So what are the implications of the physical crisis of the states and its legitimacy crisis for a very important concept which is the concept of good governance and for institutional quality. Well if you remember there are two main criticisms of the state. One is that some people argue that the state should be minimal and the other one is that the state doesn't have to be big in order to do its job. So in other words the question really is, what's the proper role for the state to play in the society and in the economy? Well, let me frame the issue in the following way. I think most people agree that there are certain basics, certain things that should be provided by the state. That includes law and order, and it also includes national security and defense. There's relatively speaking very little debate about that. There's a little more debate about economic management and the role that the state should play in this respect. For instance, what should be the extent to which this state intervenes through fiscal and monetary policy? Or to what extent states should manage international economic and financial relationships? And also should the state create specific policies to set up conditions for entrepreneurs to prosper? There is a little bit more debate, as I just mentioned about these three aspects where there's a ton of debate, and some of this debate is actually very bitter. It's concerning social welfare, the extent to which the state should be engaged in education, healthcare, old-age pension schemes, unemployment benefits, and the so-called social safety net. So in addition to defining what is the role of the state, it's also important to define what is, quote, good governance, unquote. A government is providing good governance when it is able to ensure political stability, also policy predictability. That is to say its policies don't change all the time in unforeseen ways. When there's rule of law that's also an indication of good governance. When there's quality of regulation that is to say not just regulation but good, reasonable, rational regulation. Also, good governance is also to say with transparency, with accountability, and with a lack of corruption. As we say an enabling bureaucracy that is to say with the absence of red tape. And lastly good governance also involves the protection of property rights including intellectual property rights. Now, how we do we measure the extent in which governments deliver good governance to their citizens around the world? Well there's a number of rankings that attempt to do just that. Has become a cottage industry to measure the extent to which governments offer their citizens good governance. The World Bank, Transparency International, Freedom House, the Heritage Foundation, the International Country Risk Guide, the World Economic Forum, the Fraser Institute and many, many other kinds of foundations, nonprofit or international agencies offer indicators of good balance. Now in most of these rankings, the same set of countries always ends up being at the top with very, very high scores. Those countries typically include Singapore, the ones in North East Asia such as South Korea or Taiwan, the United States, the Scandinavian countries, the U.K. and most countries in Western Europe. Now at the end of the spectrum, the countries that typically score very low on measures or indicators of good governance are China, Russia, parts of Latin America, parts of South Asia and Central Asia, most of the Middle East, and most of Africa. Now keep in mind one very important phenomenon here. By publishing rankings, what these international agencies, foundations, or non-profits accomplish Is that government starts competing to become better at the indicator that they propose. So in other words, governments seek to improve their ranking in order to enhance competitiveness to attract foreign investors, and to increase their status and legitimacy in the world. The rankings in other words provide a benchmark for policymaking. So governments implement policies that they believe are going to increase their standing in the raking. The governments also seek to optimize the indicators included in the ranking playing strategically to try to get higher scores. As a result, there is this isomorphic pressure. Everybody's trying to do the same thing, trying to increase their standing in the rankings, and this of course produces institutional convergence. Let me give you an example of this. Since the year 2003, the different, the differences in the world across countries have become smaller and smaller in terms of for example, the time spent preparing and paying taxes, the time required to start a business or the cost to start a business. And this is been because, governments have realized that unless they reduce the time that people spent preparing or paying for their taxes, or the time that entrepreneurs spend trying to set up their business and get it up and running. Unless they cut those times by simplifying procedures by making it easier, then their country is not going to score very high on international rankings of good governance. Now obviously I think most of us see this as a welcome outcome that governments are competing to become better places in which citizens can live or businesses can operate.
