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A Simple Economic approach to Demand-side Good Governance

MOHAMMAD ASHRAFUL HAQUE Lecturer Department of Public Administration Jahangirnagar University Savar, Dhaka Bangladesh Email: and MOHAMMAD MOHABBAT KHAN Professor Department of Public Administration University of Dhaka Bangladesh Email:

A Simple Economic approach to Demand-side Good Governance

Abstract This paper contends that between the two dominant approaches to Good Governance (GG), demand-side approach has clear advantages over its supply-side counterpart in the socio-political context of Bangladesh. A conceptual framework for identifying factors of demand-side GG has been developed and a Nepalese project for strengthening demand-side GG has been analyzed based on the conceptual framework. It has been found that broad based participation of stakeholders, balanced engagement in all demand-side GG functions, capacity building of civil society organizations (CSOs), voluntary contribution to CSOs by the people and transparency of the CSOs themselves play a vital role in successful demandside GG. Finally, the paper looks into the current state of affairs of three leading CSOs of Bangladesh in order to determine Bangladeshs position in exacting demand-side GG and potential intervention points for the development partners to advance demand-side GG.

Introduction Absence of good governance, in recent years, has become the pivotal paradigm for explaining the underdevelopment of developing countries. The reason perhaps lies in the capacity of the 'governance' as a concept to encompass an array of political and economic

variables and interpret their relationships in a coherent manner. When seen as a process, governance includes all the institutions and their interactions intertwined in governing of a country. When considered as an integrated politico-economic system, governance refers to the patterns of interaction involved in making public decisions and resultant output in a particular policy making environment (Pierre and Peters, 2000:1). And when good is prefixed to governance, we reasonably expect that the system is producing satisfactory results, if not ideal ones. The question that follows is- whose satisfaction? The state? Nonstate actors? Dominant interest groups? Common people? The answer is fairly simple in a democratic political system- good governance (GG), in the first place, should produce potential outcomes that help the government maximize its mandate and support. In an ideal scenario, a democratic government can do so by balancing interests of the organized interest groups whose support matter to legitimize government's mandate. How can we know that the government succeeds in establishing that balance? From an strategic perspective, when neither of the interest groups wants to change their prevailing strategy given others strategies, we can say that the government has become successful establishing an equilibrium that is satisfactory to all within everyone's constraints 1. Interestingly, a government can have such an equilibrium regardless of how satisfactory the outcomes to the interest groups are. Let us imagine the following pure cases2: Case 1: A democratic country is divided into a homogeneous majority and a similarly homogeneous minority interest groups and both have their own political parties. Even if the majority is major by a tiny fraction (say 0.1%), the government can maximize its support by ensuring the whim of the majority. This is an equilibrium since neither will deviate from its existing strategies: the majority will vote the majority party, the minority will vote the minority party and the government will continue serving the majority interest. Is this good governance? Case 2: A democratic country has many heterogeneous interest groups, but some of them far exceed the organizing power of the others. Because of their unparalleled organizing resources, these dominant interest groups can influence the second best interest groups. These consortium of the interest groups may decide which party will be in the government. Therefore all political parties will have the motivation to serve this consortium. This is an equilibrium since neither deviates from their existing strategies- the government serves the consortium, the consortium serves the party that best serves their interests, other minor interest groups have nothing but to conform to this equilibrium. Is this a good governance? Case 3: a variant of case 2 would be that neither of the interest groups, nor could their consortium influence the voting outcome. Numerous equally forceful interest groups compete for the scarce resources. In such a case, we can think of two mutually exclusive subequilibriums. In one sub-case, a political party is able to identify the minimum number of interest groups that if satisfied could ensure the electoral victory for the party. All parties will try to estimate this minimum number of interest groups and try to serve them best. These minimum interest groups will support the government and other interest groups simply conform3. In the other sub-case, parties are unable to identify the minimum interest groups. They just guesstimate and if turns out to be right (i.e. wins election), they stick to that
1 2

In economics, we call this a Nash equilibrium. We call them 'pure cases' since these are extreme versions of the reality. Actual cases more likely to fall within the continuum of these three. 3 Opposite to conformity, one can argue that these neglected interest groups might revolt. If the government think groups have the power to successfully turn down the government, these will be the minimum group. Otherwise, revolt will not take place.

