Political Economy Analysis (PEA): A Quick Introduction for the Tilitonse Core PEA Group

Blessings ChinsingaTilitonse Core PEA Group Member

Chancellor College, University of MalawiDepartment of Political and Administrative Studies

P.O Box 280, ZOMBAE-mail: kchinsinga@yahoo.co.uk

November 15 2012, Crossroads Hotel, LILONGWE

Outline of the Presentation

• PEA in perspective• How to do PEA?• Group work• Next steps

PEA: What is it?• PE is not a new field. It is quite old as it can be traced back to work of Adam Smith

and even beyond• Broadly defined as the study of both politics and economics particularly the

interaction between the two focusing on how political institutions, the political environment and the economic environment influence each other

• PEA has become particularly important in recent years following the dismal progress registered particularly in international development cooperation

• International aid agencies have often failed to achieve expected development targets in developing countries leading them to ask one single important question: why is this the case?

• The diagnosis is that international development cooperation has often been characterized by dips, crises and inexplicable stumbling blocks

• PEA is emerging as a potential remedy to dealing with the seemingly intractable challenges of international development experiences

• But what is PEA? PEA is not easy to define since it is defined differently by different authors although some consensus seemed to have emerged on how PEA should be defined at least in development circles

• PEA is defined as being concerned with the interaction of political and economic processes, the distribution of power and wealth between different groups and individuals, and the processes that create, sustain and transform these relationships

PEA in a Development Context• Inspired by the desire to facilitate development processes differently in order to

achieve qualitatively different outcomes with significant positive impact on the livelihoods of the poor

• Provides a clear understanding of the political, economic and social processes at work in a given country or sector, and how they influence institutional capacity and policy choices– Provides a structured way to address a broad set of questions about development context,

processes and options– Focuses on how power and resources are distributed and contested in different contexts,

and the implications for development outcomes• Investigates how political and economic processes interact in a given society, and

support or impede the ability to deal with development problems that require collective action

• Helps to identify and understand the political, economic and social processes that either promote or block pro-poor change as well as the role of institutions, power and the underlying context for policy processes

• As a way of thinking PEA explores the links between a structural context for an intervention, the stakeholders affected and the influence of institutions in stakeholders’ opportunities for and barriers of action

• PEA underscores the fact that politics play a crucial role in shaping development outcomes, and politics in this context, is understood as contestation and bargaining between interest groups with competing claims over rights and resources

PEA Key Highlights• Context for development matters

– Stresses on the need to engage as knowledgeably as possible with local contexts– Implementation of development interventions without understanding the institutional,

political and cultural context in which they are implemented is an outright recipe for failure

– Grasping the constraints and opportunities created by the political environment is critical because achieving development (policy and institutional change) is not simply a question of what to do but how to do it

– Reforms or development interventions are more likely to succeed if they are designed based on knowledge and understanding of the local context

• Development is a collective action problem– Development depends on solving collective action problems which require different

interest groups to find ways of cooperating to produce positive some outcomes, and deliver broad public benefits

– Thus development entails building and sustaining relationships between stakeholders who often have sharp differences in commitments, capacity and outlook

– Development is rather a ‘wicked problem’ to be addressed through collaboration than a ‘tame problem’ amenable to negotiation and conventional plans or ‘a critical problem’ that can be solved through short-term coercion

– Absence of development can often be explained by the failure of interest groups to cooperate around common goals

PEA Key Highlights Cont’d• Coalitions are very important for transformative and

sustainable development– Imperative because development practice requires working with

others who often have a radically different and frequently unclear understandings of the context and priorities and how to pursue them

– Reforms or development interventions can only succeed if major actors are able to work together in order to overcome collective action problems

– Requires understanding of who holds power in society as the basis for forging coalitions and alliances for development and prosperity

– However, not all coalitions or alliances are pro-development; some of them are anti-development, collusive and outright predatory

– It is hence crucial to identify who are the allies and opponents, how to mobilize the former and how to win the latter around

