Draft proposal: Leveraging democracy and equity through fiscal ecosystems
Warren Krafchik (February 2024)
Summary
How governments raise and spend scarce public resources must play a critical role in revitalizing democracy and advancing equity, at a time when both are under threat. This depends however on governments making a choice to manage public finances in a more inclusive and equitable manner. This project aims to contribute to future frames and strategic paths to shift bargaining power in countries’ annual budget processes in ways that make progressive fiscal policy choices more likely. It will do so by exploring an alternative, ecosystems approach to fiscal policies and systems to understand the key challenges and potential leverage points for actors interested in strengthening fiscal accountability. This will be based on new cross-country political economy research aimed at generating a collective conversation and outreach about a systemic approach to democratizing budget processes and promoting equitable budget outcomes.
The problem
Democracy is in crisis in many parts of the world. More and more people feel distrustful of government and disempowered, as elites reap the benefits of growth and globalization, and class, race, and gender inequality soar. At the same time, public finances are under immense strain, sharply reducing the resources available to governments to deliver critical public goods and services. How governments resolve this tension is key if public confidence in democracy is to be restored, inequality narrowed, and the social contract redeemed.
The real test is already under way, as governments move to transform economies and renew growth momentum amidst external and internal shocks. At the core, this will be a battle over competing visions of our societies – and competing approaches to public finance. One approach is to strengthen public institutions, using increased public revenues to tackle the root causes of inequality and build greater resilience in the lives of excluded communities. An alternate approach reflects a return to fiscal austerity, where the first instinct will be to slash social spending and lower deficits, allowing inequality to rise even further, reducing the social contract to tatters.
The story so far
Democratizing budgets is an ambitious lift, yet there have been remarkable recent gains, especially when viewed against the scale of the problem and the deeply entrenched interests involved.
At the international level, global norms now promote an open budget process with a stronger role for civic actors, legislatures, and supreme audit institutions (SAIs) relative to the executive branch. This is a significant shift, endorsed by major international agencies[i] and an increasing number of governments[ii], and supported by international evidence.[iii] Congruent with this shift, budget transparency has been expanding consistently, if incrementally, around the world since at least 2006. At the same time, civil society organizations in the Global South, including feminist tax and economics networks, have gained deeper skills to analyze this newly available information and to intervene effectively in the budget process. Similarly, SAIs have emerged as powerful accountability actors, most recently pioneering effective oversight during COVID, despite widespread executive overreach.[iv]
Notwithstanding these gains, the overall results at country level are mixed. The ability of civil society and oversight institutions to leverage these new opportunities to drive transformational shifts in the quality of public expenditure and service delivery has been limited. Most countries still do not provide “sufficient” public budget information for independent analysis, and there remain big information gaps (e.g., budget execution, debt, and procurement data) and deep regional pockets of resistance in the Middle East and North Africa, and in Sub-Saharan Africa.[v] Compounding these obstacles, formal opportunities for civic engagement in budgets have not expanded alongside greater transparency; in fact these spaces have frequently contracted. Similarly, legislatures and many SAIs still struggle against incentives to toe the executive line, while vested interests still wield powerful influence over budget decisions, reinforcing the inequitable distribution of the benefits of taxing and spending.
Nevertheless, looking forward there are reasons to be optimistic about the potential for new reforms. In several countries, social movements, community organizations and networks – many led by women and people of color - are forging alliances with specialized NGOs and the media to unblock funding and services for excluded communities.[vi] More active SAIs are fighting alongside civil society organizations for stronger anti-corruption measures; while new allies emerge within government line ministries and tax authorities, looking to expand spending and increase revenues. Meanwhile, multilateral donors are rethinking their approach to public finance and equity; and professional organizations like the International Organization of Supreme Audit Institutions (INTOSAI) and the International Consortium of Government Financial Managers (ICGFM) are looking to stretch their members’ impact. This may be an unprecedented moment for coalitions that can knit together state and non-state actors at local, national, and international levels to challenge powerful actors and secure real gains.
