Speech by ADB Managing Director General Rajat M. Nag at the School of Public Policy Management, Tsinghua University on Governance and Development on October 28, 2010 in Beijing, People's Republic of China

I. Introduction

Thank you very much Dean Xue for your warm welcome. It is a great pleasure for me and my colleagues to be here today. I am always particularly happy when speaking with young people as the future of our societies lies in your hands. And it is an honor to be here at your very distinguished university.

II. Governance and Development

As you know, the Asia and Pacific region has witnessed a huge transformation in less than a generation. Asians today are generally healthier, richer, better educated than they were a generation ago. And strong economic growth has lifted hundreds of millions out of poverty.

But many challenges remain. The most important of these is what we call "The Two Faces of Asia" — the Asia that has emerged as a shining beacon of hope, embodied by trailblazers like Shanghai and Mumbai, and the Asia that is being left behind. This other face of Asia is home to more than 900 million people still struggling to exist on $1.25 a day or less. Disparities in both income and non-income aspects of poverty are on the rise. Poverty is the greatest indignity of all, and all societies must fight against it.

In this respect, however, China has done very well. Three decades of rapid development have brought significant benefits to the country and its people. Over that time, China's economy has grown faster than any other in the world, averaging more than 9% annually and leading millions out of poverty. China has already reached the Millennium Development Goal of cutting the 1990 poverty rate in half, and is on track to reach most of the other goals. Its Human Development Index has also improved steadily, and since 2003 China has ranked in the upper-middle level of human development.

While there is further to go to reach the country's long-term development goals, these are tremendous achievements. The Asian Development Bank is proud to partner with the Government in its ongoing efforts to "build a xiao kang society through inclusive growth and environmentally sustainable development". Our partnership strategy outlines ADB's support which focuses on infrastructure, urban water supply and municipal services, clean energy and energy efficiency, ecosystem management and environmental protection, regional cooperation, capacity development, financial sector and SME reforms, and private sector development. Common to all, our work with China?and with all our developing member countries—is the theme of governance. And this is where I wish to focus my remarks today.

Good governance, effective delivery of service, and control of corruption have significant positive impacts on growth. This is even more the case in developing countries where governments tend to play a larger role in the allocation of resources. Competent and honest governments that efficiently deliver administration, education and health care raise a country's productivity while promoting political stability and investment.

Increasingly, an important dimension of strong governance and institutions is the capacity to deliver inclusive growth which spreads the fruits of growth to the wider population. As conditional cash transfers show, well-designed programs that promote inclusiveness can make a big dent on poverty at manageable fiscal cost. By promoting social stability, such programs can foster a more conducive environment for growth. So good governance is not only a matter of curbing corruption, as important as that is. It is also about the accountability of institutions to the people they serve.

The intrinsic value of good governance and institutions as ends of development in their own right is now universally accepted and underlies the very notion of inclusiveness—that is, bringing more and more people into the circle of opportunity that growth and development provides. Therefore, good governance should be pursued in all dimensions as a basic development goal.

III. Concepts of Justice

To give the issue some context, let me refer to the work of Professor and Nobel Prize winner Amartya Sen, who has written extensively about the closely related concept of social justice. In pursuing the idea of social justice, Professor Sen distinguishes between two rather different versions or visions of social justice: one which he calls an "arrangement-focused" view of justice, and second, a "realization-focused" understanding of justice.

The first, the so-called "arrangement-focused" justice, which also goes by some terribly hard expression "transcendental institutionalism", basically argues that justice needs to be conceptualized in terms of certain organizational arrangements. You get the right institutions, you get the right laws, you set the right rules and regulations, you set some behavioral rules, and justice follows.

In the second arrangement which is the "realization-focused" understanding, the point is that in real life, in the real world, justice does not automatically follow just institutions. Professor Sen argues that we need to examine what actually happens in society, including the circumstances and conditions, particularly of poverty and deprivation, that people actually live in.

We have to look at the conditions under which people live, not the ideal. So with this thinking, justice cannot be divorced from the realities on the ground. Of course, institutions, laws and regulations—the basic structures of governance—matter, but they are not sufficient to ensure justice as people feel and experience it.

I have found it very useful to draw on three words from Sanskrit which Professor Sen talks about extensively. As many of you know, Sanskrit is an ancient language of India and the primary language of Hindu and Buddhist texts. The three words are actually quite easy words. The first is "niti", the second is "nyaya", and the third is "matsyanyaya". "Niti" and "nyaya" both mean justice in a sense in classical Sanskrit, but the nuanced difference between the two is critical. "Niti" refers to organizational propriety, behavioral correctness, the rules: As a good citizen, this is how you ought to behave; this is what you ought not to do. "Nyaya" on the other hand refers to the realized justice. "Nyaya" of course recognizes the role of "niti"—the rules and the organizations, the importance of institutions—but considers the world as is. The context in "nyaya" is the world we live in—not some idealized state of society. Finally, "matsyanyaya" is justice in the world of the fish. This justice—even with all the rules and regulations—basically allows a big fish to devour the small fish at will. Such a situation is obviously a fundamental violation of justice, no matter how well laid out the rules, regulations, and institutional structures are.

As Professor Sen articulates in his seminal book Development as Freedom, and I quote: "The greatest relevance of ideas of justice lies in the identification of patent injustice, on which reasoned agreement is possible, rather than in the derivation of some extant formula for how the world should be precisely run".