– Leadership is thus critical in the formation of coalitions to pursue institutional and policy reform but it can also can adopt policies that actually destroy institutions or obstruct reforms

Why PEA?• Helps development practitioners to understand what drives political behaviour,

how this shapes particular policies and programmes, who are the main winners and losers, and what the implications are for development strategies and programmes

• Supports more effective and politically feasible strategies as well as inform more realistic expectations of what can be achieved, and the risks involved

• Contributes to better results by identifying where the main opportunities and barriers for policy reform exist and how stakeholders can use their programming and influencing tools to promote positive change

• Improves project designs both by enhancing understanding of the prospects for reform in a sector or project and by indicating approaches and options that would work more effectively in the specific political and economic context

• Explains why reform champions only deliver piecemeal reforms or why reforms on paper are not implemented in practice

• Explains the likely distributional aspects of reform efforts, and improve the sustainability and quality of development interventions

• Promotes more thoughtful and effective multi-stakeholder engagement involving government on one hand and others on the other especially since government is the prime mover of institutional and policy change

• Identifies how stakeholders might work outside the state to build progressive change coalitions across civil society, the private sector and the media

PEA Key Highlights Cont’d

• Development is not a technical exercise but a political one– Sustainable development, growth and poverty reduction cannot be

achieved without capable and accountable governance which is largely dependent on getting the right kind of politics

– Development interventions have not faired well because development is often treated as a wholly rational and technocratic process

– Driven by the assumption that interventions can mostly rely on universal, dependable ‘best formulae’ that can simply be taken off the shelf and implemented according to the accompanying prescriptions

– The PEA’s implication is that the conception of development interventions based on definitive analysis of the problems and how to solve them should move towards more iterative cycles of experimentation, discovery, dialogue and adaptive learning by doing

– PEA thus helps to acknowledge that development practice is a process of interaction and discovery

Distinctiveness of PEA• PEA differs from governance and institutional analyses in the

following ways:– While analysis of institutions is an integral part of governance and

institutional analyses as well as PEA, the latter goes a step further• Governance and institutional analyses do not attempt the explanation of

underlying drivers of political economy, namely: underlying interests, incentives, rent, rent distribution, historical legacies, prior experiences with reforms, social trends, and how all of these factors affect or impede change

• These factors play a key role in explaining why things are as they are

– Governance and institutional analyses attempt to measure performance against certain pre-established criteria or characteristics of the state such as accountability, transparency and responsiveness• Strategies to address gaps identified in governance and institutional analyses focus

on templates or blueprints which do not always engage with realities of different contexts

• PEA takes the context as it exists as its starting point and then focuses on identifying feasible solutions; PEA is driven by a heavy doze of realism

– While governance and institutional analyses are associated with the pursuit of good governance, PEA is associated with good enough governance or what is sometimes called going with the grain

An Institutional Approach to PEA• Imperative since institutions play a key role in shaping development

outcomes as they are critical to politics and economic growth which consequently drive institutional and policy change

• But what are institutions?– Institutions are best understood as the rules of the game which shape

human behaviour in economic, social and political life– Institutions can either be formal or informal

• Formal institutions are normally understood to be written laws, regulations, legal agreements, statutes, contracts and constitutions which are enforced by third parties

• Informal institutions are thought of as the usually unwritten norms, customary practices, standard operating procedures, routines, conventions and traditions which are often deeply embedded in culture and its associated ideology

– PEA is particularly concerned with understanding the complex mix of formal and informal institutions that shape the behaviour of groups and individuals, and the relationship between them• Permits to get beneath the formal structures to reveal the underlying interests,

incentives and institutions that enable or frustrate change• Underscores the need to know what is going behind the façade which helps to fully

discern the opportunities, incentives and obstacles to pro-poor change in a given country

An Institutional Approach to PEA Cont’d• Disregard of informal institutions has resulted in development practitioners

concentrating on capacity building of formal institutions, often neglecting the impact of the historical, political and social context on the functioning of these institutions

