Governance in the 21st century: Power in the global knowledge economy and society

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At the outset of the 21st century, confidence in the effectiveness and legitimacy of established forms of governance is ebbing. This article considers historical developments in governance, the driving forces likely to transform governance worldwide and the policies that might have the best chance of enhancing governance capacities in line with the desires and needs of the future. Challenges and propects are discussed which entail the dual policy of: encouraging a virtuous circle between governance and technological, economic and social dynamism; and targeting improvements in learning infrastructure, the frameworks for establishing confidence, and the standards (mission/values) within which society functions. By improving the capacity to make and implement decisions throughout society these policies are likely to provide one of the main stepping stones to the realization of people’s aspirations in the 21st century.
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Governance in the 21st Century
As we move into the 21st century, the turbulent transformation of economy
and society looks set to continue. Growing int egration of markets, radical new
technologies, the increasing knowledge intensity of human activity, all point to
the emergence of an immensely complex world. But how will it be managed?
And by whom? What forms of organisation and decision-making will be required
at local, national and global levels to meet the challenges of the next decades?
One thing seems certain: old forms of governance in the public sector,
corporations and civil society are becoming increasingly ineffective. New
forms of governance will be needed over the next few decades which will involve
a much broader range of active players. Traditional hierarchical organisations and
top-down control will give way more and more to a wider diffusion of responsibility
and decision-making that builds on the talents for innovation and creativity of
individuals and groups.
This book explores some of the opportunities and risks economic, social and
technological that decision-makers will have to address in the coming years,
and outlines what needs to be done to fost er society’s capacity to manage its
future more flexibly and with broader participation of its citizens.
w w w . o e c d . o rg
Governance in the 21st Century
in the
21st Century
ISBN 92-64-18541-0
03 2001 01 1 P
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in the
21st Century
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© OECD 2001
In the run-up to the preparations for EXPO 2000 the World Exposition in
Hanover, Germany the OECD Forum for the Future organised a series of four
conferences to take place beforehand around the theme of People, Nature and
Technology: Sustainable Societies in the 21st Century. The series considered four
key areas of human activity: technology, economy, society and government. The
conferences explored possible evolutions of key variables and analysed different
development paths in order to expose some of the main policy implications and
options. Each conference provided analysis of underlying trends and policy direc-
tions. However, the overall aim of the series was to build a comprehensive founda-
tion for assessing the critical choices likely to face citizens and decision makers in
the next century.
The entire series benefited from special sponsorship by EXPO 2000 and four
German banks Bankgesellschaft Berlin, DG BANK Deutsche Genossenschafts-
bank AG, NORD/LB Norddeutsche Landesbank, and Westdeutsche Landesbank
Girozentrale (WestLB). Additional financial support was provided by numerous
Asian, European and North American partners of the OECD Forum for the Future.
This book deals with the fourth and final conference in the series, hosted by the
NORD/LB Norddeutsche Landesbank in Hanover, Germany on 25-26 March 2000.
The theme was 21st Century Governance: Power in the Global Knowledge Econ-
omy and Society.
Three main messages emerged from the discussions and analyses that are
summarised in the pages that follow. First, old forms of governance in both the
public and private sectors are becoming increasingly ineffective. Second, the new
forms of governance that are likely to be needed over the next few decades will
involve a much broader range of active players. Third, and perhaps most impor-
tantly, two of the primary attributes of todays governance systems the usually
fixed and permanent allocations of power that are engraved in the structures and
constitutions of many organisations; and, the tendency to vest initiative exclu-
sively in the hands of those in senior positions in the hierarchy look set to
undergo fundamental changes. Page 3 Friday, April 27, 2001 2:52 PM
Governance in the 21st Century
© OECD 2001
Harbingers of changes in the first attribute can be found in highly supple
organisations, both public and private, that are capable of regularly redistributing
responsibility according to the nature of the task rather than on the basis of a rigid
authority structure. That spontaneous determination of the most appropriate level
for wielding power and taking responsibility goes hand in hand with the weaken-
ing of the second attribute of most prevailing governance systems, a decline in
hierarchical or top-down methods for determining goals and means.
Gradually, at the leading edge of many economies and societies particularly
in areas where the production of intangibles and personal customisation are
becoming dominant initiative is shifting to the people who have detailed knowl-
edge of what is desired and what is possible. Traditional leaders in either the
workplace or the public sphere can no longer specify in advance exact outcomes
or methods. Instead, in the context of shared missions and common rules, the
objectives and techniques are being left to the unforeseeable innovations and
creativity of the individuals and groups that have a deeper understanding of the
specific needs and resources.
Organisational and creative liberty, however, has very exacting preconditions.
In the future, more diffused approaches to governance in all parts of society will
only work if there are frameworks in place that assure very high levels of transpar-
ency, accountability and integrity. At the same time, for public authorities and
society more broadly, the ability to put new forms of governance into the service
of realising peoples collective good will depend on a common commitment to
democratic values, human rights and equality of opportunity. Even with these
frameworks and values in place, the emergence of new forms of governance will
still depend fundamentally on the capacity of individuals and groups to partici-
pate actively in making and implementing decisions.
Meeting these challenges of individual and group capabilities will, at least
from the perspective of government policy, probably entail a two-pronged thrust.
One is to implement policies that foster, in ways laid out by the previous books in
this series, technological, economic and social dynamism. The second approach,
discussed in this volume, concerns policies that target improvements in three
areas: the full range of learning infrastructures, the frameworks that are crucial for
establishing confidence, and the standards (mission/values) that provide the com-
mon basis within which a society functions. By improving the capacity to make and
implement decisions throughout society, these policies are likely to provide one
of the main stepping stones to the realisation of peoples individual and collective
aspirations in the 21
This publication brings together the papers presented at the meeting as well
as an introductory contribution prepared by the Secretariat. The book is pub-
lished on the responsibility of the Secretary-General of the OECD. Page 4 Friday, April 27, 2001 2:52 PM
© OECD 2001
Table of Contents
Chapter 1.
Governance in the 21st Century:
Power in the Global Knowledge Economy and Society
Wolfgang Michalski, Riel Miller
Barrie Stevens..................................... 7
Chapter 2.
Wealth, Values, Institutions: Trends in Government
and Governance
Daniel Tarschys ....................................................................................... 27
Chapter 3.
Long-term Trends in Global Governance:
From “Westphalia” to “Seattle”
Kimon Valaskakis ..................................................................................... 45
Chapter 4.
Governing by Technique: Judgement and the Prospects
for Governance of and with Technology
Perri 6 ..................................................................................................... 67
Chapter 5.
A Quiet Revolution of Democratic Governance:
Towards Democratic Experimentalism
Charles F. Sabel ..................................................................................... 121
Chapter 6.
Society as Social Diversity: The Challenge for Governance
in the Global Age
Martin Albrow ........................................................................................ 149
Chapter 7.
The New Governance, Subsidiarity,
and the Strategic State
Gilles Paquet.......................................................................................... 183
Annex 1.
List of Participants................................................................................... 215
© OECD 2001
Chapter 1
Governance in the 21st Century:
Power in the Global Knowledge Economy and Society
Wolfgang Michalski, Riel Miller and Barrie Stevens
OECD Secretariat, Advisory Unit to the Secretary-General
Gradually throughout human history, the power to steer society has diffused
away from the chieftain or king towards a broader base of elected representatives,
managers, bureaucrats and interest group leaders. Movement along this long-run
trend has been far from linear or painless, and no one decision-making model has
prevailed. Over time, however, economic growth has combined with changing val-
ues and institutions to reshape the nature, scope and means of exercising authority
throughout society – in government, firms, associations and families.
Recently, there has also been a growing recognition that the ability or power of
collective institutions to chart a particular course depends to an increasing degree
on the active involvement of the governed. Looking to the future, there are signs
that the governed of yesterday could become the governors of tomorrow. This does
not mean that every citizen or worker would become a politician or manager. In-
stead, tomorrow’s dynamic societies, less governable by the old methods of com-
mand and obedience, may set and achieve both individual and broad social goals
by enhancing decision-making capacities generally.
