LA IMAGEN INSTITUCIONAL DEL MUNICIPIO DE QUITO

Given the multi-faceted character of Inclusive Growth, effective administration and co- ordinated action across multiple policy domains and levels of government are crucial. Identification of policy complementarities may make it possible to generate better outcomes in terms of combining growth and inclusion. Improved co-ordination at the policy level may also help to resolve the political economy challenges associated with Inclusive Growth. Bundling reforms together in cross-sectoral packages may make it easier to reach agreement on reforms, as the costs and benefits of policy initiatives can be more widely distributed, and those threatened by one measure may benefit from another (Tompson, 2009; Olofsgård, 2003).

The OECD has long stressed the need for such co-ordination, emphasising “whole-of- government” approaches or “joined-up government”. Not least, it is essential that strong links are established between national, government-wide strategic planning processes, which are usually multi-year in character and driven by the centre of government, and the annual budgeting and resource-allocation processes, which are driven by the central budget authority. Tools such as medium-term expenditure frameworks, performance-related budgeting and periodic reviews of expenditure allow for these correspondences to be clarified and reinforced.

In practice, implementing a whole-of-government approach is difficult and many policies continue to be made in sectoral “silos”. While achieving a government-wide approach involves many challenges that need to be addressed (e.g. coordination costs, political turf battles, lack of incentives to collaborate, insufficient resources for collaborative working, budgetary implications of horizontal and vertical coordination), two key challenges tend to stand out:

 To identify and implement mechanisms, such as for cross-sectoral or inter-governmental consultations, which ensure that co-ordination takes place. Such mechanisms facilitate policy coherence and, wherever possible, help to realise potential complementarities among different strands of policy.

 Identify the policy interactions that matter most in terms of the “knock-on effects” of one policy on others. The distributional consequences of environmental policies, for example, need to be considered and addressed in parallel with environmental policy reforms, not afterwards. Similarly, changes in tax and benefit systems are too often undertaken in isolation to achieve specific ends. These objectives need to be considered in the context of the entire system of taxes and benefits that shapes individual incentives and distributive outcomes, confronting individuals

with abrupt changes in, e.g. marginal tax rates, or producing outcomes where individuals with very similar characteristics are treated very differently.

There are a number of dimensions of cross-governmental co-ordination that matter.

 The first is horizontal, across policy sectors: at both national and sub-national levels there is often a tendency for public bureaucracies to work in silos, with too little co-ordination of, for example, environmental and transport policies, or between social protection and labour-market policies. Here, the solutions often depend on or benefit greatly from leadership at the central government level, including the implementation of mechanisms or the creation of institutions that ensure cross-sectoral discussion of cross-cutting policy challenges.

 The second concerns horizontal co-ordination across jurisdictions at sub-national levels of government. Here, the evidence increasingly points to the need for leadership from above (OECD, 2013d, 2014): even where state or local governments see the need to co-operate, the barriers to collective action can be hard to overcome without the resources and leadership that a higher level of government can provide. Both institutional and financial incentives may be required. The point is not that such collaboration can be imposed top-down but that a balance of top-down and bottom-up initiative is required.

 The third form is vertical co-ordination across levels of government; an important challenge, as almost all domestic policy fields are, at least to some degree, areas of shared responsibility in OECD countries. Multiple levels of government often have a role to play in designing, financing, and/or implementing policies with implications for Inclusive Growth. This points to the need for co-ordinating mechanisms that reflect the legitimate functions and democratic accountability of the various levels involved (OECD, 2013d). The recently adopted OECD Principles for the Effective Governance of Public Investment, for example, reflect this concern.

Checks and balances throughout government

A comprehensive approach to inclusive policy making requires checks and balances to be present throughout government. Strengthening justice sector performance, ensuring fiscal performance, and preventing regulatory capture are three such examples.

Improving justice sector performance

Rule of law, access to justice and redress are at the core of a fair and socially just society. The effective implementation of the law helps prevent conflict, crime and violence, ensures executive accountability, and fosters private sector growth in compliance with outlined regulatory frameworks. A legitimate and equally accessible judicial system helps to create a level playing field where predictable and independent decisions can be taken. Furthermore, ensuring equal access to justice can support equity in services, including health care and education, and thus contribute to reducing inequality. Yet not all citizens in OECD and BRIC countries are confident the justice system works as it should. Among OECD countries, confidence in the judiciary and the courts is highest in Nordic countries and lowest in Korea, Portugal, and Slovenia (Figure 4.5).

Figure 4.5. Significant differences exist in levels of confidence in the judiciary across OECD countries

Percent of respondents with confidence in the judicial system and the courts (2012)

Note: Confidence in the judicial system data refer to percentage of “yes” answers to the question: “In this country, do you have confidence in each of the following, or not? How about judicial system and courts?” Data for Chile, Germany and the United Kingdom are for 2011 rather than 2012.