• Formal and informal institutions interact with each other in four different ways: they can be accommodating, complementary, competing and substitutive which does not always produce negative outcomes

• Institutional and policy change is a function of the support for, and relative strength and legitimacy of, both formal and informal institutional arrangements and the way they interact with each other

• Critical junctures, which are moments of punctuated equilibrium, might lead to policy and institutional change – Critical junctures are generally events that present opportunities for policy and

institutional change but their criticality is not judged on the basis of the changes that actually occur but rather on the basis of the expectations of the changes that would occur

• Contingent socio-economic, political or even natural events, national, regional or international, may often trigger ‘openings’ or ‘critical junctures’ for institutional reform or change

• The nature of institutional change is determined by the way in which organized interests interact with institutions to maintain, undermine or change them

An Institutional Approach to PEA Cont’d

• Expected changes during critical junctures do not often come to pass because of path dependency– Path dependency thus often hinder, limit, undermine or

compromise institutional reform and innovation, despite the openings which critical junctures may create

– Path dependency demonstrates how previous policy choices and investments in organizational capabilities have lasting effects on subsequent situations and the range of policy options available

• The institutional approach illustrates very clearly that PEA is concerned with how incentives, institutions and ideas shape political action and development outcomes

Narratives and Evidence

Politics and Interests

Actors and Institutions

Analytical Areas

Politics of Policy Processes

Source: Keely and Scoones, 2003

Politics of Policy Processes Cont’d

• Narratives and Evidence– Policy narratives are stories with a beginning, middle and

end that describe events, or define the world in certain ways, and that shape policy decisions

– These cause and effect story lines define a problem, explain how it comes about and show what needs to be need to avert disaster or bring about a happy ending

– They often gain validity despite or even because of the fact they frequently simplify complex issues and processes

– Some narratives tend to gain more authority, and persist at the expense of others, and hence have more bearing on policy decisions

Politics of Policy Processes Cont’d

• Narratives and Evidence Cont’d– Key questions in understanding policy narratives

include the following:– What is the narrative?• What is the basic problem being addressed: how is it

framed?• What sources of information or experience helped

shape this view?

– Whose interests and perspectives are included and excluded?• Who does the narrative bring to the centre stage?• Who gets more power, who gets more resources in this

narrative?• Whose perspectives and interests are ignored?

Politics of Policy Processes Cont’d

• Narratives and Evidence Cont’d– How could this problem be framed?• If the problem is set up like this, where will we end up

concentrating our energies?• Which groups need to be repositioned in the narrative?• Are there any other ways of looking at the problem?• Are there some issues being left off the map?• How can we make coherent links between excluded

issues, perspectives and groups?

– What might be a counter-narrative?• Is the story clear and simple?• Does it suggest a course of action?• Does it acknowledge complexity and uncertainty?

Politics of Policy Processes Cont’d

• Actors and Institutions– Key questions include the following:• Who is inside and outside a policy network?• Are there alternative networks outside the

mainstream?• How do people and institutions become enrolled in

networks?• How do ideas circulate through a network?• What beliefs define a network?• Where is the mainstream network strong and weak?• What are new coalitions that might emerge from

outside the mainstream?

Politics of Policy Processes Cont’d• Politics and Interests

– The main thrust of this perspective is that the policy process is influenced by a range of interest groups that exert power and authority over policy making

– These influences affect each stage of the process from agenda setting to identification of alternatives, weighing up options, choosing the most favourable and implementing it

– The vested interests of various actors in policy: government agents, officials of donor agencies and independent experts might be served by the perpetuation of certain narratives

– The perspective highlights the fact that bureaucrats are not just neutral executors of policy but they have their own personal and political agendas to negotiate

– Bureaucratic politics, such as battles within ministries for control over policy arenas, are relevant

Politics of Policy Processes Cont’d

• Politics and Interests– Key questions include the following:

• Who is engaged in the policy process?• How many stakeholders are there?• Is there political interest in change?• What is the macro-political context (democracy, governance, media

freedom, academic freedom)?• Are there clear vested interests in this policy area?• Is this the process essentially inside a bureaucracy or outside?• How much capacity exists within a bureaucracy to reflect on policy

aims and management?• What types of informal relationships occur within a bureaucracy? Are

certain ministries or departments dominated by people from the same geographical area, disciplinary background, political party or academic discipline?