Such a change would mean a radical break with past as well as with most pre-
vailing governance models. Traditionally, decisions have been made and imple-
mented using centralised, top-down and predetermined structures operating in
rigidly defined fields of action – whether in a family, a firm or a nation. Despite to-
day’s general tendency to assign formal power to citizens and shareholders, in prac-
tice the choice of goals and of the means for reaching them remain largely
delegated, centralised and hierarchical. As will become clear over the following
pages, it is plausible and even desirable to consider the longer-term prospects for
a major transition in the institutions, rules and culture that shape practical govern-
ance in all parts of society.
Governance in the 21st Century
© OECD 2001
Prospects for such large-scale transformation of the ways in which freedom and
responsibility are distributed will depend on a broad, interlocking set of changes
in underlying technological, economic and social conditions. The characteristics,
plausibility, desirability and policy requirements for these changes were explored
in the previous books in this series. All three also envisioned a future that breaks
with the patterns and methods of yesterday and today.
21st Century Technologies: Promises and Perils of a Dynamic Future
established a
strong case for the view that tomorrow’s technological advances could have as
wide-ranging an impact as past inventions such as printing, the steam engine
and electricity.
The Future of the Global Economy: Towards a Long-Boom?
underscored the possibility
of a sustained period of above-average rates of growth and wealth creation due
to the exceptional confluence of three sets of powerful changes – the shift to a
knowledge economy, much deeper global integration, and a transformation in
humanity’s relationship to the environment.
The Creative Society of the 21st Century
concluded that trends towards much great-
er social diversity, both within and between countries, may be sustained well
into the future.
The prospect of discontinuity across so many dimensions is not unprecedent-
ed. There have been similar periods in human history, such as the transition from
agricultural to industrial society. However, what distinguishes these shifts from pre-
vious ones is that they will largely depend on the emergence of a mutually reinforc-
ing relationship between, on the one hand, a significant diffusion throughout
society of governance capacities and, on the other, higher degrees of technological,
economic and social dynamism. These two sets of developments could give rise to
a powerful virtuous circle.
At the root of this symbiosis is the expectation that desirable changes will be
both a consequence and a cause of the diffusion of power and responsibility. Con-
sequence, because unlocking the positive potential of tomorrow’s technological
breakthroughs, deeper economic interdependence and greater social diversity
seems unlikely to occur without a much broader dispersion of initiative and ac-
countability. Cause, because the technological, economic and social changes that
seem best suited to fulfilling society’s aspirations also seem likely to provide many
of the tools and experiences needed to enhance governance capacities and there-
by make the reallocation of power more practical.
The nature of the possible changes in governance, the forces that might drive
such changes, and the policies likely to facilitate movements in a positive rather
© OECD 2001
Governance in the 21st Century: Power in the Global Knowledge Economy and Society
than negative direction are the topics of this book. This introductory chapter offers
an overview of each, in summary form.
Long-run governance trends: The end of authority?
Looking at governance as the general exercise of authority, it seems that over
the long run there has been a clear reduction in the absolute or unconstrained pow-
er of those in positions of power. This has been a marked trend both at the macro-
political level, where the state attempts to effect society-wide governance, and at
the micro level, where firms and families have experienced important changes in
the exercise of authority.
At the macro level, determination of the objectives, laws and methods meant to
direct the collective future of society has, in most parts of the world, moved away from
absolutism, authoritarianism and even the autarkic conception of the modern nation
state. The decay of traditional notions of sovereign authority has now reached the
point where in many circumstances universal principles, such as those of human
rights and environmental sustainability, are becoming both more legitimate and
more effective than rules imposed by appealing to national prerogatives. Similarly,
the trend at the micro level of firms and families has been away from the uncon-
strained authority of the owner and father over employees and family members.
In broad strokes, four sets of historical developments have influenced these
profound shifts in authority relationships. First is the direct impact of struggles to
introduce greater democracy and competitive markets. The second set concerns
the ways in which changes in economic productivity and material wealth alter both
the aims and methods of governance in the household, enterprise or government.
A closely related third category of forces involves the rules and belief systems that
serve as the implicit and/or explicit guides to decision making and implementation
in all parts of a society. And the fourth category of general factors that alter govern-
ance systems relates to innovations and/or transformations in institutional design,
organisational structure and administrative operation.
Looking to recent history, the 20th century has seen significant movement in all
four of these overarching categories.
First of all, democratic approaches to collective governance have either direct-
ly overthrown absolutist and authoritarian regimes, or through superior economic
and social performance have convinced by example. Power has also been pried
away from vested interests by the advance of competitive approaches to wealth
creation. Open trade and competitive markets, when serious efforts are made to
combat the tendency towards the accumulation of monopoly power, have been
very subversive with regard to existing authority structures. Combined, democracy
and competition have had a further corrosive impact on the character of governance
Governance in the 21st Century
© OECD 2001
systems by significantly increasing economic, social, and cultural interdependence.
Here it is the micro-level interactions of firms and individuals that have operation-
alised and consolidated the links opened up by trade agreements, low-cost trans-
portation, migration and new means of communication. Far-flung commerce, social
mobility and global television not to mention the swelling role of the internet
have been breaking down barriers and revealing powerful common interests that
often pay little attention to the rules and prohibitions of conventional authorities.
Secondly, spectacular economic growth has allowed major segments of human-
ity to shift their focus from the minimum requirements for survival in terms of food,
clothing and shelter to the pursuit of goals that take physical subsistence for grant-
ed. Along with major increases in wealth, the previous century also witnessed sig-
nificant increases in the average lifespan, historically unprecedented levels of
society-wide investment in education, and rates of productivity growth that provid-
ed sufficient resources to fund sizeable public sector infrastructure and administra-
tion without seriously undermining other areas of capital accumulation. Looking
first at the OECD countries, there is good evidence that the average person has
gradually become more concerned with quality of life issues, ranging from work sat-
isfaction and educational opportunities to home internet access and environmental
conditions. Other parts of the world have not been as successful in leaving behind
the preoccupation with basic subsistence. Nevertheless, the demonstration effect
of improvements in living conditions in OECD countries has been very influential.
At the beginning of the 21st century it seems fair to observe that almost all
countries and regions are striving to emulate the conditions for prosperity – includ-
ing the aims and methods of governance – that are largely taken for granted in most
OECD countries. Such convergence is perhaps best symbolised by the adoption,
starting in the middle of the 20th century, of the Universal Declaration of Human
Rights. This event can be seen as a landmark on a long voyage, still far from com-
plete, towards the universal and full implementation of governance practices that
both limit the arbitrary exercise of power and, in a variety of ways, render decision
making throughout society open to questioning. Overall, individual and social aspi-
rations key drivers of the governance agenda changed markedly during the
20th century, and not only for people and institutions in the wealthier parts of the
world. Globally, there has been a steady if uneven transition away from passive ac-
ceptance of divine rights to active pursuit of human rights, and away from unques-
tioning obedience of patriarchal authority to a more egalitarian recognition of
individual liberty. Such shifts in values have played an important role in altering
the ends and means of governance.
Thirdly, over the course of the 20th century, similarly influential changes have
occurred in the structure and organisational functioning of households, businesses
and the public sector. For example, in many countries women entered the labour
© OECD 2001
Governance in the 21st Century: Power in the Global Knowledge Economy and Society
force, generating important changes in how household production was organised.
Managerial paradigms in many enterprises were overthrown, initially by impressive
efforts to perfect Taylorism and then, towards the end of the century, to find new,
less hierarchical approaches that better fit the production of intangibles. Govern-
ment too has seen, at least in OECD countries, the generalisation throughout much
of the century of advanced administrative models as well as continuous efforts at
reform including the most recent initiatives to “reinvent” government. All told, the
changes in the techniques used to manage daily activities, from household chores
to welfare payments, have also contributed to the transformation of governance in
the 20th century. Although the application of these organisational changes has
hardly been uniform, here again demonstration effects or the diffusion of tech-
niques through organisational learning have played an important role.
