Institutions - An Introduction PDF

Chapter One: Institutions – An Introduction 1.1 Concepts and Definition Institutions are structures and mechanisms of social order and cooperation governing the behavior of a set of individuals within a given human collectivity. Institutions are identified with a social purpose and permanence, t...

Chapter One: Institutions – An Introduction 1.1 Concepts and Definition Institutions are structures and mechanisms of social order and cooperation governing the behavior of a set of individuals within a given human collectivity. Institutions are identified with a social purpose and permanence, transcending individual human lives and intentions, and with the making and enforcing of rules governing cooperative human behavior. The term "institution" is commonly applied to customs and behavior patterns important to a society, as well as to particular formal organizations of government and public service. As structures and mechanisms of social order among humans, institutions are one of the principal objects of study in the social sciences, including sociology, political science, and economics. Institutions are a central concern for law, the formal mechanism for political rule-making and enforcement. The creation and evolution of institutions is a primary topic for history. Institutions refer both to the social rules and legal framework within which activities take place in society, and the organizations set up to coordinate the activities or enforce the rules. “Institutions are patterns of social activity that give shape to collective and individual experience. An institution is a complex whole that guides and sustains individual identity… Institutions form individuals by making possible or impossible certain ways of behaving and relating to others. They shape character by assigning responsibility, demanding accountability, and providing the standards in terms of which each person recognizes the excellence of his or her achievements.” (Bellah, RN and others, 1991) Institutions are the rules of the game in a society, the humanly devised constraints that structure incentives in human exchange and shape human interaction. Institutions form the incentive structure of a society and the political and economic institutions, in consequence, are the underlying determinant of economic performance (Douglass C Hawassa University School of GaDS Governan and Institutional Reform (GaDS-3035) 2 North, 1993). According to him, there are two types of game rules: formal ones (constitutional, property-rights rules, and contracts) and informal ones (norms and customs). By structuring the incentives in specific ways, they provide the inducements for people and organizations to invest in, expand, and apply their knowledge and assets to solve problems important to a particular society. According to World Bank in Todaro and Stephen (2006:79) institutions are “rules, enforcement mechanisms, and organizations” According Douglas North in Todaro and Stephen (2006), Institutions are formal and informal rules of economic game “These are humanly devised constraints, notably property rights, which define incentives for saving, investment production, and trade. According to Aoki and others (2001), institutions are self-sustaining system of shared beliefs about a salient way in which the game is repeatedly played. When people casually talk about institutions in daily conversation, they usually mean certain prominent organizational establishments. Some economists follow this convention, effectively identifying institutions as specific players of the game, such as ‘‘industry associations, technical societies, universities, courts, government agencies, legislatures, etc.’’ (Nelson 1994:57). But there is a second view, as North argues that institutions should be identified with the rules of the game as distinct from its players. Humanly devised constraints may be informal (e.g., social norms, conventions, and moral codes) or formal (i.e., consciously designed or articulated). Formal rules include political rules (constitutions, regulations), economic rules, and contracts. Economic rule cal rules (constitutions, regulations), economic rules, and contracts. Economic rules define property rights, that is, the bundle of rights to use and dispose of an economic resource and to derive utility (income) from it. Contracts are (enforceable) agreements, embedded in property rights rules, regarding the use or exchange of goods. The formal rules of the economic game cannot be constructed (changed) by the players of the game themselves while they are playing. These rules are determined prior to playing the game. Since we are concerned with the origin of institutions, an immediate question arises: Who determines the economic rules? It is here that North draws a sharp distinction between the rules of the game and the players of the game (organizations and their political entrepreneurs) who can act as agents of institutional change, that is, as rule-makers. Hawassa University School of GaDS Governan and Institutional Reform (GaDS-3035) 3 According to North, the existing rules of the game shape the incentives of the players as to how to transact and what to innovate, ultimately generating effective demands for new rules in response to changing relative prices. The new rules are then negotiated and determined in the ‘‘political market,’’ that is, structured according to political rules. North claims, ‘‘[i]t is the polity that defines and enforces the property rights’’ (1995:23). A more technical formulation of the rules-of-the-game view is presented by Hurwicz (1993, 1996) who focuses on the issue of enforcement? In this approach the rules of a game are expressed by specifying who play the game, what actions players can choose (‘‘a choice set’’) and what physical outcome corresponds to each profile of the players’ choices (‘‘an outcome function’’). He calls such a triplet of specifications a ‘‘mechanism’’ or a ‘‘game form.’’ According to Hurwicz, other restrictions are needed as well for arriving at a proper definition of institutions. He considers that the rules need to be enforceable, or ‘‘implement able’’ in his terminology. Hurwicz’s main concern is to inquire into the possibility of ‘‘designing’’ an institution that can implement a given social goal in a way that is compatible with the incentives of the players for a certain class of environment (technology, preferences, and resource endowments). A social goal (efficiency, equity, clean air and water, etc.) may be expressed in terms of a certain set of outcomes (consequences) to be attained for each economic environment. Suppose that a legislator designs a mechanism that implements the prescribed social goal. However, there is no guarantee that this mechanism is enforceable. For example, the legislator may expect that a price control can achieve the social goals of price stability and distributive equity, but there will always be sellers who find it appealing to sell in the black market at a price higher than the regulated ceiling price. Then price control is not self-enforceable, and thus not implementable. If a mechanism that was designed with the purpose of achieving a prescribed social goal is not self-enforceable, then it needs to be supplemented by an enforcement mechanism. The game form must be altered by adding enforcers (the court, police, ombudsmen, etc.) with particular action sets (putting people in jail, etc.) and modifying the outcome function accordingly. But this creates a dilemma for the mechanism designer. To the enforcement mechanism effective, appropriate incentives may need to be provided for the enforcers to perform their mission properly. Further the operation of the enforcement mechanism may require the use of resources that have to be diverted away from activities directly contributing to the prescribed social goal. As a result the achievement of the original social goal will need to be compromised. According to Greif (1994:943), given the technologically determined rules of the game, institutions—the non-technological constraints on human interactions—are composed of two interrelated elements: cultural beliefs (how individuals expect others to act in various contingencies) and organizations (the endogenous human constructs that alter the rules of the game [relevant to the decision-makers)] and, whenever applicable, [they] have to be an equilibrium [and thus self-enforcing]. 1.2 Types of Institutions As mechanisms of social cooperation, institutions are manifest in both objectively real, formal organizations, such as the US Congress or the Roman Catholic Church, and, also, in informal social order and organization, reflecting human psychology, culture, habits and customs. Institutions also can be categorized as Social, economic and Political. Social organization or social institution refers to a group of social positions connected by social relations, performing a social role. It can also be defined in a narrower sense as any institution in a society that works to socialize the groups or people in it. Common examples include Education, governments, families, economic system, religions, and any people or groups that you have social interaction with. It is a major sphere of social life organized to meet some human needs. They are patterns of relationships (Role, Status) which are expected to be maintained as per certain rules and regulations, with a focus and functions to be performed, and to bring about social change/order. Eg. Family, religion, economy, polity Social organizations can take many forms, depending on the social context. For example, for family context the corresponding social organization is the extended famil business context a social organization may be an enterprise, company, corporation, etc. In the educational context, it many be a school, university, college, etc. In the political context it may be a government, political party, etc. Commonly, experts officially recognize these five major social institutions that have been evident in some way in every civilization in history: government, religion, education, economy, and family. There is interdependence among these institutions. To give a simple example: productive institutions are dependent on educational institutions for a skilled workforce, educational institutions are dependent on the government for their funding, and government institutions, in turn, rely on productive institutions to create wealth to finance government spending. Sociologists call this institutional interdependence. Max Weber concluded that in the history of mankind, organizations evolved towards rationalization in the form of a rational-legal organization, like bureaucracy. Organization Vs Institution The term organization is in sociology sometimes used interchangeably with the term institution, as when referring to a formal organization like a hospital or a prison. In other parts of sociology, such as the sociology of organizations and especially new institutionalism (also new institutional economics in economics and historical institutionalism in political science), 'organization' and 