minimum interest groups till the next election. In case, this minimum groups truly comprise the critical mass to win every elections, this is no different than the previous sub-case. If this minimum groups are not the critical mass, governments keep changing, parties continue juggling through different interest groups in search of that critical mass. Are these two sub cases represent good governance? As a variant to case 3, some might argue that parties might try reaching each interest group and establish a mutually agreeable balance of interests to maximize votes. We consider this is practically impossible to reach that mutually agreed balance simply because of the transaction cost that far exceed the minimum number of votes to win elections. Are these cases reflect good governance since they provide a Nash equilibrium? If we really believe in democratic norms, we cannot say these cases represent 'good governance'. Why not when everyone is satisfied within their constraints 4? The answer lies in the constraints that each interest group faces. Minor interest groups certainly do not want to be exploited by the dominant interest groups. However, they don't have the organizing power to play otherwise and therefore end up with conforming (i.e. relative satisfaction instead of desired satisfaction). In economics, games that end up with sub-optimal Nash equilibrium are not rare. To reach a sub-optimal equilibrium, we do not need 'good governance'. We need this because we want an optimal equilibrium. Governance, to be good, must enforce constraints in a way that prompts each interest group to play strategies in coordination that ensures the optimal outcome. This is the conceptual context under which we develop the following economic approach to differentiate between the demand-side and supply-side models of good governance and we argue that demand-side good governance should be priority model in order to have greater impact in countries like Bangladesh. A Simplified Context of Good Governance in Bangladesh In the beginning of this paper, we said that development scholars like to stress on the good governance to explain the failure of neo-classical market driven policies in developing countries. Since 'governance' can include almost everything, it makes easy to explain why certain policies did not work. This all-encompassing nature of this paradigm is paradoxically its foremost weakness since it is hard to identify priority intervention points for governance reform, given the resource constraints. The problem is even acute for poor developing countries where too few resources have to chase too many reform needs amid a low rate of resource utilization due to technological backwardness, managerial incapacity, corruption and political instability. Therefore, each reform effort, may it be under the rubric of good governance or else, should be justified by the associated costs and benefits. It is simply not wise to have a laundry list of governance reforms and invest on them incrementally without knowing what outcome they might produce. So here is the dilemma: we need good governance to make our good policies work. However, since ensuring good governance requires numerous reforms here and there and we do not have sufficient resources to do so, should we invest in good governance.? Pro-governance advocates argue that though significant initial advancement in some economic and social indicators is possible under the bad governance, long-term sustainable growth in those indicators as well as social stability is achievable only under conditions of good governance (Mahmud et al., 2008). The apparent stagnation in Bangladesh's growth rate (approximately at 5%-6%) and advancement in some social indicators (such as population growth, adult literacy, primary school drop out rate, etc.) for the last couple of years

Each player is satisfied in a relative sense that each is playing their best strategies given other's strategies and the payoffs.

substantiates this proposition. The importance of good governance becomes more prominent if we define development from Sens capability perspective. If the primary aim of development is to create an enabling environment so that each individual could bring out the maximum potential of the self, then good governance is sine qua non (Sen, 1999). Mere increase in growth rate does not guarantee that good governance will follow eventually. Sobhan (1998) blames bad governance for the slow reduction of poverty despite a persistently modest growth rate and a generous inflow of foreign aid in Bangladesh during the last three decades. The existence of the vicious cycle of corruption and poor law and order situation has adversely affected the livelihood of poor people amid considerable advancement in economic growth and pro-poor social policies. So, we need good governance (GG). GG has gained prominence in Bangladeshs perspective development plans (Planning Commission, 2008and 2009), and likely to remain so in the coming decade mostly because of the development partners apparent interest in it, who have been influential in the policy making process of the country (Mozumder and Haque, 2010). It is, therefore, imperative for the policy makers of Bangladesh to come up with the right mix of strategies in designing interventions for good governance so that the limited resources can be utilized in the best possible manner. Interventions for GG can be categorized into two distinct categories (World Bank, 2007). When interventions are designed to build/strengthen some institutions that will produce some good governance products (such as accountability, transparency, predictability, participation, etc.) on the producer's end (the state actors), we call them the supply-side GG. The assumption is that the other state actors, non-state actors including the common people will use the GG products increasingly over time once available. So, when the state or the development partners by their own decide to invest in the Anti-corruption commission/Election commission, this will be the supply-side GG. When the development partners imposes certain reforms when there is no demand for those reforms either in or outside the government, we call them the supply-side GG. On the other hand, when different civic associations raise their voice for a particular mix of GG outputs and create pressure on the government, we call this the demand-side GG. Even if a government agency demands some GG reforms to be more efficient and transparent, we call them demand-side GG too. In this paper, we analyze this dichotomy from the perspective of the development partners and argue that demand-side GG should precede the supply-side for better aid effectiveness. Demand-side GG: A Conceptual Framework a. Defining Supply-side GG An analogy between economics and governance will help better understand demand and supply-side GG. Supply-side economics advocates for policies aimed at increasing productivity, lowering firms' costs, and increasing the level of aggregate supply in the economy. The famous Says law puts that supply of one good creates demand for other goods and thereby increases the aggregate supply in an economy through burgeoning investment and employment (Cleaver, 1981). The government role is to create positive incentive for producers in the form of tax cut, deregulation, abolishment of minimum wage law, reduction of union power, decrease of social security, etc. The assumption is that there is nothing called overproduction or underproduction given that no barrier exists on the supply-side. In other words, if supply of all the goods of a market remains unhindered, demand for those goods will mechanistically adjust to the supply at a price that no goods are kept unsold and no