Finally, in discussing the general, long-run forces influencing governance, it is
important to note that all of these trends have also been transforming decision mak-
ing at an international level. The scope and methods for exercising power in three
types of transborder institution have gone through significant changes during the
20th century. The first set covers organisations where national governments meet to
work together, like the United Nations, the OECD or the WTO. The second group in-
volves private sector corporations that function and make choices that go beyond
the confines of national boundaries. And the third category encompasses global-
level civil society institutions such as the International Confederation of Free Trade
Unions (ICFTU), Greenpeace, and – of more recent vintage – the Internet Corpora-
tion for Assigned Names and Numbers (ICANN). All three of these different types of
extranational, governmental and non-governmental institutions have evolved along
with the 20th century’s upsurge in economic growth, more democratic values and in-
novative management techniques. Although once again the stories are not linear or
uniform, there can be little doubt that most international institutions have made im-
pressive advances in both the range and quality of decision making.
Taken as a whole, the findings in this book and the conference discussions sup-
port the view that passivity, either enforced by powerful authorities or chosen by
engrained habit, is in long-run decline. This does not mean that it is impossible to
imagine events that could lead to a situation where a few hierarchically organised
powers make and implement the decisions that actually shape future society-wide
outcomes. Still, there appears to be a consensus that the long-run trend is towards
a broader, much less hierarchical distribution of the capacity for effective action.
Changes in this general direction are seen as having a good chance of prevailing in
the longer term as long as there is a continued extension and deepening of democ-
racy, fully competitive open markets, and the rule of law.
If this trend continues, then many parts of the world can be expected to experi-
ence, albeit from very different starting points, fairly radical breaks with the institutions
Governance in the 21st Century
© OECD 2001
and behavioural patterns which underpin the governance traditions that currently dom-
inate most aspects of daily life. Whether in the family, firm or public sphere, the legiti-
macy, reach and exercise of authority seem unlikely to stay the same. Of course there
have been and continue to be strong counter-tendencies that attempt to conserve
time-honoured power relations. At the macro level, for instance, there are still many
who believe that the nation state has the right to conduct its internal affairs without any
regard for universal or global considerations. At the micro level, there is a backlash fa-
miliar from around the world of those hoping to defend male privileges, deny children’s
rights, or retain the Taylorist division of conception and execution typical of the indus-
trial era enterprise management.
Such counter-tendencies gain support from at least two types of major conflict.
The first and most obvious is that both those who lose and those who gain from
change have difficulty particularly in a period of significant economic and social
transition working out the nature and mechanisms of compensation. As a result,
those who lose from change usually make every effort to preserve the governance
and authority structures of the past, while those who gain consider that the institu-
tions and compensation arrangements of the past should no longer apply. Second-
ly, transition periods often give rise to deep-seated differences in the perception
of risk or, more prosaically, the extent of people’s feelings of insecurity. Typically,
those who are not actively creating the new rules and power structures tend to per-
ceive major changes as driven by the uncontrollable workings of exogenous and
dangerous forces. In public and private spheres fear becomes a major obstacle to
change and to the emergence of the genuinely innovative forms of governance that
are appropriate to new circumstances.
Indeed, the outset of the 21st century looks to be fraught with many of these
transition-induced conflicts and fears. Confidence is ebbing in the established
forms of governance that are unable to claim either the effectiveness or the legiti-
macy required to advance society towards its goals. At first glance, it looks like the
inadequacies of existing forms of governance will just compound the already major
challenges likely to be posed by the technological, economic and social changes
that might occur over the coming decades. Indeed, this risk does seem significant
and the potential for damage serious. One path that could possibly avoid this dan-
ger, as this conference series has revealed, would involve the introduction of poli-
cies that encourage the virtuous circle between improvements in governance
capacity and positive technological, economic and social change.
21st century technological, economic and social dynamism:
Prospects for governance
Technological, economic and social forces seem poised to thrust both greater
freedom and greater responsibility on people’s shoulders. Two main reasons are
© OECD 2001
Governance in the 21st Century: Power in the Global Knowledge Economy and Society
advanced for expecting a diffusion of decision-making prerogatives and duties.
First, if realised, tomorrow’s technological, economic and social dynamism will
probably share the dual characteristic of enhancing the scope of feasible action and
breaking down many of yesterday’s constraining institutions and rules. Second, tak-
ing full advantage of future innovative tools, new ways of organising economic
activity, and highly heterogeneous social orders is likely to call for a redistribution
of power within and across governments, companies, communities and families.
This diffusion of decision-making responsibilities is likely to be both a cause and a
consequence of more dynamic, productive and sustainable societies in the future.
Indeed, as already mentioned, there is potentially a virtuous relationship between
changes in governance and greater dynamism one that finds sustenance in the ca-
pacity to be creative.
The brief analysis, over the following pages, of the prospect that such changes
will occur in the early decades of the 21st century can be divided according to the
three principal topics for analysis covered so far in this conference series: techno-
logical possibilities, the advance of the global knowledge economy, and the move-
ment towards more complex and diverse social orders.
Technological dynamism
As underscored by the first volume in this series,
21st Century Technologies: Prom-
ises and Perils of a Dynamic Future
, people have always depended on knowledge, and
the technologies in which it is so often embedded, for survival. Furthermore, hu-
manity has stood on the threshold of pervasive technological change before. In-
deed, it does not seem likely that the impact of future technologies can surpass that
of previous breakthroughs like writing, printing, or antibiotics. Still, there is no rea-
son to belittle the technological developments that appear feasible within the next
decades. On both scientific and societal grounds, the changes made possible by fu-
ture innovations in info- and bio-tech, at a minimum, look to be on par with prior
technological breakthroughs that have diffused throughout all areas of human activ-
ity, such as the wheel and electricity.
Certainly the technologies now at research stages have the potential not only
to replace or improve on existing products and processes, but also, crucially, to give
rise to a wide range of unanticipated uses, skills and desires. Equally important,
there are four main areas in which the new wave of technological transformation will
probably both depend on and facilitate improvements in decision-making capacity.
First, tomorrow’s technologies are likely to contribute to a broader process of en-
hanced transparency and easier acquisition of information. Advances in information
technology will allow for vastly better filtering, anticipation and interaction, using a
variety of techniques including so-called intelligent agents, global databases and en-
tirely speech-/video-based interfaces. The introduction of these more efficient tools
Governance in the 21st Century
© OECD 2001
for managing information has the potential to generate entirely new options for deci-
sion makers as well as improving the processes for making such choices.
A second field where technological changes are likely both to require and to
help cultivate improved governance capacities involves further intensification of
technology’s integration into daily life. There are three aspects to this trend. One is
the extent to which daily life depends on more numerous and complex layers of
tools and techniques. On this score developments could diverge, as people in
poorer parts of the world shift out of a relatively direct relationship to the land while
in richer regions people seek to eliminate intervening layers of technology that
they perceive as reducing quality of life. The second dimension of technological in-
tensity, which has been on an upward trend for a long time, has to do with the ac-
cumulated or embedded knowledge contained in tools, techniques and products.
Here the pace of scientific advance and technical innovation promises a phase of
almost exponential growth. The third dimension is the personal one, again likely to
be marked by a strong upward trend as technology continues to become more in-
dividualised as well as more integrated into people’s bodies and psyches.
A third terrain where realisation of long-run technological possibilities may
jointly depend on and encourage the evolution of governance capacity has to do
with solving specific problems, such as malaria, tuberculosis, species extinction and
excessive production of CO
. Most experts are fairly certain that with the appropriate
incentives for undertaking research, development and deployment, there is a good
chance that technologies now on the horizon could end up making major contribu-
tions to either overcoming or seriously mitigating these problems. What is less clear
is how to introduce the incentives to generate and diffuse these technologies. In the
past, decisions concerning areas where markets could not be expected to respond
fully fell almost exclusively to governments. In the future, a broader approach that
spreads the incentives throughout society may be more effective in harnessing all
the available knowledge on the demand and supply sides. However, such a path is
only feasible if those empowered to make and implement the decisions – ranging
from individuals and local communities to corporate managers and international
organisations – can develop governance capacities that are adequate for the task.
