"I would like to thank Camilla, Dapo, the Royal African Society and SOAS for hosting tonight's

event. This is the third in a series of speeches I am making as part of our consultation on the government's development white paper to be published in the summer. The aim is to hear your views, and I look forward to the debate. In addition to visiting DFID's website, you should visit Guardian Unlimited - on there you'll find a message from "Jonny Boy" saying that Hilary Benn is as pompous and useless as his father was when he was a minister. I've certainly provoked! A great deal was promised in 2005: Increased aid, commitments to reach the UN target of 0.7%, debt cancellation, better ways of dealing with conflict, action on getting children into school, and fighting the diseases that kill so many, and developing countries committing themselves to play their part through good policies and the rule of law. Now all of this is, of course, about making poverty history. But the dream that unites us won't be fulfilled without good political governance, and it's that I want to talk about this evening. Now my starting point is that only developing countries - led by their own people and their own governments - can ultimately make the decisive changes that are needed to fight poverty. State-building can not be imposed. Its foundation must be a shared understanding between those who govern, and those who give their consent to be governed - the "deal" between citizen and state. And this foundation has to be laid by each country itself. It's a process. It takes time. Look at our own history. A thousand years of progress, sometimes moving forward, sometimes back. Magna Carta. A bloody civil war between parliament and King in the 17th century. The rotten boroughs and rotten politicians at the start of the 19th century - a culture of patronage that finally gave way to the universal franchise, as people demanded a voice in how they were governed. Our history tells us that public institutions evolve through a process of bargaining between the state and groups in society. And such institutions in developing countries cannot be constructed by simply transferring models from rich to poor countries. They need to do it for themselves. However, as donors we can assist the process of creating more effective states that can do it for themselves, and one of the ways we can help is to be clear - and perhaps clearer than we have been in the past - about the nature of that deal.

Clear - as we search for the right kind of conditionality - that our aid is conditional on clear principles. Respect for human rights and international obligations; commitment to improved public financial management and to fighting corruption; and a will to reduce poverty. These are the essential foundations of our partnership. By accepting them, our partners undertake to use the aid for the purposes for which it has been given. We expect the money to be accounted for, and it is right and proper that we do so. But we also recognise that where possible the best way to do this is through the government's own system of accountability so that it does not end up accounting to us - the donors - in one way, and to its own people in another, or not at all. Now, the biggest challenge we as donors face and governments face in applying these principles is in the poorest countries, where governance is weakest and corruption can be a major problem. Now some would argue that we should refuse to work in such countries at all until these problems are sorted out. I think that view is wholly mistaken. Let's take the case of Kenya, a country much discussed in the media, and which I visited a few weeks ago. Now, after years of misrule, the people of Kenya rejected Daniel arap Moi's appointed successor in peaceful elections in 2002. Last year they rejected the new government's wishes in a constitutional referendum - reflecting in part their anger at the continued misuse of public resources. In Kenya I met President Kibaki. We had a full and frank discussion, as they say, about the persistence of corruption. I made no secret of our concern. During the same visit, I also announced that we will be putting 55m into improving education. Some have criticised this. They say I should have suspended British aid entirely. I put this question to them. Just because poor people live in a country where corruption is a major problem, does that mean we should walk away? Should they be made to suffer because governance is bad? I think not. What I think it does mean, however, is that we should work in different ways in different circumstances to ensure that the money gets to where it is most needed. That's why we have refused to give Kenya any direct budget support - money which goes straight into the government budget to be used for supporting general spending. That's why in Kenya we have already taken a different approach - money ear-marked for a particular purpose.