'institution' refer to two different phenomena. Organizations are a group of individuals pursuing a set of collective goals with established roles, methods of coordination, procedures, culture and space. Organizations can include political bodies (political parties, Congress, Department of Corrections), social groups (churches, clubs, athletic associations), economic bodies (unions, cooperatives, corporations), and educational bodies (schools, training centers, colleges). Institutions are ideas about how something should be done, look or be constituted in order to be viewed as legitimate. Institutions can be defined as a “stable collection of social practices consisting of easily recognized roles coupled with underlying norms and Hawassa University School of GaDS Governan and Institutional Reform (GaDS-3035) 6 a set of rules or conventions defining appropriate behavior for, and governing relations among, occupants of these roles” Institutions provide structure, guidelines for behavior and shape human interaction. Institutions are also characterized by social practices that reoccur or are repeated over time by members of a group. Institutions may or may not involve organizations. The issue is complicated by the fact that one may talk of an organization as an institution, and of the institutions that govern an organization, and of organizations that seek to strengthen or destroy institutions. 1.3 Dynamic Institutions and Governance In a world of uncertainty and change, current achievements are no guarantee for future survival. Even if the initial chosen set of principles, policies and practices are good, static efficiency and governance would eventually lead to stagnation and decay. No amount of careful planning can assure a government of continuous relevance and effectiveness if there is insufficient institutional capacity for learning, innovation and change in the face of ever new challenges in a volatile and unpredictable global environment. But can government institutions be dynamic? The typical government institution is not usually regarded as a dynamic, entrepreneurial organization, but a slow, stodgy bureaucracy that consistently and, sometimes, mindlessly enforces outdated rules and sticks to procedures without any care or concern for individuals or businesses. Can institutions ever be dynamic? Dynamism is characterized by new ideas, fresh perceptions, continual upgrading, quick actions, flexible adaptations business context a social organization may be an enterprise, company, corporation, etc. In the educational context, it many be a school, university, college, etc. In the political context it may be a government, political party, etc. Commonly, experts officially recognize these five major social institutions that have been evident in some way in every civilization in history: government, religion, education, economy, and family. There is interdependence among these institutions. To give a simple example: productive institutions are dependent on educational institutions for a skilled workforce, educational institutions are dependent on the government for their funding, and government institutions, in turn, rely on productive institutions to create wealth to finance government spending. Sociologists call this institutional interdependence. Max Weber concluded that in the history of mankind, organizations evolved towards rationalization in the form of a rational-legal organization, like bureaucracy. Organization Vs Institution The term organization is in sociology sometimes used interchangeably with the term institution, as when referring to a formal organization like a hospital or a prison. In other parts of sociology, such as the sociology of organizations and especially new institutionalism (also new institutional economics in economics and historical institutionalism in political science), 'organization' and 'institution' refer to two different phenomena. Organizations are a group of individuals pursuing a set of collective goals with established roles, methods of coordination, procedures, culture and space. Organizations can include political bodies (political parties, Congress, Department of Corrections), social groups (churches, clubs, athletic associations), economic bodies (unions, cooperatives, corporations), and educational bodies (schools, training centers, colleges). Institutions are ideas about how something should be done, look or be constituted in order to be viewed as legitimate. Institutions can be defined as a “stable collection of social practices consisting of easily recognized roles coupled with underlying norms and Hawassa University School of GaDS Governan and Institutional Reform (GaDS-3035) 6 a set of rules or conventions defining appropriate behavior for, and governing relations among, occupants of these roles” Institutions provide structure, guidelines for behavior and shape human interaction. Institutions are also characterized by social practices that reoccur or are repeated over time by members of a group. Institutions may or may not involve organizations. The issue is complicated by the fact that one may talk of an organization as an institution, and of the institutions that govern an organization, and of organizations that seek to strengthen or destroy institutions. 