achieved. In very few countries was there a consistent history of failure according to this measure in all subsectors, but projects in some subsectors and activities consistently had better or worse results over long periods in most countries. The results were generally better if the project’s emphasis was technical or financial, and worse if it stressed social activities. (Technical and financial activities deal mainly with modern, standardized technology and financial matters, such as industrial production, telecommunications, power generation, or banks. Social or people-centered activities relate to those providing services and dealing more directly with large numbers of individuals: education, some types of health and agriculture, and so on.)

According to sector, the most success with institutional development occurred in industry, telecommunications, “industrialized” agriculture (plantations and other single crop activities), development finance companies, and some utilities, especially power. Experience was mixed in another rather large group of utilities, especially water supply, ports and highways, and agricultural credit institutions. Institutions dealing with irrigation, rural development, education, and railways had poorer results. Recent experience also suggested major difficulties with strengthening institutions dealing with health and population.

Among activities, the most successful were technical and financial. Planning, commercial activities, extension services, and the improvement of organizational structures and processes had mixed results, while training, maintenance, interagency coordination, and sectorwide reforms were less satisfactory (although some training activities were more successful than others). As expected, institutional development did well in institutions that were already relatively successful.

These results were indirectly confirmed by the pattern found in the implementation of different types of investments, where institution-intensive investments encountered more difficulties than others. Briefly, investments in equipment were implemented more easily than those in civil works, and the latter more easily than investments in services. For example, in integrated rural development programs, tractors, trucks, or machinery tended to be available before the feeder roads were completed, and roads were ready before an effective marketing or extension structure was in place.

Causes of success

What accounted for these results? This article will not discuss the factors outside the institutions’ control, but will concentrate on a few key factors that emerged from the review. The first and most commonly suggested reason for success was political: country authorities’ and borrowers’ commitment and support for the institutional development objectives. Borrower involvement in the design and implementation of the program also seemed essential. These related conclusions emerged pointedly from the strong correlation between success and (1) situations where institutional development was more the borrower’s than the Bank’s initiative; and (2) cases where the institutional objectives were specifically included in the project and were adequately funded, rather than mentioned only as statement of intention. The concept of borrower commitment is quite complex, particularly in this context. It implies a sustained commitment not only at the higher decisionmaking levels of the government but also at the operating ones, where the improvements are supposed to take place. It also implies continuous commitment over long periods of time.

The second cause of good results was the presence of outstanding individuals as senior managers (the old concept of “leadership”). In this context, the potential for two-way causality is high: the success of an agency may derive from the manager or the institution, but no causality can be proven. In several Bank projects, however, it was possible to identify the effect of individuals by assessing the situation before and after their tenure.

The third reason given for success was effective planning and implementation. At first sight, this could be interpreted as a transposition of the argument about infrastructure projects—if they are well prepared, they will be well implemented. For programs aimed at strengthening institutions, however, effective planning should include the capacity to modify objectives and methods during implementation. Circumstances often change drastically, and it is unlikely that sufficient knowledge about the factors that will determine the success of the program will be available during preparation and appraisal. The review showed that persistence and flexibility were essential aspects of effective planning and implementation. A vital factor was the continuity of effort over decades rather than years, and the capacity to adapt the program to changing circumstances, or even to withdraw or reduce it when political or economic conditions changed.

A closer look at the results suggested other reasons for success or failure. First, it was practically impossible to improve institutions where the economic and pricing policies affecting their activities were substantially distorted. For example, when wages and salaries in an agency were below those in similar activities elsewhere in the economy, or where the agency’s output prices were artificially low, strengthening the institution was very difficult. Obviously, undistorted relative prices were a necessary but not a sufficient condition for success, and their importance varied among different activities, but many projects with institutional development components failed, or were not as successful as expected, due to this problem. Moreover, in many cases the distortions were known before the effort began.

A second point was that institutional development was almost impossible if the investments undertaken by the institution were unsuccessful. A strong correlation was found for most types of projects between effective institutional development and project success. Third, there seemed to be a minimum package of complementary measures that had to be adopted if institutional development attempts were to have a positive impact. Below that minimum, these attempts either had no effect, or a negative one. For example, a training program without a corresponding improvement in personnel management or in salary policies was likely to promote the loss of key personnel to other activities. Defining this minimum package is still an open-ended question.

Social activities; competition

This review of the Bank’s experience suggested that a deeper analysis from an institutional or managerial point of view of the differences between technical and financial activities on the one hand and social or “people-centered” ones on the other could yield useful operational insights. That getting things done in the social activities is more difficult is well known, but why, and what are the implications for their administration?

At the simplest and broadest level, social activities are more difficult because they deal with human behavior. This has several operational implications. First, it is much more difficult to specify clearly the objectives of social activities and subsectors, and the methods of achieving them and of controlling their achievement. Consequently, information essential for the effective management of these activities is more limited and less precise than for technical undertakings. As a result, the individuals involved have more flexibility in defining the scope of their jobs, while management has less basis for control. Further, the effects of actions in these sectors may not directly affect the individuals taking them and are generally not visible until some time later. This exacerbates the generally less controlled situation and makes it more difficult to manage.