demands are kept unmet. Among the three actors in the economy, i.e. producers, government and the consumers, producers are held supreme in the supply-side economics. Likewise, the supply-side GG focuses on increasing the aggregate supply of government sponsored services under strict principles of good governance. Producers of government sponsored services, i.e. the state actors are held supreme and incentives are created for them so that they could be able to supply good governance without disruption. That is why capacity building of state institutions, administrative reforms, economy-wide structural adjustment, training of public officials, and reform of pay policy get prominence under the supply-side GG. The increased capacity of the state actors following these interventions is assumed to be utilized for better supply of government services that the society will consume entirely, and by doing so will generate demand for more GG. The supply-side GG has some crucial drawbacks. First, the absence of a market in the delivery of GG withheld incentives for the producers (here the state actors) for increasing the supply of GG further despite the presence of enough demand. In economics, producers can offer attractive price to consumers if supply barriers are removed. Consumers, on the other hand, maximize the consumer surplus by buying more. Following a buoyant demand, producers reinvest their profit for increasing production. This way, the aggregate supply and demand for all goods rise to the optimum level. But in case of good governance, producers/state actors have to deliver their services free of cost or at a very low price. In such a situation, society will have high demand for GG in contrary to the state actors hardly having incentive to supply adequately. Thus underproduction could be a probable scenario in the supply-side GG. Investment in state capacity building under this scenario is likely to produce suboptimal result. As a consequence, people might lose trust in the state actors and political instability might subsequently follow. Second, the supply of GG unlikely to generate demand for GG as is the case with the supply-side economics. This can come from two fronts. The consumption and production of GG have great externalities. There might be high social utility for GG products, but low private utility. Therefore, individuals might want others to demand and pay for GG when they simply free-ride. Overproduction and wastage of scarce resources will ensue if this is the case. Alternatively, people may be heavily taxed for providing better pay and logistics as incentive for the state actors for avoiding the under-supply only leading to a dampened demand for GG5. Third, the role conflict cannot be avoided in the supply-side GG as the state actors play the twin role of regulators and producers in the supply of good governance. In the supply-side economics, the government gains increased tax income by removing supply-side barriers through creating environment for more investment and economic activities. Producers get more profit by having tax cuts and other production barriers removed. Customers enjoy greater consumer surplus from low price. In other words, the supply-side economics provides a field for positive-sum game for all. On the contrary, the supply-side GG is a zero-sum game. The delivery of GG cannot be directly priced for its public nature though it is investment intensive. The state actors impose taxes on the public, make regulations and policies and also deliver public services. They might heavily tax people for necessary investment in the state capacity building for GG. At the same time, they might make lax regulations for themselves for avoiding responsibility. In such hypothetical case, people/consumers are paying price for goods that they are not consuming. In other words, producers supremacy in the supply-side GG over people could give the government undue advantage for its dual role. b. Defining Demand-side GG

This will be so if GG follows the law of demand and supply.