• What is the room for manoeuvre for pushing different ways of doing things? (what policy spaces exist?)

Politics of Policy Processes Cont’d

• Policy Spaces– The concept of policy space relates to the extent which a

policy maker is restricted in decision making by such forces as the opinions of a dominant network or narrative

– Understanding policy processes through an examination of knowledge/narratives, actors/networks and politics/interests can help with identifying policy spaces

– For instance, the articulation of alternative narratives is possible where there is a weakness in the framing of a dominant narrative

Politics of Policy Processes Cont’d

• Types of Policy Spaces– Invited spaces (e.g. consultations on policy led by government

agencies involving selective participation of stakeholders)– Popular spaces (e.g. protests, demonstrations led by social

movements put pressure on formal policy making)– Practical spaces (e.g. pilot field based projects initiated by

NGOs/fieldworkers, providing opportunity for ‘witnessing’ by policy makers)

– Bureaucratic spaces (e.g. formal policy making spaces within the government bureaucracy/legal system, led by government civil servants with selected input from external experts)

– Electoral/political spaces (e.g. formal participation in electoral system allows voting policy positions of competing candidates)

– Conceptual/discursive spaces (e.g. where new ideas are introduced into debate and circulated through various media)

Frameworks for PEA• There are many frameworks for PEA• Will just consider some of them which include DFID’s Drivers of Change

(DoC) and Politics of Development (PoD) framework; SIDA’s Power Analysis (PA); the Dutch government’s Strategic Governance and Corruption Analysis (SGACA); and the World Bank’s Problem Driven Governance and Political Economy Analysis (PDGPEA)

• All these frameworks except PDGPEA focus predominantly at macro-level PEA

• These frameworks focus essentially on a similar set of issues although they have different areas of emphasis

• Structural factors– Conditions that influence the state and political system, including

geographic, historical, economic, social and characteristics of the community in question

– Not readily influenced, either because of the time scale needed, or because they are determined outside the country

– Provide the foundational elements of the context in which analysis must be grounded and often include systematic constraints on what is possible in a given context

Frameworks for PEA Cont’d• Institutions

– Rules of the game which include both formal and informal rules that govern behaviour

– Tend to be more susceptible to change in the medium term than structural factors

• Actors/stakeholders– Individuals or organizations that are most relevant to the issue in question– Include individuals or organizations that support reform as well as those

who oppose it; individuals or organizations that engage with the issue as well as those who ignore it; and individuals or organizations who benefit from potential reforms and those whom it cost

– Vary in the ability to exercise agency, in large part due to the power (economic, social and political) they hold

• Incentives – Rewards and punishments that are perceived by individuals to be related to

their actions and those of others– Incentive structures may be affected by the way specific events unfold

within processes of change

Frameworks for PEA Cont’d

• Here and now events– Examines the conduct of day-to-day politics, and the way this is

shaped by the rules of the game as well as more contingent events• These areas of common interest help to assess opportunities

for change by distinguishing between foundational factors that are very slow to change, rules of the game which may be sticky but more susceptible to change over the medium term, and short term factors that may offer opportunities for change

• DFID’s Drivers of Change– Focuses primarily on the need to understand the mechanics of pro-

poor change – Seeks to identify the opportunities, incentives and blockages to pro-

poor change at country level

Frameworks for PEA Cont’d• DFID’s Politics of Development Framework

– Focuses on how political decisions are made with particular focus on the following:• The wider historical, socio-economic and cultural environment including the

legitimacy of a given political process• The immediate pressures coming from groups and interests who influence, but

do not make political decisions• The processes, both formal and informal, through which decisions are made• The continuing politics of implementation that determine the implications, if

any, of political action

• SIDA’s Power Analysis– Focuses on understanding structural factors impeding poverty reduction

as well as incentives and disincentives for pro-poor development– Serves to stimulate thinking about processes of change in terms of what

can be done about formal and informal power relations, power structures and the actors contributing to it