Second, social activities are more open to cultural and political influences. The greater flexibility in defining jobs allows workers to adapt them according to specific cultural priorities. The lack of specificity in objectives and methods also allows more scope for political influences. Conversely, a high technology process will be almost identical regardless of its cultural and political environment. Studies have shown that the modernizing effects of industry and technology are sufficiently powerful to overcome cultural traits.

Two extreme examples of these different activities can help illustrate the point: maintenance of jet engines and educational counseling. Maintenance of jet engines is a very precise activity, the steps and sequence of tasks to be performed can be determined in great detail and responsibilities can be clearly delineated. There is little room for maneuver in job definition. Performance can be easily traced to the participants, and the effect of a bad performance is immediate and dramatic. It is a “tight” activity.

A similarly precise definition of tasks in educational counseling is practically impossible. The perfect set of actions for counseling an individual is indefinable; it would be different for each individual, and most probably would have to be modified as the task proceeds. Moreover, the impact is hard to distinguish from other factors affecting the educational path of an individual and, in any case, its effects may be felt over a number of years. Most of the final outcome, or impact, will not directly affect the counselor. Education counseling is a “loose” activity.

The Bank’s review also suggested that another important factor explaining institutional effectiveness was the degree of external competition to which an institution was exposed, and the amount of internal competitive pressure within it generated through managerial and administrative methods. The positive effects of such competition have been well documented (although less well for internal competition) and were confirmed by this review. Thus, institutional effectiveness was likely to be higher in competitive activities with modern technology and lower in noncompetitive social activities.

Low technology agriculture was probably the most difficult activity to organize and manage, according to this analysis. The “precise” technical package was hard to define, because it had to deal separately with different types of land and different times of the year; production depended heavily on unpredictable events, such as the weather, and involved large numbers of workers, scattered over extensive areas. These workers had wide latitude in defining their jobs, and the consequences of their actions were not immediately apparent or identifiable. It is indicative that the most successful agricultural projects in the sample were autonomous operations with standardized technologies: plantations and tea and coffee growing.

More generally, activities that were the most difficult to manage proved to be those that required the use of large numbers of agents working in isolation in geographically scattered areas, trying to achieve behavioral changes in large numbers of beneficiaries. These included activities such as agricultural extension, delivery of agricultural inputs, and health delivery systems. Offices and factories are wonderful devices for controlling efficiency; without them, management is greatly complicated. This is why the success in some countries of the training and visit system of agricultural extension was so remarkable, because it was able to achieve improvements without such tools, under the most difficult management circumstances.

Operational implications

Three general conclusions from this review of the World Bank’s experience with institutional development should be highlighted: (1) the need to treat managerial and institutional capacity as an essential but very scarce resource in development programs; (2) the need to ensure that the right economic and policy preconditions exist before the program starts; and (3) the need to pay special attention to the people-centered or social activities.

Managerial and institutional capacity is rarely treated as a scarce resource, and the neglect has serious consequences for development. Public sector investment programs are seldom appraised from the point of view of the available institutions’ capability to implement them and subsequently to operate the investments. The economic and social analysis of investments seldom include an assessment of local institutional capabilities. For example, a common mistake is to appraise investments assuming that maintenance will be effective and routinely undertaken. If it is not—and it is frequently not—the investment decisions would be different; if there is no maintenance, some roads should not be built or should be paved in concrete. Generally, it is safe to assume that the resources wasted through bad maintenance and misuse are a large proportion of the resources countries actually invest. The concept of intermediate technology also has to be broadened to include not only the traditional trade-off between capital and labor but also its organizational consequences. Intermediate technologies typically demand more institutional support than the more advanced ones, and unless properly designed and implemented they could produce less favorable results than expected and could unduly delay the modernization process that would have been induced by a more advanced technology.

Adequate political support and appropriate economic policies are essential for successful institutional development programs as already mentioned. The most damaging course of action would be to embark on a large number of programs aimed at strengthening local institutions in circumstances where the overall policy and pricing framework is providing strong disincentives to their effective operation, for example, due to serious distortions in the prices of inputs and outputs. In these cases, it is better to do nothing until policies are more favorable.

Finally, considerable progress could be made in the development efforts if the managerial handicap under which people-centered activities operate were to be acknowledged. It is likely that social activities can never attain the same objective levels of effectiveness achieved by the technical or financial ones, especially if they cannot be exposed to a competitive atmosphere. They should be measured according to different criteria of effectiveness. Because they do not appear to be efficient, human resources (managerial talent in particular) and investments tend to avoid them, attracted toward the technical/financial activities, where higher “measurable” effectiveness is likely to be achieved. For similar reasons, many social activities are avoided by the private sector and left to the government to perform.

Two types of action are required to offset these trends. One, at the political level, should be an attempt to increase the flow of resources, especially managerial capacity, toward social activities, through incentives and other measures. Another, at the operational and academic level, should be an attempt to adapt the managerial and institutional approaches to the special characteristics of the social activities. It is clear that sometimes the roles of incentives, management, and organizational structures have to be drastically different in the social fields from those in the technical and financial subsectors. Greater attention has to be paid to likely sociological and political participant responses. Alternative approaches have to be designed. The most promising seem to be to set up simplified but powerful organizational and management structures, such as those established in the training and visit agricultural extension system, or to create a competitive environment through managerial devices.

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