Demand-side economics focuses on policies undertaken by a government aimed at increasing or decreasing aggregate Demand (total spending on goods and services) in the economy. When an economy performs below full employment level (resources are underused or unused), recession occurs due to low demand for goods, high unemployment rate and a falling price for the producers (Sullivan and Sheffrin, 2003). To overcome such economic glut, active and generous government investment is necessary in order to increase aggregate demand. Policies like government investment in infrastructure, subsidies, transfer payments and other expansionary fiscal and monetary measures are undertaken to make a boost in aggregate demand. Compared to the supply-side counterpart, demand-side economics holds consumers supreme and creates incentives for consumption that ultimately affects producers decisions and profit. It is assumed that if people have enough money and are willing to spend for consumption, the supply will automatically adjust to the demand. Instead of the price of the product, demand-side economics puts emphasis on consumers ability and willingness to spend. In fact, a positive relationship between decreasing unemployment, increasing income and increasing price is the core of the demand-side economics. Therefore, policies aim at increasing disposable income to the consumers so that they can buy more goods. Similarly, demand-side GG reforms aim at empowering communities, civic associations and other nonstate actors in order to enable them for demanding government services conforming to principles of good governance. Such capacity is assumed to be utilized in holding the state actors accountable and make them act according to public interest. Like its economic counterpart, demand-side GG attempts to increase awareness and active civic engagement as well as the willingness to spend more resources for good governance. The demand-side GG can overcome the problem of overproduction and underproduction. Since the supply follows the demand, overproduction cannot happen. The government will produce the GG to an extent for which the citizens are willing to pay for. The under-supply problem is likely in the short-run due to the time it takes for the government in investing and producing the demanded GG. The role conflict can still be a concern here. In an economy, the government pushes aggregate demand in the hope of creating more employment, more income, more investment and more taxes. This way the government can avoid recession and public distrust, people/consumers get jobs and more disposable income and producers get expanding market (i.e. positive sum game). In its dual role as the regulator and the producer of GG, it would be irrational for the government to actively seek policies for raising demand for good governance that it has to supply. If they do so, they are taking the risk of public wrath in case they fail to supply the demanded GG. On the other hand, if the political will of the government is so firm to take that risk, it would be more rational to concentrate on the supply-side GG in the first place instead of wasting resources for creating demand. The outcome of this role conflict is still better than the outcome of the role conflict in the supplyside GG. In demand-side GG, both the government and the people only lose the opportunity benefits- benefits that they would have got should they invest some resources in consuming and producing the GG transferring them from the existing consumption and production of other goods. On the other hand, they lose opportunity benefits of losing other consumption that they could have if they would not invest in GG. Besides, people have to incur some costs for which they consume nothing should the government tax them but do not supply with the promised GG. From above discussion, it is clear that the demand-side GG has some advantages over the supply-side. In order to exploit these advantages, we have to solve the problem of raising demand for GG. The very public good nature of GG makes this challenging. c. Good Governance (GG) as a Public Good