Shifting public finance systems may be as difficult to accomplish as winning suffrage for women, realizing human rights for all, or containing climate change. (In fact, none of these other goals can be achieved without extensive support from the public budget.) There are important opportunities to make gains now. At a time when democracy is threatened to its core, budget processes offer a major opportunity to show how democracy can deliver better agency and dignity of life for all. But what are the next steps?
Key lessons
The key lesson from fiscal accountability work over the past 20 years highlights the importance of partnerships and coalition building, knitting together allies across the fiscal accountability system. While public budgeting is often considered a technical matter, government budgets are political instruments. Budget decisions and outcomes (including tax, expenditure, and debt policies) are determined by the balance of power amongst an ecosystem of actors within and outside government. Shifting power through the budget therefore requires leveraging this ecosystem of actors in the budget process.
A “fiscal ecosystem” approach means looking beyond the past focus on building capacity in individual institutions to consider the full range of formal and informal oversight actors, including legislatures, Supreme Audit Institutions, the courts, as well as civil society organizations, social movements, the media, and others. It means examining the powers that each of these actors have, the roles that they play, and the relationships they build with other actors in the system. The emphasis is on relationships: how institutions in the fiscal ecosystem interact, and how these institutions working collectively can shape better budget outcomes.
Applying this approach requires three things. First, a deep political economy understanding of the relationships and incentives between institutions in the public finance system and how they might be leveraged to generate improved outcomes. Second, given its focus on relationships, an ecosystem approach requires strengthening accountability systems rather than simply focusing on improving management practices and capabilities in individual institutions. Third, it requires moving beyond fiscal discipline as the primary objective of public finance, to include broader objectives, such as inclusion, equity, and sustainability.
The strategy employed in the past 20 years of fiscal accountability work has mostly focused on expanding fiscal transparency and building the skills of individual actors, including civil society, to analyze the expanding public information base to influence fiscal decisions and practices. As argued above, these efforts have produced important gains but have fallen short of significantly improving budget outcomes for excluded communities. This past period may be characterized as phase one of efforts to democratize budgets.
What is needed now is a second phase that would move towards a fiscal ecosystems approach. Such an approach would build on previous work by bringing together a broader set of actors with analytical and advocacy capability, both inside and outside government, to generate new strategic approaches (and greater collective bargaining power) to move budgets towards greater equity and accountability. The project proposed in this document seeks to provide the analytic path and initial buy-in amongst key actors for moving towards this second phase.
Aims and Vision
Despite progress in recent decades, many communities are still excluded from influencing public budget decision-making, while legislatures and Supreme Audit Institutions (SAIs) often lack independence and adequate resourcing to fulfill their mandate. In this accountability vacuum, the executive has almost unchecked power over the public purse, with external influence restricted to powerful private sector and other actors that can afford it. Under such circumstances progressive tax and expenditure policies are less likely to be proposed and sustained, especially in situations where public resources are scarce.
However, when the budget process is more inclusive and better managed, it can help revive democracy and deepen equity, both directly and indirectly. When the public – and especially underrepresented communities – and oversight institutions are directly involved in budget processes, space for alternative policy choices is opened at the heart of government power, and the quality and effectiveness of public expenditures tends to improve. Under these circumstances, budgets are more likely to promote a more equitable distribution of resources, and these resources are likely to reach those that need them most.[vii]
The budget is therefore a potent annual opportunity to reinforce and connect democracy and equity between elections, at a moment when both are under attack in many parts of the world. The budget process offers an opportunity to rebuild the social contract and promote a world where governments and citizens engage as critical allies to reimagine a more equal and sustainable future.
The question is: How can we realize this progressive vision of public finance? The answer lies in the politics of budgeting, and specifically in shifting the balance of power in the budget process to make it more inclusive and accountable. This requires a better understanding of how public finance systems work, and where opportunities for change lie.