– Seeks either to deepen knowledge, facilitate dialogue, foster influence or feed into policy developing and programming

Frameworks for PEA Cont’d• Dutch Government’s Strategic Governance and Corruption Analysis

– Designed to shed light on the historical context and the informal and formal factors that shape the governance climate

– Explores the underlying factors (territorial integrity, history of state formation, sources of revenue, social and economic structures, geography and the geographic position) that shape the formal and informal relations between the state and organized groups in society

– Premised on the assumption that governance is about striking a balance between the power of the rulers and the ruled

– Provides insights into incentives that drive politicians and policy makers and into the potential pressures for change

• WB’s Problem Driven Governance and Political Economy Analysis– Seeks to contribute to smarter, more realistic and gradual reforms in developing

countries – It emphasizes the following: 1) defining what the teams are grappling with; 2)

examining the governance and institutional arrangements; and 3) examining the underlying political economy drivers

– Provides advice on shaping strategies or operations in ways that range from adjusting them to the existing space for change to developing proactive strategies for expanding the space for change

How to do PEA?• PEA can be done at three levels, namely: 1) country; 2)

sector; and 3) problem/project– Country level: sets the stage by providing detailed qualitative view

of political economy drivers for the country overall• Often done as a background note to more specific PEAs

– Sector level: focuses on the identification of specific barriers and opportunities within particular sectors such as health, water, education etc• Critical for understanding the interests and incentives operating at

sector level, and how these affect sector performance and the potential for reform

– Problem/project level: geared toward understanding, illuminating and resolving a particular problem at the project level, or in relation to specific policy or programmatic issue

– At each of these levels of PEA, the following factors are critical for consideration

How to do PEA? Cont’dVariable/Concept Description

Structural variables • Features that affect the political economy of the country, tend to change slowly overtime and are beyond the direct control of stakeholders

Institutional variables • Related to the rules of the game including formal and informal institutions

Actors/stakeholders •Identifying and mapping stakeholders (both individuals and organized groups) and their relative influences, power relations, and plans

Winners and losers and veto players

• Mapping stakeholders and their influence and positions in proposed reforms•Identifying who stands to win or lose from reforms; how they can impede, block or promote reforms; and what means they might use

How to do PEA? Cont’dVariable/Concept Description

Historical legacies •Because historical legacies can shape current dynamics profoundly, summarize key trends, processes and policies, especially in relation to the project/problem being assessed•History is also linked to path dependency, that is, how previous policy choices and investments in organizational capabilities have lasting effects on subsequent situations and the range of policy options available

Rents •How economic rents emerge and how they shape the incentives for stakeholders/actors; and how the sources and allocation of rents evolve and shift over time

Patronage networks, clientelism and neopatrimonialism

•Terms used to describe situations in which formal and informal institutions strongly diverge, and informal rules are subversive of formal rules•These concepts matter in multiple ways including mapping the existence of patterns of personal loyalty and rent distribution

How to do PEA?

• Given the nature of Tilitonse, the WB PEA framework appears to offer a great deal of utility in linking PEA to concrete practical action

• It offers quite elaborate steps for conducting PEA summarized in the table below, and it is applicable at both sector and problem levels of analysis

WB PEA Framework

Steps Diagnosis Status/ActionWhat are the challenges? Problem definition: that is

evidence of poor outcomes to which PE issues appear to contribute

Eg. Repeated failure to adopt sector reforms

Institutional/governance arrangements and capacities

• What are the key institutional arrangements?•Are they capable, effective and efficient?