As the supply-side policies operate primarily on the price, they are most likely to be effective in delivering goods that can be easily priced. In comparison, demand-side policies mainly focus on consumers ability and willingness to pay and therefore are reasonably effective for goods that are difficult to pricing but which consumers want. Compared to the pure private goods, pure public goods are non-exclusive and nonrival. Non-exclusion implies the near impossibility of limiting the supply of public goods to only those who are willing to pay. Consequently, free-riding comes in- the potential users may wait for the good to be supplied and then consume the good for free (Howard, 2001). Non-rival benefits give rise to zero marginal costs of using one more unit and this is why exclusion is inefficient. Some potential consumers with a positive marginal benefit if consume the good does not add any additional cost of supply. Thus any measure of exclusion from the public goods only lowers social welfare. In other words, the supply of public goods involves two economic problems. First, non-rivalry makes it difficult to determine the right price, since an increase in the number of consumers increases aggregate well-being almost at no cost. It is thus hard to measure the unit cost of supply to charge the beneficiaries. Second, non-exclusion is the source of under-supply, since agents tend to hide their preferences. Nonexclusion also implies that beneficiaries cannot be forced to pay at the point of consumption. Therefore, public goods cannot be supplied at market price. Efficient provision needs to internalize the costs of supply. Externality also implies the necessity of the optimal supply with the possibility of under-pricing or discriminatory pricing. For all these complications, only government can provide public goods under regulation and taxation. GG is a public good as it is non-rival, non-exclusive and has positive externalities. GG itself though is not a good or service, it is intertwined in the process of producing and delivering other government provisions. It is like a person buying a packet of milk powder along with the information related to ingredients, manufacturing process and expiry dates inscribed on the packet. The milk powder can be sold without citing those information to the customer. But, the customer feels more secure having that information and also willingly pays for additional cost associated with generating that information. Such a price is worth spending as it reduces the transaction cost of the customers in the short run, as they need not generate that information by themselves that might have health implication, and also eliminates probability of health hazard and medical cost for having poor quality milk in the long run. Thus, information associated with milk powder can be termed as an inherent goods/service that bears utility and therefore can be priced. Likewise, government could provide goods and services without ensuring good governance; but the presence of it would increase citizens reliability, satisfaction and thereby reduce transaction cost in the forms of corruption, delay, poor quality, etc. Ensuring GG is not a costless endeavor. There should be added resources for making government processes transparent, accountable, participatory, equitable and reliable. As GG increases citizens benefits manifolds, reduces transaction costs, and itself demands hefty investment, citizens have to pay for it. Nevertheless, direct pricing of and payment for GG is difficult due to its public good nature. Once the government ensures transparency and accountability in its process, it can exclude none from getting the associated benefits. It is also non-rival as being transparent to citizen B will generate almost zero cost after being held accountable to citizen A, as the cost of installing the system of transparency will most likely to remain same for one and the millions. Therefore, optimum supply of GG will depend on prudent taxation (for resource sufficiency) and regulatory arrangement (for averting free riding). Now, what could happen if a government primarily focuses on the supply-side GG? It needs to keep taxation and regulation at minimal so that people could consume GG at low cost and at minimum hassle. On the contrary, government has to invest considerably to increase its capacity to deliver GG at sufficient quantity. With low tax, there is less financial

resources to invest in GG supply. As a result, government is likely to under-produce and the society is likely to have suboptimal welfare. What could be done to ensure optimum supply of GG for maximizing social welfare? According to the Samuelson condition of optimum supply of public goods, marginal cost of supply should be equal to the marginal benefits derived by an individual (Samuelson, 1954). Lets take an economy where the government is providing GG to two persons- A and B. As marginal cost-benefit equation is Pa = 100-x and Bs is Pb = 200-2x, where Pa and Pb are respective cost for consumption of GG by A and B and x is the quantity demanded of GG. Marginal social cost-benefit of the GG as argued by Samuelson would be vertical summation of individual cost-benefit and therefore the social cost-benefit equation would be P = 300-3x, where P is the social cost of supply of GG. If the optimum quantity of GG is 70, then unit price of GG would be Tk. 90. At the optimum, A has to pay Tk. 30 and B has to pay Tk. 60. What would be if B is prepared to pay the same as A does, or what if A free rides? In both cases, Tk. 30 would remain short for each unit GG that have to be financed through deficit financing. Otherwise, it has to supply GG below the optimum so as to avoid deficit financing. The worst possibility is that the government might invest in the capacity building through deficit financing, but under-utilize it in actual delivery due to the role conflict that we have discussed earlier. Such under-supply is unlikely to produce large-scale public wrath as demand always follows supply in he supply-side GG (therefore little risks involved in shirking) . Demand-side GG, on the other hand, puts emphasis on citizens ability and willingness to pay for the optimum supply of GG. Here, investment in awareness raising, capacity building of civic organizations and platform for participation are made and followed by investment in building the capacity of the state actors. Free riding problem is likely to be reduced in the demand-side GG as more aware people are expected to reveal their true preference for GG and pay accordingly for the optimum supply that they themselves determine. If people express their true marginal benefit derived from GG, their contribution will equate the marginal cost of supply and thereby fulfill the Samuelson condition. The possibility of undersupply at a point in time is therefore ruled out. Demand-side GG also fulfills Olsons (1969) fiscal equivalence principle of optimum supply of public goods that says, the decision for collective expenditure on public goods should be taken preferably by those who are directly affected by the decision. Revealed preference of the people also helps identify the optimum supply point for different GG goods on the consumption possibility frontier, which is not possible for the supply-side policies. It is hard to know what trade-off between accountability and efficiency the people would like most-whether high cost high accountability supply of GG is preferred to low cost, low accountability supply. Unless the government knows the right point on the consumption possibility frontier, there always remains the risk of overconcentration of resources on a single dimension of GG that might be at odds with public preference. Demand-side GG could overcome this shortfall. It is all the more important in a winners-take-all politics as the ruling regime and its allies left no stone unturned to deprive political rivals from common goods and use them to maintain their won patron-client channels (IGS, 2009). d. Demand-side GG works better in a confrontational political culture Political conflict is caused by the grievances resulting from social, economic and political inequality between groups. Historical patterns of violence make it more likely that these grievances lead to violent conflict (Latto, 2002). Political confrontation often arises in developing countries as too many interests vie for establishing control over too few common resources (Zartman, 1997). In other words, perception of inequality that leads to political confrontation in fact emerges from excessive demands on the common resources and therefore conflict management actually claims effective management of demand. Collier et