1.3 Dynamic Institutions and Governance In a world of uncertainty and change, current achievements are no guarantee for future survival. Even if the initial chosen set of principles, policies and practices are good, static efficiency and governance would eventually lead to stagnation and decay. No amount of careful planning can assure a government of continuous relevance and effectiveness if there is insufficient institutional capacity for learning, innovation and change in the face of ever new challenges in a volatile and unpredictable global environment. But can government institutions be dynamic? The typical government institution is not usually regarded as a dynamic, entrepreneurial organization, but a slow, stodgy bureaucracy that consistently and, sometimes, mindlessly enforces outdated rules and sticks to procedures without any care or concern for individuals or businesses. Can institutions ever be dynamic? Dynamism is characterized by new ideas, fresh perceptions, continual upgrading, quick actions, flexible adaptations Dynamic governance is the key to success in a world undergoing accelerating globalization and unrelenting technological advancement. If institutions can evolve and embed the cultures and capabilities that enable continuous learning and change, their contributions to a country’s socio-economic progress and prosperity would be enormous. The lessons from their efforts in institutionalizing culture, capabilities and change would be useful for achieving similar outcomes in other types of organizations, such as business firms and volunteer groups. If bureaucratic public sector institutions can learn to be dynamic, the lessons from their efforts could provide meaningful and valuable insights for transforming organizations in other contexts. 1.3.1. The Need for Dynamic Government Government institutions have significant impacts on the economic competitiveness and social development of a country. They define the relationships between the government and people of a country. They set the tone for how society and business interact. They create the conditions that may facilitate or impede sustained development and growth. They influence the business environment and competitiveness of a country, and can make it more or less attractive to foreign investors. A nation’s competitiveness is no longer primarily based on static factor advantages but in “providing an environment in which firms can operate productively and continuously innovate and upgrade their ways of competing to more sophisticated levels, thereby allowing rising productivity.” Although government cannot directly create competitive industries, it can act as a catalyst and a challenger in shaping the context and institutional structure that stimulates businesses to gain competitive advantage. But government institutions are not usually known for dynamism. Many government agencies function as monopolies and do not face the discipline of market competition in the delivery of their outputs and services. There are often no established market prices for their services, which may also be provided free-of-charge or at highly subsidized rates. They are funded through budget allocations that are often Hawassa University School of GaDS Governan and Institutional Reform (GaDS-3035) 8 subjected to political influences. There are no objective measures of managerial performance and there are few incentives for improvement and change. They are not subjected to financial discipline from investors who demand an adequate financial return for the risks they take. Public managers tend to become highly conservative as they learn from experience that visible mistakes are often punished while personal achievements may not be rewarded. Is dynamic governance possible in this environment? Institutional culture can support or hinder, facilitate or impede dynamism in policymaking and implementation. Institutional culture involves how a nation perceives its position in the world, how it articulates its purpose, and how it evolves the values, beliefs and principles to guide its decision-making and policy choices. In addition, strong Michael Porter and Geraldine Chen (2007) has Identified three critical governance capabilities: i) Thinking ahead — the ability to perceive early signals of future developments that may affect a nation in order to remain relevant to the world; ii) Thinking again — the ability and willingness to rethink and remake currently functioning policies so that they perform better; and iii) Thinking across — the ability and openness to cross boundaries to learn from the experience of others so that new ideas and concepts may be introduced into an institution. When governments develop the capabilities of thinking ahead, thinking again and thinking across, and embed these into the paths, policies, people and processes of public sector institutions, they create learning and innovations in governance that facilitate dynamism and change in an uncertain world. In essence, dynamic governance occurs when policy-makers constantly think ahead to perceive changes in the environment, think again to reflect on what they are currently doing, and think across to learn from others, and continually incorporate the new perceptions, reflections and knowledge into their beliefs, rules, policies and structures to enable them to adapt to environmental change. Hawassa University School of GaDS Governan and Institutional Reform (GaDS-3035) 9 Dynamic governance requires the embedding of the capabilities of thinking ahead, thinking again and thinking across into the strategies and policies of public sector institutions so that there is continuous learning, execution, innovation and change. The three thinking capabilities have to be embedded into the approach for policy choice, execution and evaluation for effective change to become a reality. Only then can chosen paths go beyond the imprint of the founders to create innovations in strategies and policies to meet the new requirements for success. The process for thinking ahead involves: i. Exploring and anticipating future trends and developments that may have significant impacts on policy goals, ii. Perceiving how these developments would affect the achievement of current goals, and testing the effectiveness of existing strategies, policies and programs, iii. Strategizing what options could be used to prepare for the emerging threats and exploit the new opportunities, and iv. Influencing key decision-makers and stakeholders to consider the emerging issues seriously and engaging them in strategic conversations about possible responses. 