Now this support to Kenya has helped an additional 1.5 million children to go to school after the new government announced the abolition of school fees in 2002. Our new aid will help build 12,000 new classrooms, improve water and sanitation facilities and expand the supply of textbooks and instructional materials for all 18,500 primary schools across Kenya. One change the government has made in Kenya, is to send money for schools direct to the schools' bank accounts, so reducing the opportunity for corruption. I saw for myself that school budgets are posted on blackboards so that parents can hold staff to account, and make sure the money for the school goes on educating their children. We also ensure that payment is agreed for planned expenditure, that further payment is made only on evidence that the existing funds have been spent satisfactorily. Audits and surveys to track money provide additional assurance - for example a joint government of Kenya and Price Waterhouse Coopers survey of primary education spending last year showed that "...overall the flow of funds has been efficient.......and at school level, funds received have been correctly recorded and used for their intended purposes." But that's not all, alongside providing money for education, we are also helping to build systems that can help prevent corruption - if they are used. Improving public financial management and procurement practice, and helping with governance, justice, and law and order. Assisting Kenyan citizens to hold their government to account through civic education and support to Transparency International. However, none of this will work if government itself doesn't act. All the institutions in the world are no good if there isn't a will to act. And that's why so many eyes in the world are - rightly, today - on the government of Kenya as they face a choice about what to do in response to the Githongo dossier. And let me pay tribute here to John Githongo's bravery in blowing the whistle on the extent of the problem. The resignation of the finance minister yesterday will allow the allegations against him and his Ministry to be fully investigated, and I applaud the Kenyan people and media for bringing this about. Swift action by the government will send a clear signal to the people of Kenya, and to the world, that the commitment to good governance means something. Failure to act, simply won't be acceptable, least of all to the Kenyan people. Let me ask a second question. Even where there is no reasonable hope of working with the government - as is the case in Zimbabwe - does that mean we should stop caring about its people? Would it be right to punish Zimbabweans for their repressive regime; a regime they did not freely elect? I think not.

The poorest still deserve help with life's basic necessities regardless of the quality of their government. That's why in Zimbabwe DFID provides life-saving humanitarian aid - not through the government - but through the UN and NGOs - 30m this year to help feed people, support the growing number of orphans, and fight HIV and AIDS. There are those who say that giving governments support is wrong; it's like writing a blank cheque encouraging corruption and inefficiency. That our aid is best spent through NGOs. Well we do a lot of work with and through NGOs. Some of the most impressive projects I have seen - some of the most remarkable people that I have met - are working to build the fabric of civil society and its capacity to hold those in power to account. But even the most enthusiastic supporters of civil society, and I am one, recognise that ignoring governments and creating parallel systems, is not the long-term solution to corruption nor a sustainable path to development. Should a farmer in Malawi have to rely on an NGO for health and education? Like you and me, she wants justice - she wants her rights and that of her children realised - and she'll only get that in the long-term from good government. The other argument is that our aid - in whatever form - can prop up bad governments. And that's a risk that we need to take seriously - and we do. That's the argument for having a range of instruments through which to channel our aid. Now, apart from the moral case against it, corruption is also a big problem because it has huge economic, social and political costs. Businesses don't invest. Jobs are not created. Money which should be spent on services for the poor is stolen. People distrust politicians and may eventually give up on the political system and seek answers elsewhere In short, corruption destroys the "deal" - the bargain - between the citizen and the state; and it harms the poorest most. Having to deal with weak governance is almost a universal problem for ordinary people in developing countries. And in surveys, poor people point out the effects of petty corruption bribing a teacher to teach your child; bribing officials in order to sell your produce in a market; bribing the police not to harass you. And large scale corruption is a problem too. For countries with scarce resources, they can't afford funds to be siphoned away into foreign bank accounts or spent on luxury goods. So while - for all these reasons - we must be tough on corruption, let's not be smug about it. Let's just remember our own history. Corruption, like temptation, exists everywhere. There are many countries where there is good political governance and yet corruption persists. Good systems cannot perfect human nature. We are all fallible.

And the final argument for doing something is that corruption undermines public confidence in aid and its effectiveness - after all, it is taxpayer's money that we provide to poor countries. We have to make sure it is well used So what should we do? First - I think we need to recognise that corruption is most able to thrive where accountability is weak. Good political governance makes it much harder for governing elites to plunder public wealth for private gain. Developing the institutions to do this takes time, and is one of the most important challenges that developing countries face. Second - corruption is both a cause and a consequence of poor - and sometimes outright bad governance. The primary challenge for our partner governments is building strong, responsive and accountable institutions. Third, in a globalised world, corruption is played out on a global stage. We need to recognise that globalisation has increased the opportunities for some ruling elites to make enormous fortunes from siphoning off a country's natural resources or its tax base There is huge potential as we know for illicit income from natural resources. Consider the enormous waste of Nigeria's oil wealth over past decades or the destruction of forests in a whole number of countries. The extractive industries transparency initiative is one way of addressing these problems. It is shedding new light on Nigeria's oil revenues. The results of the first audit of oil and gas accounts were published last week. And for the first time, Nigerians know how much money their government received from sales of oil. And where there are bribe-takers, there are also bribe-givers. We have to do our bit in rich countries to address corruption in procurement and in other areas where bribery is prevalent, as well as to speed up recovery of stolen assets, and prevent money laundering. I'll say more on this in a later speech. And finally, aid can be part of the solution to the problem of corruption. In the past it has sometimes been part of the problem, where aid was used to buy support in the Cold War, rather than to fight poverty. All too often it rewarded dictators and the corrupt. Mobutu's Zaire received enormous aid flows during this period.