Lastly, a related fourth area where advances in technology and governance will
probably be co-determining concerns culture, or the perceptions people have of their
place and power in society. Not for the first time, science and its technological fruit
seem poised to call into question some of humanity’s basic cultural reference points
– like the definitions of life, evolution, and our place in the universe. In the future, it
seems probable that the introduction of fully functional nano technologies, artificial
intelligence and genetic engineering will both depend on and provoke the insights
that advance the social capacity to assess and make judgements on difficult ethical
questions. In what almost looks like a fortuitous coincidence, the development and
© OECD 2001
Governance in the 21st Century: Power in the Global Knowledge Economy and Society
diffusion of future technologies could simultaneously impose and facilitate the acqui-
sition by citizens, managers and public officials of the requisite capacities to judge
and govern the ever more pervasive tools humanity invents. Only, if this co-evolution
comes to pass it will be as an integral part of the transition to a global knowledge
economy and society, where technology-enabled interdependencies combine with a
significant diffusion of governance authority and responsibility.
Overall then, technological dynamism seems likely to provoke new forms of gov-
ernance because it entails a fundamental shift in the capacity to make and implement
the choices that shape future technological developments. Perhaps the most obvious
example of this co-dependence is in the field of biotechnology. This is not because
there is something unique about the ethical and technical dilemmas posed by genet-
ic engineering, or because in the future there will suddenly be much less apathy than
in the past. Previous technological advances, like those in nuclear science in the
20th century, also called into question the future of the species and elicited consid-
erable political activism by concerned citizens. What makes developments in bio-
technology different from breakthroughs in the past is that the vast range of radical
applications made possible by genetic engineering are only likely to emerge in a con-
text where many more people have and want the authority, knowledge and tools
needed to take an active part in deciding how this technology develops and is used.
In other areas such as personal nutrition, health and the surrounding environ-
ment there are also clear signs that people want to gain greater direct and informed
control. Similarly, when it comes to the threats posed to privacy and copyright by
information technology, there is an evident co-dependency between advances in
technology and governance capacities. This is why the challenge for policy makers
in the longer term will be to foster the rules, institutions and behavioural patterns
that take into account the mutual contingency between technological dynamism
and governance – with the aim of sparking a virtuous circle between the two.
Economic dynamism
Over the coming decades, as emphasised in the second book in this series
The Future of the Global Economy: Towards a Long-Boom?
there is a chance that eco-
nomic changes will bring a continuation of the long-run trend towards the extension
and deepening of market relationships in a world where transaction costs of all
kinds are falling. In this more competitive and highly interdependent context, the
rules and behaviour that shape the making and implementation of decisions could
also undergo major changes.
Like the waves of technological breakthroughs discussed above, this is not a
new phenomenon. Market-driven economic transformation has been a potent force
in the past, regularly outpacing the regulations and habits that entrench authority.
Leading sectors and firms, managerial strata and techniques, dominant production
Governance in the 21st Century
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methods and skill patterns have all been shaken up on a regular basis. What may
distinguish the coming period of economic dynamism from previous transitions is,
in a manner similar to the preceding discussion of technology, the coincidence of
future economic changes with new forms of distributed and flexible governance.
In particular, economic dynamism in the early part of the 21st century may pro-
pel two general trends with special implications for governance. The first relates to
a shift in the predominant source of value-added in the economy as a whole, away
from mass production for an impersonal market to a production process where the
consumer plays a direct and personal role. The second general trend involves the
long-run deepening of economic interdependence, only this time potentially under
conditions of much greater transparency and on a global basis.
Turning to the first trend, what distinguishes the knowledge economy from pre-
ceding periods is the centrality of creativity (in the sense of personal expression,
not unprecedented artistic uniqueness) as the source of value-added. An economy
dominated by one-off personalised products and services will require new ways for
both producers and consumers to add knowledge to the final output. This is in con-
trast to the passivity expected of most people when daily life is dominated by mass
production and mass consumption. In the future, attaining the decentralisation of
learning, initiative, innovation and design, necessitated by unique production and
consumption, is likely both to demand and help enable a fairly radical reworking of
the decision-making range and capacity of almost all members of society.
In turn, this leap in importance of initiative and interdependency is likely to
demand a significant shift from values such as obedience, conformity and exclusiv-
ity – as sustained by various strains of state-centric nationalism, Taylorism, and pa-
ternalism – to more tolerant, self-directed and egalitarian perspectives. Indications
that these decision-making values and methods are changing can be seen in the
declining status and effectiveness of certain institutions, laws and ways of organis-
ing people. There is a chance that in most OECD countries the 21st century will wit-
ness the passing of 19th and 20th centuries’ institutional and organisational
innovations, such as the standardised employee-employer contract and produc-
tion process that follow Taylorist principles, government bureaucracies for admin-
istrating centralised welfare state programmes, and nuclear families centred on one
male income-earner. Although the exact contours of future values and institutions
remain to be determined, there is a good chance that the distribution and exercise
of authority will shift partly through decentralisation towards individuals and
smaller collectivities, and partly through the development of means for articulating
truly planet-wide goals and tasks.
This latter issue is the second area of co-dependency between economic dy-
namism and governance. Technological advances that shrink distance and the in-
terdependencies that arise from much wider and deeper global economic
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Governance in the 21st Century: Power in the Global Knowledge Economy and Society
integration will tend to confront decision makers with new possibilities and
responsibilities. Already there is a growing awareness on the part of governments,
firms, associations and individuals that in the 21st century global power will no
longer be the exclusive domain of imperial nations or the largest multinational cor-
porations or the dominant religious orders. As a result, the requirements for sus-
taining the legitimacy – both for internal constituencies and for external “clients” –
of decisions taken at the international level are changing.
Decision makers are being pushed to reconsider traditional aims and methods
of governance. The people in positions of authority in many existing international
organisations, be they ministers in national governments or directors of the board
or activists that make up an NGO, are in the midst of redefining the power they
wield. Not necessarily because a sovereign state lacks military capabilities or a
board director the formal legal right to vote independently, but because the nature
of global action is changing. These changes, like the emergence of new planetary
issues and new constituencies that lie outside the mandates and/or competencies
of existing international organisations, could be significant enough to call into ques-
tion the ways in which authority is exercised at a global level.
Should these two general trends dominate future economic change, there is a
chance that the hierarchical forms of governance that have predominated in many
areas of human activity will be turned upside down. Typically, within the firm and
in markets, authority has been organised according to the familiar pyramid struc-
ture even if there has been intermittent shuffling of the pecking order. Firms in
general have been subject to a steady strengthening of hierarchy as those in posi-
tions of authority usually followed a Taylorist logic that attempts to control every
step of the production process. Markets that have in practice been relatively closed
due to various “imperfections” or barriers (tariff, transport, information, scale) have
also been characterised by the hierarchical structures associated with different de-
grees of oligopoly.
In the future, the generalisation of personalised creation and deeper interde-
pendence could overthrow hierarchical forms of organisation, both within the firm
and in the market-place, by transforming three relationships that have largely de-
fined governance structures in the market economy.
First, the further deepening of interdependence is likely to be accomplished
in part through major reductions in the cost of high-quality information (greater
transparency). As a result, it may become possible to reduce significantly the cost
advantages of co-ordinating production within the conventional firm. This could
create a situation where dis-integration is feasible. In turn, this would allow rela-
tionships that were once subject to the authority of a rigid command structure to be
openly negotiated (in the market-place or through new types of task-specific organ-
isations with variable authority structures).