2. Thinking Again Albert Einstein said, “The problem is not to think but to think again.” Thinking again is the capability to confront the current realities regarding the performance of existing strategies, policies and programs, and then to redesign them to achieve better quality and results. The timeframe for thinking is from the present situation to the future, with an inside-out perspective of how the performance of current policies and programs compares with the desired intent and outcomes. It involves utilizing actual data, information, measurements and feedback to surface issues and problems that impede better performance, and looks beyond the past legacy of a particular policy or or program to seek ways to improve its performance. If we have perfect feedback on the consequences of policy, the perfect mental model to correctly link the consequences to their true underlying causes, and the perfect Hawassa University School of GaDS Governan and Institutional Reform (GaDS-3035) 10 knowledge to take corrective actions, the capacity to think again would be trivial. The reality is that there is so much noise in the system that it is difficult to have good and timely feedback, difficult to know what the feedback means, much less to be able to attribute them accurately. Even if we have the expertise to identify needed corrections, there may not be the political will or the resources to implement them. Although thinking again is based on hindsight of what has already occurred, it uses the known facts and other feedback to ask questions, open up conversations and engage in dialog to facilitate learning about the underlying causes for the observed results. Thinking again is fact-based and creates an environment whereby people are constantly asking why they observe the results that they do and what they can do differently to obtain better or different outcomes. It removes the tendency to blame others or to take undue credit, both common responses whenever performance reviews are used for making judgments on people rather than for learning about the system. Thinking again leads to the reconsideration of the effectiveness and efficiency in the execution of policies and programs, as well as the appropriateness of their goals and strategies. Thinking again may be triggered by success or failure — the key is how the results are perceived, interpreted and communicated to stimulate a rethink of the previous policy. The process for thinking again involves: i. Reviewing and analyzing actual performance data and understanding public feedback, ii. Probing into the underlying causes of feedback or observed facts, information and behavior, both for meeting or missing targets, iii. Reviewing the strategies, policies and programs to identify features and activities that are working well and those that is not, iv. Redesigning the policies and programs, partially or completely, so that their performance may be improved and their objectives better met, and Hawassa University School of GaDS Governan and Institutional Reform (GaDS-3035) 11 v. Implementing the new policies and systems so that citizens and customers are better served and enjoys a meaningful outcome. The capacity to think again requires leaders who are willing to confront the realities of current performance and feedback, and to challenge the status quo. They need to be confident yet humble enough to be candid without being offensive and to engage people in open dialog and interaction so that they are energized to change and do better. They need analytical and problem-solving skills to drill into the details of how things are done and why the feedback or results occur as they do. They also need the skills to redesign the system so that better results may be achieved. The purpose of thinking again is to identify changes needed for improvement. For leaders who have initiated earlier changes, thinking again becomes especially challenging. Although change is never easy, it takes extraordinary emotional fortitude and effort for a leader to “think again” what he has previously initiated or earlier changed, and to change again. The make-up of the organization that has grown with the current leader makes the capacity to think again a rare occurrence. A strong and successful leader tends to staff the organization with people who share his or her vision and values, and who have the competencies to execute and realize the current vision. Knowledge and competence can be double-edged — skill in doing something well can become the only way to do something. A core competence can become core rigidity and a competency trap that blocks further learning. Over time, groupthink can develop in the leadership so that there is subtle denial of reality, and little diversity of views and perspectives. Although the team itself may view this as cohesion and teamwork, often the reality is that they have lost the capacity to re-look at their existing policies and programs with the objectivity and detachment needed to change again, especially if they had succeeded with their original changes. 