Most aid went into projects that were both "off-plan" and "off-budget" - in other words not part of the government's accounts, and thus reduced the need for governments to improve their public financial management - or to account to their people. Donor projects often paid local staff high salaries, drawing them away from the civil service, undermining the strength of government. Limiting capacity. We have learned from these mistakes, and our approach has changed. Where we can, we work with and through governments to support them in becoming more accountable, more responsive, and better able to achieve progress - and ultimately more legitimate. And where we can't, we will still find ways of helping poor people. And we will continue to work to help countries fight corruption. Now what does this mean in practice? It means helping anti-corruption commissions in Sierra Leone, Malawi, Zambia and Uganda where a major clean-out of corruption in the Uganda Revenue Authority has led to a 35% rise in tax revenue. In Sierra Leone we're working to link part of our aid to progress in reducing the theft of drugs from the health service. It means supporting in Nigeria a community policing initiative. Given the depressing catalogue of human rights abuses in Nigeria, DFID could have pulled out of police work altogether. Instead, a public survey last year showed that where the new approach to policing has been tried, people felt more secure, trusted the police more, and thought that police corruption had been reduced. The chief of police has asked for our support to expand the scheme to other parts of Nigeria. It means funding a range of work to help civil society hold their governments to account - for example helping NGOs that monitor oil revenue in Bolivia or work with parliamentary committees to track education spending in Malawi. One NGO I met in Bangladesh, called Samata, helps landless people claim their rights to state land. In Tanzania, public service reform, supported in part by DFID, saw an increase in pay levels by up to 15% - helping to reduce the incentive for petty corruption. So, the question I want to pose is this: which aid instruments should we use for different circumstances? What is the best way we can go on helping poor people but minimise the risk of corruption? How best can we help our development partners make progress? Now, all of this is about helping to build good governance. Question. So what is it that makes a good government? And why is that important for addressing corruption and for development?

Now good political governance - the quality of how we govern and how we are governed - is something that we all take for granted in this country, although we still argue about it, and on occasions, question its existence! But at heart, all of us want the same thing - whether you live in Leeds, whether you're that farmer in Malawi I mentioned: security, a decent job, education and healthcare when we're ill, the chance to raise a family, the opportunity to play a role in society, and to hand on a better future to the next generation. We want to be able to express our views, our faith, freely. Some, and I'd encourage you to do so, may even want to join a political party! We want a government that represents our interests and takes our views into account. Good political governance is, I think, based on four things - authority, responsiveness, accountability and legitimacy. And by governance I'm not talking about government - I'm talking about people - you and me. First, authority. All governments need authority. It's simply about being able to get things done. Does the government have the money, the will and the capacity to build wells, provide health services to villagers, offer a good education to children, and raise taxes to do all these things? When those are absent, countries suffer. In what was then Zaire, Mobutu was authoritarian, but had no authority. His corrupt and incompetent regime left most of the country to fend for itself, as it got poorer and poorer, despite its enormous natural wealth. Secondly, governments must respond to the aspirations of their citizens through some kind of representative government, and this includes respecting peoples' civil and political rights. Take Burundi - when President Pierre Nkurunziza was inaugurated last year, in elections with a turn out of over three quarters of eligible voters, he announced his commitment to free primary education. He implemented it. Enrolments have risen sharply as a result, and DFID has provided support to help with the consequences. Thirdly, there's accountability. This means having to explain and answer questions on what you have done. It applies to public officials, to ministers and to governments. In developing countries, it's not about me or other donors being accountable - its about developing country governments being accountable to their own people. A free and open media plays a hugely important role in helping to make this happen. In Kenya, the media - from newspapers to private radio stations to mobile phones - are doing a lot to uncover and expose malpractice at the highest levels of the state. Revelations from the Githongo dossier were first covered by both the major Kenyan newspapers.