Obviously, it is the reduction of the patent injustices that we are after. And that is very powerful because it talks about the girl child who cannot go to school even if there is a law requiring that basic primary education be provided. If she cannot go to school, it does not matter that there may be a law on this or a central school board, which is supposed to implement it. We need to worry about trying to reduce the patent injustice of this girl child not being able to go to school because she goes to fetch water for seven hours a day. So our effort should obviously be directed at preventing such severe apparent injustices, such as manifested as "matsyanyaya".

Let me take an example, again going back to Professor Sen's work, when he talked about people fighting for the abolition of slavery in the 18th and 19th centuries, not because they thought they would create a perfect society. They had no illusion that even after the abolition of slavery, there would be many injustices. But what they said was that the existence of slavery was such an injustice that we have to get rid of it. Once we get rid of that injustice, the world would be a better place to live in.

Similarly, let's take the case of famines. All societies would clearly wish to avoid any of their citizens starving or going hungry. But to prevent such a state, the state does not have to focus on the just entitlements, the perfect distribution system, working out the entire way of the calorific distribution for all parts of the population. There will be inequality; some will have more than others. But the point here is that if we focus on the realization of the results of justice, then we will focus on reducing the injustice of starvation. In India, for example, there is a very serious debate going on about whether the right to food should be enshrined in the Constitution, even knowing how difficult it will be to implement.

Because the whole idea, I believe, is that while we, as citizens, might wish to strive and aspire for perfect justice, we are also capable of making partial order rankings. We know not only what is perfect and what is not, but also that a situation, which is less than perfect, is still better than a horribly unjust situation which is unacceptable. I think we can therefore recognize that not providing basic education; not providing basic health facilities, access to water and sanitation; and having women being denied access to education, employment, and property rights are not acceptable, even in a less than perfect society. It is not a question of all or nothing.

IV. Progress to Date

Across the Asia and Pacific region, countries have made concerted efforts to address these challenges. In our work at ADB, we work very closely with our developing member countries across the Asia and Pacific region to ensure that increasing numbers of their citizens can have access to such basic rights as clean water and sanitation, health and education services, decent working conditions, food and shelter and equality under law. This again is the concept of and the heart of inclusive growth. In doing so, we also work to strengthen governance in the sectors where we are active?to help secure the social justice that Professor Sen so passionately articulates.

Our support for judicial reforms, for example, has helped Pakistan and the Philippines to strengthen the rule of law, which is critical to encourage investment and combat corruption. Here in China, we are working with the Government in improving governance in the areas of wastewater and railways. In the wastewater sector, we are supporting efforts to strengthen institutional capacity for financial management, improving accountability, and increasing transparency of operations. Similarly, in the railways sector, we are helping to strengthen institutional capacity for joint venture railways, improve financial management and accounting practices, and build capacity to widen the scope of internal audit to include risk analysis. In law and policy reform, our assistance here has focused on commercial and economic laws such as the bankruptcy law and anti-monopoly law, as well as capacity building for judges on WTO-related legal issues.

All of ADB's assistance to developing countries in Asia is guided by policies, to which we strictly adhere, on good governance and the inherent rights of indigenous peoples, as well as our policy on gender, which recognizes the rights and contributions of women in the development process. Our work on governance is fundamentally tied to our mission of alleviating poverty. For it is the poor and the vulnerable who inevitably bear the brunt of weak governance, and corruption in particular. Transparency International estimates that in developing countries and countries in transition, bribes in the order of $20 billion and $40 billion, respectively, have been received annually by public servants and politicians. Corruption is a tax on the poor. There is clearly not only a social cost but also a real economic cost of corruption.

It is worth noting that the Chinese Government has been steadily increasing the importance it places on improving governance and combating corruption. Since 2001, the National Audit Office has published annual reports on the implementation of the central budget, and from 2004 has begun posting project audit reports on its English language website. The Ministries of Finance and Commerce supervise the official website for procurement of electronic equipment and machinery by international competitive bidding. The Government is also establishing a national integrity system and, in 2005, China joined the ADB-OECD Anti-Corruption Initiative for the Asia-Pacific.

These are important and positive steps. Ultimately, the economic success of countries will depend on their progress in building institutions and policies that maximize opportunities for growth and poverty reduction. Institutions must adjust and reform to meet the demands of dynamic, open and market-driven economies, and the need for greater efficiency and transparency in managing public resources and public service delivery. This is true at local, national, regional and international levels. We have just witnessed, for example, the havoc wreaked by weak global governance of global finances, leading to the worst global economic downturn since the 1930s.

Although Asia's economies have bounced back quickly from the economic crisis, this failure in global governance has had severe consequences for the region's poor people. We estimate that 71 million people in the region who could have otherwise escaped poverty continue living on less than $2 a day due to the global recession.

So in closing, good governance matters in development. It matters to the girl child who cannot go to school; to the young fathers and mothers who are forced into terrible working conditions to support their families; to every individual who lacks the means to pay the bribe required by a corrupt civil servant to access basic services. Asia has made progress, but the governance challenge remains large.

V. Conclusion

You are the future; the future of Asia, indeed the world, is in your hands. Development agencies like ADB can do a lot to promote awareness, encourage reforms and be vigilant about governance and corruption in our own operations. But it is the nation's citizens who create the impulse and the impetus for change. As students of public policy, you more than any are positioned to drive that change. If all the citizens, institutions, development partners and others in the Asia and Pacific region take on this challenge, the benefits of the region's rapid growth will multiply. And a more accountable, better governed Asia will be an Asia that can meet the needs of its people — now, and in the future.

Thank you.

Speaker

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