3 Thinking Across Thinking across is the capability to cross traditional borders and boundaries in order to learn from the experience of others so that good ideas may be adopted and customized to Hawassa University School of GaDS Governan and Institutional Reform (GaDS-3035) 12 enable new and innovative policies or programs to be experimented with and institutionalized. It goes beyond mere adoption or imitation of rules and practices that may have worked elsewhere. By learning from others, insight is gained and then adjusted to the unique needs of a country’s cultural and historical context. Thinking across is a dynamic governance capability that introduces fresh ideas and innovation into a society. The timeframe and perspective for thinking adaptively is from the present-outside to the future-inside. Thinking across seeks to find interesting practices beyond the traditional boundaries of a nation to understand why and how they have worked to achieve given policy objectives. It then creatively transfers that knowledge into tailored programs that may be tried within the local institutional and policy environment. Thinking across is learning from others to gain new ideas for innovation, for new and different ways of doing things. The intent of learning from the experience of others is not mere technical imitation of best practices, but a deep contextual understanding of why others adopted different approaches to similar issues, how their history and circumstances influenced the selection of different policies and design of different programs. It includes understanding the lessons they learnt in their implementation, and how they perceived what worked or did not work, and whether and how they would approach it differently if they could start over. As a society’s developmental issues become more complex, it cannot merely depend on the adoption of standard, generic policies and practices to solve its problems. It has to learn from the experience of others and the experiments that may have been conducted elsewhere to design solutions that are suitable for its own citizens. Thinking across recognizes that the traditional boundaries of functions, hierarchy, or As a society’s developmental issues become more complex, it cannot merely depend on the adoption of standard, generic policies and practices to solve its problems. It has to learn from the experience of others and the experiments that may have been conducted elsewhere to design solutions that are suitable for its own citizens. Thinking across recognizes that the traditional boundaries of functions, hierarchy, organizations, industries, sectors, geography, nations, culture, and knowledge domains are hurdles to learning. They create discrete mental categories that limit creativity in the search for holistic solutions to complex issues. A society that provides the incentives for people and organizations to explore alternative ways of solving problems, conduct trials to experiment with new ideas and learn from failures will progress faster, become more innovative, and increase their chances for continued success in a changing world. Hawassa University School of GaDS Governan and Institutional Reform (GaDS-3035) 13 Thinking across facilitates learning through exposure to different ideas and discovery of new insights and applications. It recognizes that breakthrough innovations happen often by a process of being exposed to interesting experiments in other communities, taking apart these ideas and re-assembling them in new combinations. Thinking across overcomes the strategic myopia of a “not invented here” mindset. Instead of rejecting an idea or program because it came from elsewhere, thinking across makes “not invented here” a valued opportunity to tap the most creative ideas wherever they may be. It builds bridges to different cultures and backgrounds to open up new perspectives, and to find new approaches to governance and policy. Exposure to other domains allows people to see their own policies in a new light, question their own practices, and make new discoveries — how new connections may be made, and how different ideas may be recombined in new ways to create innovative approaches to emerging issues. It recognizes that people who have grown up and lived in the same socio-economic and political environment often develop similar views and share similar blind spots. In being too familiar and too comfortable, they too easily reject ideas that do not fit into the local context in the first instance. It recognizes the need for people to step out of their familiar surroundings long enough to overcome their own blind spots and see what others are seeing. The process of thinking across boundaries involves: (i) Searching for novel and interesting practices adopted and implemented by others in approaching similar issues, (ii) reflecting on what they did, why and how they did it, and the lessons they learnt from the experience, (iii) Evaluating what may be applicable to the local context, taking into account the unique conditions and circumstances, and what would be acceptable to the local population, (iv) Discovering new connections between ideas and new combinations of different ideas that create innovative approaches to emerging issues, an Leaders need to think across and be open to learn from people and practices