Civil society matters too. It helps people to come together and acquire a voice. I also think that the tax system is crucial for accountability. Now I said earlier that developing countries should be primarily accountable to their own citizens, not donors. Tax is at the heart of the social contract between state and citizen; when citizens pay tax, they demand services back. As someone once said, "No taxation without representation!" But the best way to ensure the accountability of governments is a political system that encourages scrutiny and questioning. And of course the ultimate test is a free and fair election. Giving the people the final say. The ability of citizens to elect and then get rid of their government and change its leaders is fundamental. Finally, there's legitimacy. The extent to which people think their rulers have earned the right to govern. In the long-term the best way to gain legitimacy is to rule justly in the public interest and to be elected to do so. Now in Uganda, President Museveni came into power with legitimacy in much of the country following the overthrow of a brutal regime. Huge progress reinforced that legitimacy - poverty has been reduced from 56% to 38% over the last decade. But now his efforts to change the constitution so that he can remain in power are steadily eroding his legitimacy and that of his government. Governments that display the four qualities I have described are more likely to result in effective and capable states. Given that countries are likely to be at different stages in their political development, we should not set absolute standards or benchmarks to be applied uniformly. It would be wrong to judge a country emerging from conflict by the same standards as a country that has never experienced war. We must judge governments, I think, by where they are going - there may be problems along the way - but are they heading in the right direction? Are accountability and responsiveness improving? Is the government gaining authority? And in answering these questions we should also look at what they are achieving. How many children are in school, how is health improving, what is happening to incomes, are peoples' rights respected? In short, we need to understand better both who and what is making change and development happen in each country. And over the past five years DFID has undertaken a series of what we call "drivers of change" studies in 16 countries. The purpose is to identify who holds real power, who benefits and who opposes change - and how change comes about. Because if we don't as donors understand the politics of the places where we work, then our task will be all the more difficult.

We have learned that when we are faced by difficult circumstances such as I have described earlier, we should not turn aid off like a light switch. So rather than stop aid outright, we need to ensure our assistance is designed to address the very different political governance circumstances we find in each country. Let me illustrate this by the case of Ethiopia, another country in the spotlight and again one I visited recently. The government committed what I think were serious human rights abuses last year - killing and arresting people, and detention of the opposition just after the recent elections - bad in themselves, but also a breach of trust in our relationship. Yet here is a country with massive needs, a desperately poor population, which receives significantly less aid than most other countries in sub-Saharan Africa. Now, the government has good programmes for reaching for people in education and health and water. If I had stopped all aid to the government as a result of the recent human rights abuses, it is not the government that would suffer, but poor people. And there are no effective non-government channels for reaching the millions of poor people in Ethiopia. So I have adopted an alternative course. I stopped direct general budget support which could be used for any purpose, and we are now looking at different options to be sure our funds will be used to reach poor people. At the same time, with other donors, we will continue to push the Ethiopian Government on human rights and governance. It may not work in the short term but this is the best way of improving both the quality of the life of poor people and the quality of governance in Ethiopia. This will undoubtedly be a long-term and difficult process: but we must try. In some cases we have seen major improvements in governance - we shouldn't get too depressed about the difficulties we face - and our aid is increasing correspondingly. Tanzania continues to do well. I agreed last month to 310 million in support over the next three years direct to the government budget, with 10% of that conditional on continued good performance in governance and budget management. So what does all of this mean for how donors in general, and DFID in particular, should operate? It comes back to the question I asked at the beginning. It means - I think - that we need to have a more sophisticated response to poor and weak governance. We need a clearer idea of what the right thing to do is in different circumstances. And we need to recognise that countries are at different stages of development.

We must refrain from the temptation to micromanage - telling governments that they must reform this or that institution before we will help. But we mustn't become a soft touch - in the long run, I don't think people would thank us for that! I recognise this is a complex issue; one where it is hard to get the balance right. But I take it very seriously and so must all of us who dream about a better world. Surveys show that an alarming number of people think that most aid is wasted. So if we are to sustain their support after 2005 and with other things happening in the world, we have to show that this isn't the case - which it isn't. As ever, development - and that includes DFID - does best when it listens and learns in the light of experience. That is why your views today and in the weeks to come will be so important as together we try and find a way forward. Because ultimately I believe government can and does make a difference to peoples' lives. Politics has done this here in the UK, changing the lives of poor people in a way that would be unrecognisable to their ancestors. And poor people in developing countries want politics to do the same for them, and they want to be part of the process. I think making progress is about making politics work. Politics that determines the choices we make. Politics that determines what kind of society it is we wish to live in and create and hand on to the next generation. And it will be politics that will help us make poverty history.