Governance in the 21st Century
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Making this leap will not be easy, partly because moving towards a dis-integra-
tion of the hierarchical division of labour within the enterprise will depend on fun-
damental change to a second basic relationship – the separation of conception and
execution. Without going into full detail, this is a corollary of the shift to the person-
alisation of production and consumption. The implication is that future competitive
success will demand products – tangible and intangible – that capture much more
completely two knowledge sets, those of the supplier and of the consumer. Without
the capacity to fully utilise the available knowledge, customisation and on-the-spot
innovation become much more difficult.
However, fulfilling this imperative almost certainly calls into question the basic
premise of Taylorism, which is to extract and codify
in advance
the exact attributes of
both the production process and the final product. In the context of personalised
output, control and responsibility shift, altering the basic power relations that have
underpinned the organisation of much of economic life. Both the individual con-
sumer and producer take on new roles that are close to the opposite of what pre-
vailed in the world of mass production and mass consumption. Passivity is no
longer the watchword.
Moving to this type of activist, personal economy will also entail changes to a
third basic economic relationship supply networks will need to take on much
more reconfigurable and competitively open patterns. Parallel with the dis-integra-
tion of the firm and the advent of personalised production and consumption, a cre-
ative economy will depend on a vast and flexible network of supply-side
responses. If market-places remain relatively closed off, dominated by oligopolistic
hierarchies, then the incentives that would make spontaneous personalisation fea-
sible are unlikely to emerge. Most firms will have little reason to relinquish control
or break with traditional patterns of managerial authority when there are few com-
petitors. Most consumers will not even bother to cultivate the creativity that per-
sonalisation requires if the chances of finding the spontaneous, once-off suppliers
are low or the search too costly.
Major advances in institutional and behavioural frameworks will be necessary
to usher in a world without bosses or monopolies, with seamless supply networks
and creative personalisation as the source of most wealth creation. In such a world,
where predetermined allocations of authority or initiative are significantly reduced,
the challenge for policy makers will be to introduce sufficient levels of transparen-
cy, confidence and competition. Then people’s experience of inventing rather than
following, of being active rather than passive, can be expected to significantly en-
hance the desire and capacity to govern. Continuously gathering the knowledge
that comes from wielding power and taking responsibility might be just the ingre-
dients that fuel the virtuous circle between economic dynamism and new forms of
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Governance in the 21st Century: Power in the Global Knowledge Economy and Society
Social dynamism
In coming years, as detailed in the third publication in this series,
The Creative
Society of the 21st Century
, most people will probably experience significant changes
in their sense of identity or in the identity expressed by many of the people directly
around them. Around the globe, from a wide range of departure points, there are
likely to be major alterations in two of the key determinants of self-identity: social
status (income, age, profession, etc.) and authority structures (nation, family, reli-
gion, etc.). Such transformations in identity are, in turn, closely tied up with the
ways in which people make and implement decisions. New identities, for instance
ones that are less obedient, less passive and assume greater responsibility or the
opposite – have profound implications for governance.
Once again, this kind of social dynamism is not a new phenomenon. Changes
in the nexus of status, authority and identity have been associated with some of the
most painful and hopeful episodes of human history. However, this time around
there is a chance that future social dynamism may be distinguished from such pe-
riods in the past by the extent to which the construction of identity will be left up
to the individual. This would be a significant departure from earlier ways of forming
identity that have leaned very heavily on a relatively limited number of overbear-
ing and inflexible sources.
Four possible society-wide trends that look set to propel future social dyna-
mism might also push this radical change in the methods used to build identity:
growing demographic diversity, transitions in the dominant socio-economic sys-
tems, widespread institutional decline and renewal, and major strides in develop-
ing individual capacities. Each of these four trends has the potential to act as both
a solvent on the old frameworks and a catalyst for new, potentially less hierarchical
ways of forging socially functional identities.
First, the tendency towards greater demographic diversity reflects a variety of fac-
tors, from changing age structures to immigration. Not for the first time, both within and
across different parts of the world, demographic shifts are breaking down old constit-
uencies and opening up the possibility of creating new ones. What is perhaps unique
this time is that the churning of demographic attributes is occurring in a world where
there is less insistence or efficacy in the efforts of established authorities to impose
identity on people. Should such openness prevail, there is probably a better chance
that those who are willing and able to forge their identities outside the traditional hi-
erarchies of social status and authority will succeed. This should serve as a spring-
board for further diversity and give pride of place to open, non-hierarchical forms of
governance that can not only accommodate but encourage social differentiation.
Secondly, socio-economic transitions also tend to shake up existing hierar-
chies. For instance, the wrenching process of industrialisation that is bringing mass
Governance in the 21st Century
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production, mass consumption and mass government to many poorer parts of the
world regularly runs roughshod over traditional hierarchies. The three other soci-
etal transitions already under way, from command planning to rule-based markets,
from post-industrial to knowledge-intensive, and from global trade to global inte-
gration, are all equally callous when it comes to uprooting the formerly entrenched
categories of social status and sources of authority. Overall, there are grounds for
expecting that if democracy and the rules meant to ensure competitive conditions
prevail, then the trend will be towards less authoritarian, less hierarchical out-
comes. However, much will turn on what happens to the capacities of institutions
and individuals.
Thirdly, on the institutional side there are signs of a possible trend break. For
a long time diversity, originating in the scattered nature of human settlement and
ingrained inequality of opportunity, has been subject to the homogenising influ-
ences of efforts to establish national monoculture, corporate conformity and uni-
form social services. The pursuit of these objectives will only diminish gradually as
the 20th century preoccupation with socio-cultural uniformity gives way to a recog-
nition and encouragement of individual uniqueness and heterogeneity.
The problem is that most of the old institutions are ill-suited for new forms of
governance. A lack of legitimacy and effectiveness plagues many organisations at-
tempting to adapt to emerging circumstances. For instance, national governments
and international intergovernmental organisations are finding it difficult to gain cred-
ibility and achieve stated goals in the global arena. Similarly, enterprises and non-
governmental organisations cannot garner the necessary legitimacy or power to fill
global or local stages while lacking transparent democratic accountability. In effect,
the pressures of technological, economic and social dynamism call into question the
capacity of existing institutions without providing clear avenues for the emergence of
new ones. Here the source of innovation is likely to be found in the next trend.
The fourth trend, that both propels social dynamism and plays a major role in
changing the relationship between identity and authority, concerns improvements
in the capacity of individuals to engage or participate in new ways of making and im-
plementing decisions. Once again, this is a continuation of a long-run process that
has provided a growing number of people with the capacity to resist and eventually
to break free from arbitrarily imposed rules and patterns. Over time, greater knowl-
edge has been wielded to gain independence, despite the regular and dire warn-
ings of those who argue that grasping such freedom will bring insecurity and chaos.
For governance the prospect of such significant societal transformation brings
both risks and opportunities. On the one hand, the coexistence of extreme variations
in degrees of power and the capacity to wield it can considerably complicate certain
decisions and at the same time threaten to provoke destructive social conflict. On
the other hand, the diversification of the aims and methods of governance that
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Governance in the 21st Century: Power in the Global Knowledge Economy and Society
emerge from a more heterogeneous society can help create a climate that is hospi-
table to difference and encourages the development of innovative choices. Overall,
the movement towards greater social heterogeneity is likely to be, once again, both
a cause and consequence of changes in the capacity of people to govern themselves
and the society around them. Indeed, greater diversity in society and the diffusion
of decision making probably go hand in hand not in a linear fashion but in ways that
correspond roughly with the type of societal transitions that are under way.
In this sense, each of the four trends that seem likely to propel social diversity
over the next decades are also likely to pose different types of opportunities and
risks for governance. For instance, in the case of the shift from a mass-based to
knowledge-based economy and society there seem to be few precedents for such
a broad diffusion of decision making. Efforts will be needed to guard against the
centrifugal forces that threaten, as some commentators fear, a destructive fragmen-
tation and dissolution of the social order. Policies will be needed to buttress not
only access to the physical networks made up of fibre optic cable and computer
software, but also the social networks that are based on mutual understanding. In
these cutting-edge communities the magnitude of the challenge of ensuring the in-
tegrity, trustworthiness and interoperability of diverse networks will probably be
compounded by a continued decoupling of the 19th and 20th centuries’ fusion of
nation, as an identity, and state, as an administrative unit.