This project aims to contribute to future frames and strategic paths to shift public finance management towards greater inclusion, accountability, and equity. It will do so by undertaking new country-focused research to generate a collective conversation about a “fiscal ecosystem” approach to democratize the budget process and improve its outcomes. To do so, the project will use a political economy lens to identify the key challenges and leverage points faced by each actor and the system itself to tackle inequality and advance accountability.
Methodology
The first objective/output of the proposed project is to produce four to six in-depth country case studies and a cross-country synthesis to expand much-needed available data and analysis on the political economy of fiscal ecosystems.[viii]
Focus questions for case studies: The case studies will focus on the political economy factors that explain the performance of key institutions in each country’s fiscal ecosystem, and the leverage points that might exist to work with these institutions to shift outcomes within that system. The research will focus on developments since the 2008 financial crises and capture how country systems have responded to various challenges, including electoral outcomes, corruption, COVID, and the current fiscal constraints. The case studies will be guided by four overarching questions (a more detailed set of questions is included in the end notes and in the research Terms of Reference.[ix])
· What have been the key historical developments of the various institutions in the fiscal ecosystem?
· How does the system currently perform in practice?
· What reform strategies have been introduced in the last 15-20 years, and what has been the impact and limitations of these reforms?
· What are existing opportunities for improving the effectiveness of the system, including “promising green-shoots”, moving it towards better inclusion, accountability, and equity?
Focus countries: Countries will be selected from a cross-regional sample of working democracies in the Global South that have functional fiscal ecosystems, including a capable finance ministry, active oversight institutions, and organized civil society with reasonable access to fiscal information. The focus on Global South countries with functioning ecosystems is designed to ensure that the selected countries have systems and challenges in common and differing performance to enable cross-country learning through a collaborative effort. Once refined, the criteria should generate a fair number of potential countries, which will likely include Brazil, Chile, and Mexico in Latin America; Ghana, Kenya, Senegal, and South Africa in Africa; and India, Indonesia, and the Philippines in Asia.[x]
Synthesis: The challenge of synthesizing findings from such a disparate set of case studies lies in being able to draw more general lessons that might be useful above and beyond their contextual specificities. This will be made possible in three different ways. First, rather than seeking to provide generalizable statements about fiscal reforms, the synthesis (and other project outputs) will aim to provide government and non-government actors within fiscal ecosystems a menu of options on how to leverage the system to shift it towards better outcomes. Second, by looking at fiscal institutions, the project focuses on systems that look remarkably similar across countries, and where the limited variation that exists (e.g., which type of audit institution, the budgetary powers of the legislature, the strength of independent media, etc.) might in fact point to interesting opportunities and entry points for shifting the system. Third, the case studies will focus on a set of events and challenges that are also common across countries, like the impact of the global financial, COVID, corruption crises or debt providing additional scope for meaningful cross-case learning, if not outright comparisons.
Researchers: The case studies will be undertaken by country-based researchers in think tanks or universities that have a strong reputation for independent research on fiscal equity and accountability and extensive networks with government and non-government actors in the system.
The second objective/output of this project is to use the research produced to catalyze a conversation among key practitioners and institutions in the Global South and North about deploying an ecosystem approach to advance greater fiscal equity and accountability.
Key audiences: The project will look to engage and expand three core audiences critical to systemic change in public finance. The first are decision-makers and practitioners in the public finance system, both within the executive and formal oversight institutions. The second audience is the broad and increasingly diverse civil society community already engaged or potentially engaged in advancing social justice through public budgeting. A specific effort will be made to expand this group to those working to tackle racial and gender injustice and those looking to tackle inequality through new economic models. The third audience are multilateral, bilateral, and private donors that have made extensive investments in the field or might still do so in the future.
Project reference group: The project will constitute a multi-stakeholder, cross-disciplinary Reference Group consisting of approximately 15 people representing the projects key audiences at country and global levels, key public finance institutions, and current public finance advocacy opportunities. In addition to public finance and governance skill sets, members will also cover systems change and behavioral science skill sets. Members will be skewed towards the Global South but include targeted Global North representation to facilitate north-south engagement.