Source: OECD calculations based on the 2012 Gallup World Poll

Strengthening effectiveness of oversight institutions

The national legislature has a fundamental role in authorising annual budget allocations and in exercising accountability for how these allocations are used. Indeed, the tools available to parliaments to assist them in this task have improved considerably in recent years. Most notably, several national parliaments (e.g. Australia, Canada) have developed parliamentary budget offices designed to address the “asymmetry of information” between the executive branch of government and the legislature on budgetary and fiscal affairs, and to strengthen the role of the legislature in identifying and representing the interests of citizens. Other countries, including Slovenia and Sweden, have established “fiscal councils” or similar bodies to provide an independent, professional perspective on complex issues of fiscal policy management, including assessing compliance with fiscal targets and identifying fiscal sustainability risks. Taken together, these “independent fiscal institutions” can enhance the quality of public discourse and open the way for a more inclusive debate on fiscal policy choices and challenges. The OECD has developed draft Principles for Independent Fiscal Institutions, which set out how such bodies can best be instituted to promote these objectives.

Efforts to improve public sector performance and strengthen citizens’ participation can extend to the activities of autonomous bodies. Innovative approaches in developing countries and emerging market economies involve citizens in social audits (Philippines), complaint mechanisms, and taking part in the selection of the Auditor General (Ecuador and Colombia) (Figure 4.6). Many Supreme Audit Institutions (SAIs) have started involving citizens in their work, although many of these engagement practices have tended towards the one-way dissemination of information. Overall, it is important that accountability bodies develop risk mitigation strategies when engaging citizens in their work in order to ensure their involvement is sustainable and fits within the current political and enabling environment (OECD, forthcoming, a).

Figure 4.6. The range of participatory practices employed by Supreme Audit Institutions varies across countries

2013

Note: The indicator measures the number of distinct practices that have been implemented as of Dec. 2013, not the number, or frequency, of instances. A practice is counted just as long as it has been applied (tools exist/has been put into practice) after its creation and it has not been discontinued. Practices are counted regardless of whether or not they were instantiated in 2013. Source: OECD (forthcoming, a), “Citizen Engagement and Supreme Audit Institutions: A Stocktake

Protecting regulators against capture

Regulatory capture by industry or government can undermine policy making for Inclusive Growth. Regulators are increasingly responsible for the delivery of a variety of policy objectives that can be conflicting or difficult to manage, such as environmental protection while encouraging investments or ensuring reliability and security of services, and minimising the costs to citizens and operators. In addition, as more regulators become independent from central government, their funding increasingly comes from elsewhere including from industry. In such a climate, there can be political pressures to influence regulatory actions and decisions by the regulators. Regulators with conflicting objectives can manage the delivery of those objectives to the extent that they have correct institutional systems and mechanisms of accountability, transparency, engagement and leadership that protect regulatory decisions and actions from undue influence and ensure trust in the regulator. The OECD Best Practice Principles for the Governance of Regulators identifies the seven principles that combine to protect regulators from capture and also promote accountability (Box 4.10).

Box 4.10. OECD Best Practice Principles for the Governance of Regulators

1. Role clarity: For a regulator to understand and fulfil its role effectively it is essential that its objectives and functions are clearly specified in the establishing legislation. The regulator should not be assigned objectives that are conflicting or be provided with a resolution mechanism in case of conflict.

2. Preventing undue influence and maintaining trust: Independence from the government and from the industry that is regulated can improve the regulatory outcomes by allowing the regulator to make decisions that are fair and impartial. Formally protecting the independence of a regulator is an important element of achieving independence, even though it is not sufficient since a strong culture of independence and appropriate working relationships with the government and other stakeholders must also be in place.

3. Decision-making and governing body structure for independent regulators: The governing body structure of the regulator (e.g. a single head or a board of directors) should be determined by the nature of the regulated activities and their motivation.

4. Accountability and transparency: A regulator operates in accordance with the powers conferred to it by the legislature. Accountability and transparency can therefore be considered as the other side of the coin of independence. Regulators should regularly report on the fulfilment of their objectives, including through meaningful performance indicators. Key operational policies and other guidance material, covering matters such as compliance, enforcement and decision review should be publicly available.

5. Engagement: Regulators should regularly and purposefully engage with regulated entities and other stakeholders to enhance public and stakeholder confidence in the regulator and to improve regulatory outcomes.

6. Funding: Funding levels should be adequate and funding processes should be transparent, efficient and simple.

7. Performance evaluation: The regulatory decisions, actions and interventions of the regulator should be evaluated with the help of performance indicators. This creates awareness and understanding of the impact of the regulator’s own actions and helps to communicate and demonstrate to stakeholders the added value of the regulator.

Source: OECD (2014), “OECD Best Practice Principles on Governance of Regulators”; Thatcher, Mark (2005), “The Third Force? Independent Regulatory Agencies and Elected Politicians in Europe”, Governance, 18(3), pp. 347-373, July; Gilardi, Fabrizio and Martino Maggetti (2010), “The independence of regulatory authorities” in David Levi-Faur (ed), Handbook on the politics of regulation, Edward Elgar Publishing, Cheltenham, United Kingdom.