For other countries and regions, only beginning to make the transition from a
command or rural economy with usually isolationist, non-elected regimes to rule-
based market democracies, the governance aims, if not the means, are more
familiar. However, as the transition difficulties experienced by a broad range of
countries demonstrate, the transformation of society-wide decision-making sys-
tems is easier said than done. Restoring and creating the required social capital
means addressing the needs for new discourses, new assumptions and new net-
works for individuals, families, firms and governmental bodies. With such wide var-
iation in the points of departure and the specific aspirations that guide choices, it
seems unlikely that any one model will fit all the circumstances. Instead it is possi-
ble that the 21st century will leave behind the restrictive, homogenising tendencies
of the “modern” nation state.
There is some hope that the imperatives of militarism and nationalism may be
sufficiently attenuated to allow diversity to serve as a source for the experimenta-
tion and innovation upon which prosperity is likely to be built. However, given the
scale and scope of the societal transitions likely to mark the outset of the
21st century, it is important not to neglect the heightened risks of conflict due to the
possible polarisation that frequently accompanies the passing of old social orders
and the emergence of new ones. Policy choices will be the determining factor in
minimising this friction and encouraging the potential synergies. The challenge will
Governance in the 21st Century
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be to combine the flexibility that innovation and creativity demand with new ways
of providing people with a sense of security. Here again, the co-dependency of
knowledge and the power to use it as a decision maker could be the antidote to in-
security and one of the main sources for tomorrow’s creativity.
From this perspective, appeals to the simplicity or efficiency of less complex
and slower ways of living ignore the fact that today’s multifaceted and fast-paced
world is but the fruit of human desires pursued with the greater capacities offered
by more knowledge and better tools. Indeed, it is at this level, where individuals
make the countless decisions that reproduce daily life, that the innate human de-
sire to gain control over events could combine with a steadily improving capacity
to do so. New forms of governance, including the renewal of the rituals and institu-
tions that foster a sense of security, could be the outcome. Overall then, the chal-
lenge for policy makers is to target initiatives likely to encourage the development
of both individual capacities and the virtuous circle between new forms of govern-
ance and technological, economic and social change.
Learning how to govern and governing to enhance learning
Recently, considerable interest has been expressed in the topic of govern-
ance. Most often the focus is on the role and methods of governments. Understand-
ably, parallels are drawn between the changes taking place in the private sector,
such as the advent of e-business models facilitated by the internet, and what might
be done to improve the delivery of government services – including electoral pol-
itics. “Reinventing government” or how to set up and realise the potential of e-gov-
ernment is certainly an important issue. However, this book addresses a broader
question: how might societies in the future become more effective in arriving at de-
sirable collective outcomes.
The answer, echoed in the results from the previous conferences in this series,
is that creating a desirable future will depend on provoking a virtuous circle be-
tween new forms of governance and technological, economic and social dynamism.
Historically, it would not be the first time changes in governance were intimately
tied with fairly sweeping societal transformation. What does distinguish the current
conjuncture is the nature of changes in governance that will be needed.
As the preceding analysis underscores, establishing the complementarity be-
tween future dynamism and new forms of governance entails two major, interde-
pendent shifts in how decisions are made and implemented throughout society.
The first, more macro-level dimension involves replacing predetermined and rigid
organisational schema with much more spontaneous, fluid and task-based ap-
proaches. The second, more micro-level dimension concerns the need to overcome
the hierarchical relationships, habits and traditions that have been so ingrained in
how people behave and think.
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Governance in the 21st Century: Power in the Global Knowledge Economy and Society
Both of these changes will call for major advances in the practical skills and rules
used in daily life by organisations and individuals, whether operating alone or in con-
cert, locally or globally, in a government, workplace or household context. Thus, the
common challenge for policy makers, in public and private sectors, is to ensure that
people will have the capacity to exercise their liberty and to manage the constraints
that come with the adoption of a common set of basic principles or values. Further-
more, policies will need to address the interdependency of the micro and macro di-
mensions of this challenge that arise, because the requisite skills and institutional
frameworks are the outcome of efforts at both the collective and individual levels.
Despite the extremely wide disparities between different parts of the world,
two basic and overlapping policy thrusts are likely to be crucial for improving gov-
ernance capacities in the 21st century. The first approach is relatively indirect since
it depends on encouraging technological, economic and social dynamism. The sec-
ond, more direct approach involves efforts to upgrade the primary ingredients the
skills, infrastructure, frameworks, values and goals – that determine individual and
institutional capacity to make and implement the decisions that govern the future.
The first set of policies has been laid out in some detail in the previous confer-
ences in this series, including the different areas where policy continuity, major re-
forms and new directions need to be considered. Nowhere will new forms of
governance evolve without the positive contributions made by new technologies, the
greater specialisation and wealth arising from deeper and more extensive economic
interdependency, and the creativity inspired by further social differentiation. This
means that advances in governance will depend considerably on the success of pol-
icies meant to encourage the ongoing transitions that are leaving behind traditional
agriculture and command planning for either mass-based or creative knowledge-driv-
en societies. These changes are crucial sources of necessary tools and experiences.
Which still leaves a second set of policies to consider since the pursuit of tech-
nological, economic and social dynamism does run the risk of disintegrating into
chaos and conflict if governance capacities are not also addressed directly. Allowing
the improvements in learning, confidence and common mission that effective gov-
ernance requires to simply be the unconscious by-products of societal transition is
probably inadequate to the task. Three general areas can be identified where policy
makers, for the purposes of this chapter primarily in government, could contribute
directly to the evolution of governance capacities – and thereby also assist with in-
creasing the rates of sustainable technological, economic and social dynamism.
Learning infrastructure
The first framework that plays a central role in creating and enhancing society-
wide decision-making and implementation capacities involves the basic infrastruc-
ture that makes learning possible: universal access to initial education; adequate
Governance in the 21st Century
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sanitation, health care and nutrition; mechanisms for insuring individuals against
certain uncontrollable risks and the vagaries that can accompany ageing; and polit-
ical stability. There is no underestimating the importance of these foundations.
Without the underpinnings of literacy, physical health and a minimum sense of se-
curity, learning is seriously impeded. Without learning there can be little expecta-
tion of improvements in the quality of decision making at home, on the job or in the
community at large.
Recognising the universal importance of this basic infrastructure does not
mean uniform policy responses are in order. On the contrary, the vast differences
in the starting points of nations and social groups when it comes to the quality and
accessibility of this infrastructure demand highly differentiated approaches. For in-
stance, in many parts of the world, as emphasised previously in this conference se-
ries, efforts to combat poverty need to be given the highest priority. In wealthier
countries the stress needs to be on policies that, for example, transform education
so it is no longer a process that schools young people to be obedient and respon-
sive to given problems. Instead, it should develop the sense of autonomy and self-
worth that underpins initiative and imagination.
Factory-era school systems, along with status-screening mechanisms like the
high school diploma, are probably inimical to the development of the learning meth-
ods and incentives upon which a knowledge-intensive economy and society can
thrive. Similarly, the various services that are essential for assuring good health and
a sense of social security can be provided through a variety of mechanisms – includ-
ing hybrid public-private systems. Encouraging sufficiently high levels of learning
and security depends on finding the right balance between incentives and disincen-
tives in the context of a particular society’s unique culture, history and institutions.
The second policy-relevant framework that supports and guides the govern-
ance capacities of a society has to do with the nexus of confidence, legitimacy and
trust. Quality decision making and the learning that it requires are expensive and
inefficient in a world fraught with distrust. If people cannot easily access and verify
information, then learning is much more costly. If decisions are made behind closed
doors it is difficult to establish accountability. Barriers to gathering quality informa-
tion and determining accountability erode the incentives and disincentives that are
involved in the maintenance of integrity and legitimacy.