The purpose of the Reference Group is to create an opportunity for dialogue between the project and the broader fiscal accountability and related communities to enrich the project’s synthesis and recommendations, begin to build consensus on the way forward in the field and, in turn, ensure that the project’s recommendations inform key audiences and strategic development conversations. The Reference Group will meet twice in person as well as online as necessary.
Outputs: The country case studies, synthesis, and recommendations will be published in full on a public website. The research findings will also be used to produce and publish an accessible toolkit to provide actors within various institutions in the fiscal ecosystem (including civil society, legislatures, Supreme Audit Institutions) with strategies, tools, and tactics to advance accountability and equity through budgets. In addition, funding allowing, blogs and vlogs will be used to engage “the broader community” with data and debates as the project unfolds.
Outreach
This is an urgent and propitious moment to be undertaking this project. Public finance must play a central role in strategies to resolve or manage the concurrent global development challenges of climate change, public debt, inequality, and the search for new economic models to address the root causes of these challenges.
Many within each of the project’s key target audiences – civil society, oversight institutions, donors, and champions in the executive - are evaluating previous and future strategies to influence governments’ financial responses to these challenges. To do so, they will need to knit together broad coalitions across formal and informal accountability actors, across local, national, and international spheres, to secure the bargaining power necessary to drive progressive policy responses centering the lives of communities most affected by these crises. This project has a unique opportunity to ensure that these actors have access to the framing, knowledge, and strategies to succeed.
Working with and through the Reference Group, the project will ensure that the findings and recommendations are available to those on the frontlines of managing the poly-crises, potentially including the following opportunities:
a) Donors: A major influence opportunity amongst multilateral donors is the recently announced World Bank comprehensive review of their 30-year-old public financial management framework. The review could have major implications for how the World Bank conducts business, and the support it provides to oversight institutions and non-state actors. Alongside this review, private donors – including Open Society Foundations - are reviewing their fiscal accountability strategies, as are bilateral donors, such FCDO and NORAD. This project is well timed and, given its participants, well-placed to inform these review processes.
b) Climate change: Climate advocates will increasingly have to engage with the formal budget process as climate finance increasingly flows through the budget, rather than as an off-budget flow. Many powerful climate organizations and coalitions do yet not have the specialist knowledge and strategies to contest funding with other sectors around the budget negotiating table. A strategic review of the public finance ecosystem will help climate advocates to identify systemic levers, strategies, and allies to ensure sufficient resources are allocated, reach the target groups, and are spent efficiently.
b) Emergency funding: More frequent weather, health and other crises will demand the immediate and accountable management of large flows of public finance. Our experience with COVID however taught us that most public finance systems are not equipped to hold governments accountable for much-needed large flows of emergency spending. Many governments undermined and obviated oversight systems and actors in managing COVID financial flows, with the result that the quantity and quality of COVID spending cannot be satisfactorily tracked. This project will need to consider how oversight institutions might be strengthened or reconfigured to better manage both slow-burn and sudden crises.
c) Debt: Many countries already face unsustainable levels of debt or might soon be in this position. Managing these immediate situations is of course important but, potentially more important, is how fiscal systems can prevent these crises from recurring. A significant part of the problem is the lack of adequate oversight over government debt decisions. In most countries, debt decisions bypass legislature approval and the public until massive debt payments squeeze out social services. Tightening up these processes and designing an effective oversight system is very much in the purview of this project.
d) New economic models: There is growing work to reimagine the economy, and specifically neo-liberal policies, to augment and direct public resources to effectively to meet real public needs. The current partnership between the Hewlett, Ford, Omidyar and Macarthur Foundations to support this work in 15 universities is an exciting example of this trend. This project can make an important contribution to this work. The dominant approach to public management rests on assumptions and strategies derived from the dated and ineffective neo-liberal model. Going forward any new approach to macroeconomics must include revised systems and processes to raise, allocate, and manage public money through the budget – the heart of this project.