al. (2003) argued that the conflict reappears periodically in a confrontational political culture despite having formal institutions of reconciliation. Such conflict traps develop as the contending interest groups invest in building capacities to establish control over common resources. This argument seems valid for Bangladesh. Contending political parties developed a patron-client relationship between the leadership and the rank and files in order to win elections. Once won, parties take over all state institutions in order to capture the state resources and funnel them to satisfy its clients (IGS, 2009). Collier et al. proposed that only cooperation and negotiation among the contending parties could secure peace. Demand-side GG has clear advantage in securing cooperation as it focuses on the capacity and willingness of the people for GG. As we noted earlier that the demand-side GG requires active civic engagement and participation and thus necessitates investment in building civic organizations, a dilemma arises from the role conflict of the government that discourages it from making such investment, especially in a confrontational political culture. Literature on democracy profusely mentions about social capital and civil society as means to preparing ground for civic engagement. This role conflict creates opportunity for the development partners to invest in civic engagement process. e. Social Capital: Social-psychological Base of Demand-side GG Social capital is an asset that a society/community earns to purchase unity, cohesion and cooperation. Fukuyama (2001) defines social capital as an instantiated informal norm that promotes cooperation between two or more individuals. Putnam (1993) identifies the level of social trust, norms to reinforce that trust during social exchanges and the extent of social network for as the measure of social capital. Cooperation is indeed necessary to all individuals as a means to achieving their selfish ends in an iterative prisoners dilemma game. Individuals lose their reliability if defect and thus are subject to have suboptimal result in all exchanges, except for the first one. But, cooperation produces maximum benefits for each individual in each exchange. Social capital also reduces transaction cost associated with formal coordination mechanisms like contracts, hierarchies, and bureaucratic rules (Fukuyama, 2001). Civic engagement in demand-side GG largely relies on coordination and cooperation of the people and therefore necessitates social capital. For its iterative prisoners dilemma nature, demand-side GG should design strategies and structures in ways that drives for more exchanges, participation, resource and benefit sharing among the people (strength of network). Such participation and exchanges should be horizontal so that none could influence the pay-offs. Raising awareness and sensitivity through education and increasing interaction are two ways of enhancing the stock of social capital. f. Civil Society: Organizational base of Demand-side GG The concept of civil society is often advanced as a balancing force between the elite and the mass in the context of economic, political and societal developments (Zimmer and Freise, 2007). The elite being the owners of prestige and resources have more control over the state apparatus, much to their own interests. This is more so in developing countries like Bangladesh that has been traditionally a class based society. Political confrontation in such a society more likely to end up in the circulation of the state power among the rival elites. The onus is on the mass people who are though majority in number lack organizing and coordinating capacity to command good governance in the public decision making process. Civil society fills this void by providing the much needed organizing and coordinating skills. Fukuyama (2001) linked the relation between social capital and civil society by putting that only abundant stock of social capital produces a dense civil society. Social capital also facilitates horizontal coordination and voluntary cooperation in the civil society. Voluntary associations, advocacy groups, non-profit organizations, charities, community and self-help groups all can be a part of the civil society (Tonkin, 2008). Like social capital, civil society

saves the transaction cost of coordination and opportunity costs of weak negotiation and policy illegitimacy. Although all sorts of voluntary associations and non-profit entities take part in the civil society and contribute to the formation of social capital, only those organizations that work at the receiving end instead of working as the alternative to government (that works at the giving end) are the concern of demand-side GG. People are always the receivers of good governance (as public good) and the government is the provider. Demand-side GG empowers the receivers to influence the providers in order to make the supply more responsive. Therefore, civil society organizations that work as the alternative source of supply basically are the part of supply-side GG and contribute little on its demandside. Ferranti et al. (2009) in their signal-action model of good governance articulated action based skills of civil society and demand-side GG strategies should invest in developing those skills among civil society organizations. The following table presents action-wise skills of the civil society. Table 1: Action-wise Skills Required for Civil Society Groups No. Action Skills 1 Formulation: Civil societys concerns on good governance has been developed and refined. Assessment of community demands and priorities, scrutiny of government ability and actions by the civil society is a prior task. Development of strategies for conveying those concerns also matters Technical skills to analyze data, laws and policies regarding government actions. Communications outreach skills is required for ensuring broad based participation for proper demand assessment. Understanding potential partners, communication media and accountability mechanism of the government