The transparency, accountability, integrity and legitimacy of the institutions,
rules, practices and values upon which a society functions are essential determi-
nants of the quality of decision making. Of course all of these attributes are relative
there is no such thing as absolute transparency or accountability in social and eco-
nomic affairs. But what is crucial from a policy point of view is to encourage the
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Governance in the 21st Century: Power in the Global Knowledge Economy and Society
development of the tools, organisations and expectations that improve what might
be called, in a general way, the degree of confidence people have in their society.
Once again, the initiatives likely to succeed in strengthening this framework will dif-
fer significantly across and within countries.
Many places lack the rules and/or mechanisms for the sufficiently impartial en-
forcement needed to make contracts trustworthy, guarantees reliable, politicians or
managers accountable and the institutional fabric of society legitimate. In such
places, transactions from market exchange to sharing knowledge – can be burden-
some to the point of economic and social breakdown. Under these circumstances
the policy agenda takes as its primary aim the restoration or establishment of con-
fidence in the laws and institutions that structure daily life. For societies where rule
of law and institutional legitimacy have reigned for considerable periods of time,
the challenge is how to deepen or renew confidence
higher aspirations.
In this sense the scale of the hurdles, or people’s perceptions of their difficulties,
remains relative. There is still a long way to go, even in very confident societies, to
achieve the degree of transparency and accountability necessary to effectively gov-
ern the challenges posed by technological change and the emergence of the global
knowledge economy. For instance, as already noted in the discussion of technologi-
cal dynamism, when it comes to genetically modified organisms or privacy and secu-
rity on the internet, existing rules and institutions are not capable of creating
sufficient transparency and accountability to inspire trust and legitimacy. Similar gov-
ernance deficiencies plague businesses trying to inspire worker creativity and engage
stakeholders ranging from local communities to ethical mutual funds.
Perhaps one of the highest-profile examples of where transparency, accounta-
bility and legitimacy are insufficient to create confidence is in the global arena. Ex-
perience shows that there is little reason to expect the top-down imposition of
decision-making systems to be successful when it comes to global environmental
co-operation, the introduction of a more information-rich and trustworthy financial
architecture, or a multilateral treaty on foreign direct investment. Here there is a
considerable gap between the failed efforts of old governance systems and the
still-limited capacity of future decision-making networks.
Indeed, beyond a world structured by a hierarchy of authority and predeter-
mined aims is a realm of considerable ambiguity, where the process can in many
cases be the product. Judgement and creativity, facilitated by improvements in
transparency and accountability, become cornerstones for generating social sus-
tainability in circumstances where the precise means and ends emerge from the
network. Policy, in this context, must also relinquish its hierarchical mantle to
become the invention of goals, rules and procedures by all social actors that are
willing both to abide by network standards and to subscribe to a common mission.
Governance in the 21st Century
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One final ingredient, without which a creative learning society would likely col-
lapse, is the overarching and shared mission statement. Allegiance to a common
code is the prerequisite not only for maintaining the standards upon which diversity
thrives, but crucially for establishing the minimum set of shared values that would
make improvements in governance capacity feasible. Basic parameters or values
that could serve as standards within which human expression flourishes are slowly
being put into place. Future implementation (not just recognition) of the already
mentioned Universal Declaration of Human Rights of 1948, as well as other more re-
cent initiatives like the Rio Declaration of 1992, will play an important part in setting
the stringent limits within which spontaneity, fluidity and initiative can flourish.
Indeed, although it may appear paradoxical, it seems likely that as the world
gets more complex, the most effective method for ensuring coherent and sustaina-
ble societies will be to pursue adherence to simple and universal rules – a solution
that rests on the similarly paradoxical truth that freedom is based on accepting cer-
tain constraints. The need to reconcile these conflicting impulses highlights the
danger that even if people have acquired the appropriate decision-making and im-
plementation capacities, they will still need sufficient political will to reconcile
some difficult trade-offs. For instance, abandoning industrialisation might save ru-
ral ways of living, but cuts off the possibility of introducing other desirable life-
styles. Similarly, stepping back from a more open and integrated planet might help
to preserve tradition and autarky, but it would probably foreclose progress towards
the greater tolerance, creativity and well-being that are likely to be the desirable
outcomes of a more dynamic and tightly knit world.
Finally, it is important to acknowledge, by the same token, that success in in-
troducing policies to encourage a virtuous circle between governance and techno-
logical, economic and social dynamism also means excluding other options
– particularly preservation of the status quo. As a result, resistance can be expected
from those who do not wish to subscribe to the necessary new frameworks or see
the more hierarchical and fixed modes of governance come to an end. The message
offered here is double-edged. On the one hand, there are strong analytical grounds
for affirming the tremendous potential for positive change in the decades to come.
On the other hand, actually realising such a trajectory will hinge on the success of
exceptional efforts to introduce the appropriate policies. Complacency, rooted in
the view that change is inevitable and that explicit collective choices including
those made by governments are largely irrelevant, would almost certainly mean
missing out on many of the highly promising possibilities of the 21st century.
© OECD 2001
Chapter 2
Wealth, Values, Institutions: Trends in Government
and Governance
Daniel Tarschys
Stockholm University, Sweden
“The request which agriculture, manufacture and commerce present to governments, is as
modest and reasonable as that which Diogenes made to Alexander: ‘Stand out of my sun-
shine.’ We have no need of favour – we require only a secure and open path.”
Some two centuries after Jeremy Bentham made this plea for minimal govern-
ment, our appreciation of the linkages between politics and economics is much less
straightforward. At a variety of levels – local, regional, national and supranational –
political institutions play a crucial role in social and economic development, and
the lessons drawn from the latter half of the past century have only enhanced our
awareness of the complexity of their interaction. Consider the recent experience of
governance in three parts of the world:
In the industrialised countries, an unprecedented economic expansion has
gone hand in hand with an equally unprecedented growth in the size of the
public sector. While particular forms of government intervention, and the fis-
cal burden needed to sustain them, may well have reduced the growth rates
of individual countries in certain periods, the main trend in the economies of
the OECD area has been a mutually reinforcing expansion of both private
and public activities.
In the third world, meanwhile, much smaller public sectors have frequently
been seen to be overstretched and thereby to impair the conditions for eco-
nomic development. Reducing public commitments was long a standard ingre-
dient in the structural adjustment programmes prescribed by international
* Jeremy Bentham, quoted in Alan Bullock & Maurice Shock,
The Liberal Tradition from Fox to
(1967), Oxford: Oxford University Press, p. 29.
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financial institutions. Recently, a more favoured approach has been to give
more emphasis to measures intended to bring about “good governance”.
As the Soviet bloc collapsed, one of the great surprises was the remarkable
weakness of the government apparatus left behind. With its comprehensive
and highly intrusive political machinery, the Soviet system had appeared to
be the very epitome of “the strong state”, but many of the foundations of this
structure, not least the moral ones, turned out to be so fragile that the whole
edifice rapidly crumbled. Rebuilding a stable institutional framework of gov-
ernance is now widely recognised as one of the key preconditions for the suc-
cessful transition of the former Soviet-type economies to market conditions.
What is thus clear from just a quick glance in three different directions is that gov-
ernance has become a central component in any explanation of economic and social
development. It is both cause and effect, covering both independent and dependent
variables in the evolutionary process. It is also linked to several different sides or as-
pects of our common history: to the formation and propagation of
, to the crea-
tion and distribution of
, and to the emergence and consolidation of
Although “governance” is sometimes used in a wider sense to cover steering
and control activities in different spheres of society – enterprises, voluntary organ-
isations, etc. – it refers principally to the exercise of authority in government and
the political arena. This chapter will focus on four lines in 20th century thought on
the topic, relating to 1) the scope of governance, 2) the units and levels of govern-
ance, 3) the use and abuse of governance, and 4) the techniques of governance.
