Ask citizens where public money should go: the results might surprise you

picture by MyTudut on flickr

(NB: article originally published in Capital Finance International)

As citizen engagement gains traction in the development agenda, identifying the extent to which it produces tangible results is essential. Participatory budgeting, a process in which citizens decide upon and monitor budget allocation, offers promising results, including increased local government revenues and reduced infant mortality.

Promoting citizen engagement in the development community: a quest for evidence

In recent years there has been a growing interest in citizen engagement as a means to promote better development outcomes. The Open Government Partnership (OGP), for instance, is a multilateral platform where governments from 66 countries commit, among other things, to promote governments that are more open, participatory and accountable to their citizens. Similarly, Making all Voices Count is an international initiative supported by private donors and development agencies that provides funding to projects that promote “citizen engagement and open, responsive government.”

The rationale behind this renewed enthusiasm for civic engagement is seemingly simple: citizens know best what their needs are and how to address them. Or, as spelled out in the OGP declaration, public engagement “increases the effectiveness of governments, which benefit from people’s knowledge, ideas and ability to provide oversight.” Yet, the evidence on the benefits of citizen engagement often seems fuzzy, scattered and – sometimes – contradictory. However, a clearer picture emerges when we examine some particular practices that fall under the general “citizen engagement” umbrella, of which participatory budgeting is one. Originating from the Brazilian city of Porto Alegre in 1989, participatory budgeting (PB) can be broadly defined as the participation of citizens in the decision-making process of budget allocation and in the monitoring of public spending. Experts estimate that up to 2,500 local governments around the world have implemented PB, from major cities such as New York, Paris, Seville, and Lima, to small and medium cities in countries as diverse as Poland, South-Korea, India, Bangladesh, and the Democratic Republic of Congo.

Over the years, PB has attracted significant attention from scholars and development professionals. As it reaches over a quarter-century of existence, it is generating a substantial amount of evidence of the benefits of involving citizens in budgeting decisions. Here, we briefly examine some of this evidence.

Some argue – and there is growing evidence – that citizen participation increases government tax revenues

At the beginning of the 2000s, researchers studying participatory budgeting began to see an unexpected result, with some municipalities reporting substantive increases in their tax revenues. In 2004, for instance, a comparative study [PDF] of 25 municipalities in Latin America and Europe found a significant reduction in levels of tax delinquency after the adoption of participatory budgeting. But, in reality, how surprising were these findings?

Mostly unknown even among seasoned public engagement advocates, a growing body of evidence in the field of “tax morale” suggests a relationship between citizen participation and tax compliance. The argument, in an oversimplified manner, is as follows: citizens are more willing to pay taxes when they perceive that their preferences are properly taken into account by public institutions. This argument finds ever-growing empirical support. For instance, a number of studies in Switzerland – notably those by the economists Bruno Frey and Benno Torgler – show that Swiss cantons with higher levels of democratic participation present lower tax evasion rates, even when controlling for other factors. Suggesting that this is not simply a Swiss exception, a cross-national study by Friedrich Schneider and Désirée Teobaldelli found that “the effect of direct democratic institutions on the shadow economy is negative and quantitatively important.” These observational findings are increasingly supported by a growing number of controlled experiments across a variety of cultural settings. At odds with conventional economic reasoning, some evidence in the field of “tax morale” suggests that participation may be even more effective at curbing tax evasion than traditional and commonly adopted deterrence measures, such as fines and controls.

In the specific case of participatory budgeting, more robust data is also emerging. For example, a recent working paper by the Inter-American Development Bank presents similar effects of participatory budgeting on revenues in a randomized controlled trial in Russia. As noted by the authors, Diether Beuermann and Maria Amelina, these results are by no means negligible:

Implementing the planning cycle of participatory budgeting increased local revenues per capita by US$30.22 in regions without previous decentralized experience and by US$37.34 in regions with previous decentralized experience […] These are sizeable effects as they represent differences of around 70 percent with respect to the control group mean.

So participatory budgeting is good for tax revenues, but how good is it for citizens themselves?

Participatory budgeting promotes pro-poor spending, better access to services and may even reduce infant mortality

The available evidence suggests that participatory budgeting leads to significant shifts in priorities and policies, towards expenditures that directly benefit the poor. A 2008 World Bank report demonstrated that participatory budgeting has a statistically significant impact on a number of social indicators. Among others, the report highlights that PB is positively and strongly associated with improvements in poverty rates and access to water services.

Despite producing evidence of its effectiveness on a number of fronts over the years, only 25 years after its initial implementation in Brazil do we start to see systematic evidence of sound development outcomes. This is mainly due to two recently released, major studies of participatory budgeting in Brazil. The first, published by Sonia Gonçalves in World Development, finds that municipalities that adopted participatory budgeting in Brazil “favoured an allocation of public expenditures that closely matched the popular preferences and channeled a larger fraction of their total budget to key investments in sanitation and health services.” As a consequence, the author also finds that this change in the allocation of public expenditures “is associated with a pronounced reduction in the infant mortality rates for municipalities which adopted participatory budgeting.” Barely a year later, a study by Michael Touchton and Brian Wampler in Comparative Political Studies generated similar findings, demonstrating that the adoption of participatory budgeting in Brazil is strongly associated with increases in health care spending and decreases in infant mortality rates.

These studies also highlight another important takeaway for those working with development and public sector reform: the need to consider the fact that participatory institutions may take time to produce noticeable effects. As shown by Touchton and Wampler, for instance, the effects of PB adoption become significantly more visible after the fourth year of implementation.

As citizen engagement draws increasing interest in the development agenda, staying focused on which types of processes work and which do not will become particularly relevant. Participatory budgeting offers some promising evidence for policy reformers who want to see tangible impact on the ground, but it might take more than enthusiasm to get there. Determination, and a certain amount of patience, remain essential ingredients when it comes to delivering results.