outside their own culture. They need to be confident to go beyond the boundaries of familiar domains and competencies to look for different ideas, and build intellectual and social linkages so that these new ideas are not rejected too early and too easily. The new ideas are not abstract; they have actually been tried and implemented elsewhere, albeit in a different country, domain or culture. Leaders become knowledge brokers who span boundaries, build linkages to distant communities, grow social networks for learning and interactions, and provide conduits for the flow of new knowledge for their institutions. The sharing of information and experiences in the leaders’ social networks give them new knowledge with which they can challenge accepted approaches and solutions in their local environments. The role of leaders is to create an environment whereby people do not reject different ideas and solutions because of defensive ‘they are not like us’ attitudes that foreclose all learning. The uniqueness of one’s context is not an acceptable excuse for not learning about other approaches. The uniqueness of context should focus the mind to learn even more in-depth so that the main principles and cause-and- effect logics of a particular practice may be distilled and contextually applied to the local circumstances. Customizing a successful solution to fit the local context requires a deep understanding of the underlying rade-offs that are made and whether a different trade-off is needed to meet the needs of the local community. The adaptability comes from an internalization of a nation’s position in the world, the purpose to be pursued for its governance an institutional framework, and the principles that guide its paths of development. 1.3.2. Governance, Institutions and Capabilities Governance and Governments Governance deals with the processes and systems by which a society makes decisions regarding its key policy issues and objectives. Government refers to “the structures and Hawassa University School of GaDS Governan and Institutional Reform (GaDS-3035) 15 function of public institutions. Governance is the way government gets its work done.” It is the process of decision-making and how decisions are implemented. Government acts by using institutions, structures of authority and collaboration to allocate resources, coordinate activities and enforce rules in society. The World Bank defines governance as “the traditions and institutions by which authority in a country is exercised.” It includes the: i. Process by which governments are selected monitored and replaced; ii. Capacity of the government to effectively formulate and implement sound policies; and iii. Respect of citizens and the state for the institutions that govern economic and social interactions among them. Six dimensions of governance are define Six dimensions of governance are defined by the World Bank: i. Voice and accountability — the extent to which a country’s citizens are able to participate in selecting their government, as well as freedom of expression, freedom of association, and free media; ii. Political stability and absence of violence — perceptions of the likelihood that the government will be destabilized or overthrown by unconstitutional or violent means, including political violence and terrorism; iii. Government effectiveness — the quality of public services, the quality of the civil service and the degree of its independence from political pressures, the quality of policy formulation and implementation, and the credibility of the government’s commitment to such policies; iv. Regulatory quality — the ability of the government to formulate and implement sound policies and regulations that permit and promote private sector development; v. Rule of law — the extent to which agents have confidence in and abide by the rules of society, and in particular of contract enforcement, the police, and the courts, as well as the likelihood of crime and violence; Hawassa University School of GaDS Governan and Institutional Reform (GaDS-3035) 16 vi. Control of corruption __ the extent to which public power is exercised for private gain, including both petty and grand forms of corruption, as well as capture of the state by elites and private interests. Governance is “the relationship between governments and citizens that enable public policies and programs to be formulated, implemented and evaluated. In the broader context, it refers to the rules, institutions, and networks that determine how a country or an organization functions.” Governance is about “government’s changing role in society and its changing capacity to pursue collective interests under severe external and internal constraints.” A civil service project team led by Andrew Tan refers to public sector governance as: “the manner in which the government, working together with other stakeholders in society, exercises its authority and influence in promoting the collective welfare of society and the long-term interests of the nation.” In the study made by Siong Neo and Geraldine Chen in Singapore “governance” refers to the chosen paths, policies, institutions and the resultant structures that collectively provide the incentives and constraints to facilitate or impede interactions that lead to economic progress and social wellbeing. Dynamic governance thus refers to how these chosen paths, policies, institutions, and structures adapt to an uncertain and fast changing environment so that they remain relevant and effective in achieving the long-term desired outcomes of a society