Mapping of:• Relevant institutions•Laws and regulations• Policy processes (formal and informal rules of the game)•Analysis of corruption

Political economy drivers • Why are things this way?•Why are policies or institutional arrangements not being improved?

Analysis of:• Stakeholders, incentives•Rents and rent distribution•Historical legacies and earlier reform experiences

What can be done? • What actions can be proposed?• Is the project going to work within the existing reform space and/or seek to expand it

Recommendations on:•Timing, tailoring and sequencing of project and sector work•Communication and dissemination strategies

How to do PEA?• Regardless of the level at which PEA is conducted, the following

questions, grouped thematically, are critical• Roles and Responsibilities

– Who are the key stakeholders?– What are the formal/informal roles and mandates of different players?– What is the balance between central/local authorities in the provision

of services• Power Relations

– To what extent is power vested in the hands of specific individuals, groups or organizations?

– How do different interest groups outside government seek to influence policy?

• Historical Legacies– What is the history of the sector, including previous reform initiatives?– How does this influence current stakeholders?

How to do PEA?• Ideologies and Values

– What are the dominant ideologies and values which shape views around the sector?

– To what extent may these serve to promote or constrain change?• Implementation Issues

– Are decisions implemented once made or are decisions made at all?– What are the key bottlenecks in the system?– Is failure to implement due to lack of capacity or other political

economy reasons?• Potential for Reform

– Who are likely to be the winners and losers from particular reforms?

– Are there any key reform champions within the sector?– Who is likely to resist reforms and why?– Are there ‘second best’ reforms which might overcome this

opposition?

Strategies for PEA• Analysis

– Accurate identification of what the potential obstacles might be– Assessment of commitment to reform by different stakeholders

particularly government since it is the prime mover of policy and institutional change

– Identification of potential institutional champions within the public and private sectors that can drive and manage the reform process

– Understanding of institutional drivers, incentive structures, legal tradition, history of policy making, cultural factors and other local conditions that are to have a bearing on the reform effort

– Identifying winners and losers under reforms which is important for purposes of gauging how successful the reform process might be

Strategies for PEA Cont’d

• Building Coalitions– Reforms can only succeed if major actors are able to work together in

order to overcome collective action problems– Positive inducements include bringing together key players such as

the government, the donor community, the private sector and civil society so that they can appreciate the benefits of working together

– Working closely with key players to understand their reluctance to change and to persuade them of the wider benefits of economic development

– Shared interests have to be identified and written into a common agenda such as the improvement of the economy, better taxation, education or security issues

– Every society has its own dynamics and the challenge is to support those that stimulate positive change

Strategies for PEA Cont’d

• Stakeholder Management and Dialogue– Imperative because reforms (institutional and policy change) are

primarily a very political matter– Critical since the management of different stakeholder groups is a

vital tool to increase momentum for reform– Aim is not to build broad consensus for including both winners

and losers but to build pro-reform coalitions that can move the process forward

• Timing and Phasing of Reforms– Sequencing of reforms can be critical to the chances of success– Getting the timing and phasing of reforms correctly can help

building support for the reform process and to win over potential opponents

– PEA should be tailored to the budget as well as time constraints

Group Work• Purpose of the group work is primarily to review preliminary work

done on the issues during the consultation exercise yesterday drawing insights form the PEA broad brush presentation

• Focus will be on four issues excluding social exclusion and inclusion since there was generally somewhat consensus that this issue should be treated as a crosscutting issue– Attempt at least in concrete terms to streamline the focal areas for each

issue. This essentially entails redefinition and prioritization of focal areas that will actually form the basis for defining thematic calls

– Undertake preliminary but focused PEA analysis using the WB framework

– Identify the strengths and weaknesses of the WB PEA framework. How can we build on the strengths and leverage the weaknesses in actual fieldwork

– Attempt to thrash out a possible set of questions that we will have to ask in order to conduct successful PEAs?

– What practical challenges should we anticipate doing the PEAs?– Any reflections from the PEA dialogue session?

Next Steps

THE END