Governance
The project will be anchored in a partnership between four to six (depending on the number of case studies) applied research institutions in the global South, with one of these institutions, likely the University of the Witwatersrand, acting as the institutional host. Each of these institutions will lead on the country case study research as well as collectively – with a project Reference Group – develop recommendations and drive the global engagement opportunities above. The project is also considering a Global North partner, such as the Transparency and Accountability Initiative, which could provide proximity and support to reach key Global North audiences.
Working with a small management team from the host institution, the project will be managed by Warren Krafchik, who has been deeply involved for 30 years as a lead researcher, activist, convenor, and facilitator in building the field of fiscal accountability globally.
Conclusion
This project is proposed at a defining moment for the future of our world. Faced with several interlocking crises, governments are already being forced into difficult economic policy choices to balance massive expenditure needs and declining revenues. There are real opportunities to resolve or manage these trade-offs in ways that prioritize communities that face the brunt of the crises, but the more likely outcome is policies that further widen exclusion and inequality.
Significant investments over the past two decades, have helped to prize open fiscal governance processes resulting in expanded fiscal transparency and more capable formal and informal oversight actors. These are important gains, but still insufficient to build the bargaining power necessary to transform budget decisions and outcomes. The most important lesson from this previous work has been the importance of partnerships and coalitions amongst accountability champions within and outside of government in securing deeper and more meaningful gains.
This project will help to kickstart the next step in this ambitious journey by building collective knowledge about a systems approach to public finance accountability, and the strategies and tools available to leverage change through the public finance system. The project will deploy these strategies and recommendations to influence key opportunities to ensure that public finance transforms development challenges into opportunities to tackle inequality and revitalize democracy.
[i] See, for example, the OECD’s Principles for Budgetary Governance.
[ii] As illustrated by this UN resolution on the right of the public to be informed about the use of public funds.
[iii] See Haus, Wehner and De Renzio for a summary of available evidence on the impact of open budgets.
[iv] Open Budget Survey 2022 and Open Budget COVID Survey 2022.
[v] OBS Reference....
[vi] Case studies of successful social movement and community organization impact on the budget are available here: Strengthening Public Accountability - International Budget Partnership
[vii] Reference – Paolo/Joachim impact papers?
[viii] A recent paper on the impact of fiscal openness underscores the need for additional research on the broad public finance ecosystem (Haus, Wehner, and de Renzio (2022) pp: 15): “More work is needed to integrate other components of the budget system, such as legislatures, and other institutions, such as courts or anti-corruption agencies. This implies a shift of focus away from ex-post evaluations with a defined end point of an “intervention” towards acknowledging multiple, interlinked changes across a broader range of actors (both internal and external to the State) without a defined temporal endpoint.” This point was also made in an earlier paper by de Renzio and GIZ 2016? (citation.)
[ix] Key Case study Questions:
Historical development
· What are the historical underpinnings of the public finance system?
· How is the public finance system intended to operate in theory (constitution, legislature rules, etc.)?
System performance
· What are the political economy factors that constrain, strengthen, and determine the performance/workings of the institutions and system in practice?
· How and why has the system responded to/accommodated internal (such as elections) and external (such as financial crises and pandemic) shocks?
Reforms to date
· What are the major institutional and systemic reforms that have been introduced to date?
· In what ways have these reforms succeeded or failed, and how can we explain these results?
· What proposed reforms were rejected and why?
Future opportunities
· What alternative or refined framing might be helpful in further efforts to advance the role of public finance in deepening democracy and equity?
· What promising practices and collaborations between institutions in the public finance system are already underway and might serve as a base for future reforms? (Greenshoots)
· What are the specific strategies, tactics and tools that might be tested/supported in the next stages of fiscal accountability work?
[x] It is important to note that this project does not aim to test specific hypotheses through structured comparisons, but rather engage in more general exploratory research to look at the usefulness and potential of adopting an ecosystems approach to studying fiscal institutions and their reform.