How democratic is the Greek referendum?

Picture by PowderPhotograpy on flickr.

Picture by PowderPhotograpy on flickr.

In a blog post in 2013, questioning whether there was a case against citizen engagement, Nathaniel Heller provoked: “Would TARP have worked had US policymakers taken the time to poll a million Americans via SMS to solicit their opinions on whether it was a good idea? I doubt it.”

Two years later and we are faced with a similar situation: in the light of current circumstances, how appropriate is the Greek referendum? Alexander Trechsel, a professor at the European University Institute and one of the major experts when the issue is direct democracy, recently published an article in the Frankfurter Allgemeine giving four reasons as to why this referendum is a bad idea. With Alexander’s permission, I am re-posting the English version of his article:

It could hardly get any more dramatic in the negotiations between the EU and the Greek government. The clock is ticking and if no solution can be found during this very week a Southern European country, member of the Eurozone, will go bankrupt – with unforeseeable consequences for Greek citizens, but also the rest of Europe. This Tuesday at midnight, a first deadline has expired, with Greece not having paid its dues to the IMF. Clearly, things do not look well.

Until now, this “Greek drama” was staged involving institutions and their representatives: the European Commission, the IMF, ECB, the Greek government, Alexis Tsipras, Angela Merkel, François Hollande, Jean-Claude Juncker, Christine Lagarde, Mario Draghi as well as a series of finance ministers and experts. The cast was complex, but it fit onto a list no longer than a few pages. With the Greek government’s surprising decision to put the final offer by the creditors – the European Commission, the ECB and the IMF – to a referendum vote, the very logic of the play has changed. It looks as if it will now be up to a majority of Greek citizens to decide on the fate of their country, presumably in a binary yes-no vote, on a question that has yet to be formulated and on an offer that might have expired by the time the vote takes place. At first sight this seems to be a dignified process for the country where, after all, democracy was invented. A more careful look, however, unveils a rather less glorious image. Indeed, there are at least four fundamental problems that the proposed “people’s verdict” may give rise to.

First, modern Greece totally lacks any referendum experience. The last time Greek voters were called upon expressing themselves at the polls other than in elections was over 40 years ago, in 1974, when the country transitioned to democracy and when a popular majority decided to give itself a Republic rather than a Monarchy for its future form of government. Since then, and unlike in most other countries in Europe, direct democracy at the national level remained inexistent. It was only with the economic crisis and the confrontation with creditors over the bailout in 2011 that then-Prime-minister George Papandreou took the referendum threat out of his hat. In his view, creditors would simply be obliged to respect the will of the Greek people. It did not come that far – Papandreou had to step down before any referendum was held. Today, this very referendum threat is once again made by Alexis Tsipras, more concretely, though, with a date fixed for this coming Sunday, July 5. In less than a week a citizenry that could not take any yes-no choice in over 40 years is now supposed to “decide” on the future of its country. In no other, modern direct democratic process are citizens given so little time to gather and process the necessary information about the proposal at stake, to debate about it and allow for an informed public opinion to emerge, let alone take a far-reaching decision. And these are necessary, though not sufficient, conditions for a referendum process to be truly democratic. Today, this very point was made in Strasbourg, by the Secretary General of the Council of Europe.

Second, Greek citizens are called upon voting in favor or against an offer by a set of external actors to keep the country solvable and to get its economy a financial boost through future investments. It is therefore not even an agreement between the Greek government and, say, another government or an international organization that is at stake, but simply a plan decided upon outside of and independently from Greece. This is very different from international treaty referendums, such as those existing in Switzerland, Ireland or Denmark, in which respective governments defend the negotiated agreements and campaign in favor of the latter. In the coming days, however, the main actors defending a “yes” in the Greek referendum process will be either foreign creditors or – maybe – the Greek opposition. This, in turn, will result in a “them” against “us” campaign, which will give nationalistic arguments the upper hand over a sober discussion of pros and cons of the proposed offer – hardly the ingredients for a mature, democratic decision at the polls.

Third, the referendum will mix up direct with representative democracy. Let us imagine a “yes” coming out of the ballot boxes. In such a scenario the government of Alexis Tsipras would possibly have to step down and new elections would have to be called upon. And what if Greek voters say “no”? In this case, not only will the country most likely go bankrupt, it will also lead to Greece’s exit from the Euro. The consequences for the Greek people would be devastating and the fate of a government having actively led the campaign towards this outcome might become rapidly sealed. In other words: whatever the choice of the voters, it will be a choice about policy as much as about government itself. And the process could well end up in an own-goal, similar to the “suicide by referendum” committed by Pinochet in Chile and de Gaulle in France. For voters, however, this does not make things easier, as they will be voting both on the plan to save Greece from insolvency and on Alexis Tsipras’ government.

Fourth, and this is possibly the worst aspect of the entire drama, calling this referendum is a desperate attempt of shifting governmental responsibility to the people as a whole. Here is a government that is unable to reach an agreement with creditors to save its country from chaos. Instead of going down in history as a political failure, this government now shifts the burden onto the citizens, hoping for them to chime into the “us” and “them” theme alongside its representatives. While the threat of a referendum may be a powerful tool during negotiations, once the cards are on the table it does hardly serve any other purpose than to let a government hide behind an alleged popular will, forged in no time and in a heated climate of nationalistic accusations. Not to be able to find an agreement in negotiations may be seen as a failure – however, to blame one’s own citizenry for the outcome, because it was its “choice” at the polls, may be seen as outright cowardice.

The only conclusion one can draw from these observations is that on July 5, Greek voters should not be called to the polls. Out of democratic respect for its citizens the government in Athens should cancel this sordid referendum process – the earlier the better.