Transmission: effective and accurate sending of public concerns on good governance to proper government authority. Selection of proper communication channel and building pressure for action. Reception: right demand is placed to the right authority with accuracy. Engagement of government accountability chain in the communication process Response: Making government responsive to the messages and undertake action Feedback: civil societys reaction to government response.

Access to open and vibrant media, advocacy and lobbying capacity, financial resources for communication and negotiation, openness and credibility, partnership among different research, advocacy and lobbying groups Accurate transmission of the message. Building and continuing pressure on the government to listen to the messages sent.

Credible and frequent public opinion polling. Third party monitoring of government actions and exacting accountability. Sufficient resources and institutional stability for civil society to remain engaged. Capacity to evaluate government performance and disseminate such evaluation reports.

Source: adapted from Ferranti et al. (2009) g. The Third Sector: Institutional Critical Mass for Demand-side GG The third sector emerges as an alternative source of provision for goods and services in response to government and market failure. Etzioni (1973) while introducing the term defined the third sector as, a third alternative sector between the state and the market that is populated by organizations that are able to combine the entrepreneurial spirit and organizational effectiveness of the business firm with the common good orientation of the state and its public administration. Etzionis definition implies some defining features critical to the sustainability and effectiveness of the civil society as a vital actor in demand-side GG. First, the third sector engage itself mostly in the provision and distribution of common goods (pure and impure public and merit goods) that the market is either unable to provide or is tilted to discriminatory provision; and government either is reluctant to provide sufficiently or lacks the capacity for that matter. Since this sector deals with the common good, this is predominantly non-profit. Second, this sector needs entrepreneurial zeal and organizational efficiency of a business firm for sustainability and functional viability. Being non-profit, this sector has to create alternative incentive to monetary dividend to secure entrepreneurial zeal. For continuous performance, they need permanent staff, leadership, contributing members and clients. The 'non-profit' in no way means that this sector cannot generate revenue. Rather, it implies that this sector reinvests its profits but does not allow sharing of dividend among the members and the employees of the organization alone (Zimmer and Freise, 2007). Such a non-profit nature reiterates the public goods nature of this sector and therefore exclusively depends on the social capital. Sheer absence of dividend requires for an alternative incentive structure for voluntary cooperation and contribution. Civil society organizations should ensure proper delivery of good governance for its members and clients and contribute to the virtuous cycle of social capital. Thus the third sector saves the opportunity cost of bad governance and transaction cost in social exchanges. The incentive system in the third sector could be designed in a way that will sufficiently reward those participating voluntarily as well as preventing free riders from getting unearned advantages. Free-riding tendency reduces the sustainability of the third sector initiatives. Should the free riding be eliminated, members and clients would willingly contribute for the sustainability of the third sector. Conclusion In the foregoing sections, we tried to establish the advantages of the demand-side GG over the supply-side. We argues that the demand-side GG can correct the over/under production of GG that the supply-side might create. We also demonstrated that the demandside GG is least vulnerable to the government's role conflict and the free-riding of the citizens. Moreover, the demand-side GG is likely to be more effective in a confrontation politics that Bangladesh has. Paradoxically, implementing the demand-side GG is also more challenging within confrontational political culture due to lack of trust and cooperation across the interest groups. Yet, demand-side GG holds merit in the long run by instituting some measures of cooperative exchange, counting on the increase in social awareness and civic coordination. References Chase, R. S., Anjum, A., 2008. Initiatives Supporting Demand for Good Governance (DFGG) Across World Bank Group Sectors and Regions, Washington D C: World Bank. Cleaver, H., 1981. Supply Side Economics: The New Phase of Capitalist Strategy in the Crisis, can be accessed at http// (accessed on 28 December, 2010).

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