1. The scope of governance
At the beginning of the 20th century, governments of European states extract-
ed and spent something between 5% and 10% of gross national product. A large part
of this went to the upkeep of the military machinery, which was still the most impor-
tant pillar of state power. At the close of the century, between one-third and one-
half of the gross national product of industrialised countries – in some Scandinavian
countries as much as six-tenths – passed through the public coffers. Education,
health care, public transport and operation of the physical infrastructure had be-
come major industries, predominantly funded through taxes, compulsory contribu-
tions, and public user charges. Giant sums were also channelled through various
public or semi-public mechanisms for income maintenance, such as sickness and
unemployment insurance and public pension schemes.
Like the Industrial Revolution of the 18th and 19th centuries, the “Public Rev-
olution” of the 20th century has thoroughly transformed the economies of the ad-
vanced nations (a theme developed further in Tarschys, 1983). Other notions
employed to capture this transition – “post-industrialism”, “the service economy”,
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Wealth, Values, Institutions: Trends in Government and Governance
“the tertiary society”, “the knowledge economy”, “the information technology revo-
lution”, etc. – highlight a variety of its technical characteristics, which have also af-
fected the balance between the private and public spheres of these societies. Not
only have public budgets swelled; there has also been a growth in intervention as
expressed in the increasing scope of regulation. The number of statutes issued by
parliaments and national governments has increased; the sub-vegetation of by-
laws adopted by local and regional authorities has become more dense; and rules
adopted through intergovernmental or supragovernmental co-operation have pro-
liferated. At the close of the century, the
” of the European Union is assessed
to consist of some 80 000 pages of union legislation.
What might account for this growth in the scope of governance? Before the first
theory of a positive correlation between the level of economic activity and the size
of the public sector was launched by Adolph Wagner in 1883, most expectations
went in the opposite direction. The faith in progress that emerged particularly with
the Enlightenment was often combined with a conviction that the need for govern-
ment action would gradually diminish through mankind’s moral and economic ad-
vancement. Authority was required only in so far as people were unable to control
themselves and manage their own affairs. As they matured, however, they would no
longer need political guidance. The state that Hegel proclaimed to be the end of
history was not an agency of economic intervention but rather a form of moral civi-
lisation. To liberal economists and socialist utopians alike, state action held no
promise of progress. As Adam Smith expressed it in
The Wealth of Nations
: “Though
the profusion of government must, undoubtedly, have retarded the natural
progress of England towards wealth and improvement, it has not been able to stop
it” (quoted in Bullock and Shock, 1967, p. 26).
Against this predominant opinion, Wagner argued that an increase in public
spending should be seen as a natural consequence of economic growth. Several
processes accounted for this. First of all, the costs of defence would go up as all na-
tions invested in more sophisticated weapons. Secondly, domestic protection would
also become more expensive through industrialisation. The density of modern living
would lead to more social frictions, and the complexity of an advanced economy
would require new forms of public control. A third reason to increase public expend-
iture was the greater ability of government to meet certain income-elastic demands.
Education and culture were fields where collective producers were by and large
more efficient than private ones. The public sector would hence grow as basic needs
were satisfied and patterns of consumption shifted in this direction. In some other
areas such as rail transport, the capital required for investment would become so
large that it could hardly be provided through private accumulation (Wagner, 1883).
Wagner’s proposition inspired a wide range of hypotheses linking various techno-
logical and societal variables to growth in government activities. An Italian economist,
Governance in the 21st Century
© OECD 2001
F.S. Nitti, was among the first to suggest that democratisation as such would inexorably
boost public spending, through both increased demand for services and lower resist-
ance to fiscal extraction. When the control of government rests with the people, he ar-
gued, they will no longer look upon taxation as a loss (Nitti, 1904). Arnold Brecht (1932)
highlighted urbanisation as a prime force behind government expansion, linking pop-
ulation density to an increased demand for expenditures on housing, welfare, and se-
curity. G.S. Gupta (1969) has linked these perspectives together, tracing both the early
expansion of the public sector and the later slowing-down of its growth rate to the cost-
benefit analyses of the electorate. With a system of proportional taxation, the large
majority will have an interest in the provision of more services as long as their benefits
exceed their costs. Hence, the growth of the public sector is greatly stimulated by the
extension of the franchise but then retarded when a point is reached where most citi-
zens are affected by fairly severe taxation.
In the past century, the most abrupt impetus to government growth – as well as
to government indebtedness – was undoubtedly provided by the two world wars.
The downward adjustment of spending levels in the wake of the First World War, a
major cause of the Depression, stimulated a study of macro-economic linkages that
culminated in Keynes’s
General Theory
Following the Second World War, the
higher level of government activity was largely maintained, inspiring Alan T. Peacock
and Jack Wiseman (1961) to their theory of the “displacement effect” or “ratchet ef-
fect” in public spending. Briefly stated, this hypothesis predicts that whereas public
expenditure will be reasonably stable in normal times, it may be drastically boosted
by wars and crises, and since its “stickiness” makes it easier to shift upwards than
downwards, the higher levels are likely to remain. Over time, therefore, the curve of
public expenditure as a ratio of the gross national product will resemble a staircase.
In the past half-century, the main force behind the expansion of public budgets
has no doubt been the sustained growth of public service provision and income re-
distribution through the welfare state. Early steps were taken immediately after the
war, but the most marked expansion followed rather in the latter part of
“les trente
with their unprecedented growth rates. Since the escalator effects built in-
to the various transfer systems were strong enough to withstand the downward
pressure ensuing from subsequent slower economic growth, public expenditure as
a percentage of gross national product continued to rise in the following decades a
well. As a result, many countries incurred exceptional budget deficits and policy
makers were compelled to reconsider many components of the established welfare
systems. The past two decades in particular have been a time of retrenchment and
reorientation, with multiple efforts to “reinvent government” and introduce greater
efficiency into programmes of redistribution and public services.
Even taking such efforts into account, one is struck by the resilience of “big gov-
ernmentin advanced industrial economies. There has been no lack of suggestions
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Wealth, Values, Institutions: Trends in Government and Governance
that growth rates would suffer irreparable damage if a particular level of government
spending was surpassed. At the turn the century, French economist Leroy-Beaulieu
calculated that the fiscal maximum a modern state could extract was 12-13% percent
of gross national product. A few decades later, his Australian colleague Colin Clark set
the fiscal ceiling of a thriving economy in the neighbourhood of 25% of its gross na-
tional product (Johansen, 1968-70). In recent decades, public choice economists in
particular have sought to estimate the pernicious impact of tax wedges and “dead-
weight loss” on the growth capacity of the economy.
Though it is more than likely that high levels and particular forms of taxation
have indeed retarded the economic development of some countries, the experi-
ence of the 80s and 90s nevertheless clearly shows that market expansion and big
government have by and large continued their peaceful if not symbiotic coexist-
ence. The long list of ways in which public authorities, and the fiscal burden needed
to sustain them, impede economic growth needs to be supplemented by a
– probably not much shorter – list of ways in which the same agencies stimulate and
facilitate private sector activities. The latter list would include not only basic
services indispensable to enterprises (infrastructure, security, contract enforce-
ment, risk control and management, etc.) but also human services necessary to sus-
tain consumer demand, labour supply and social reproduction. There are reasons
to doubt whether a high level of economic activity could be sustained without the
ceaseless efforts of governments at various levels to organise collective demand
and stimulate private demand through the transfer of purchasing power. Though we
still have much to learn about the nature of the linkages between wealth generation
and various forms of government institutions and activities, they are clearly more
intricate and many-sided than was previously suspected.
2. The units and levels of governance
In December 1991, the heads of state and government of twelve independent
nations met in Maastricht to form the European Union. Almost at the same time, at
a meeting outside Minsk, another union was dissolved into twelve independent
states. Other changes in the European state system in the early 90s were the emer-
gence of five sovereign states on the territory of the former Yugoslavia and the
peaceful dissolution of Czechoslovakia into two independent states. In other cases,
requests for greater autonomy at sub-national levels of government were met with
devolution of authority to regional institutions, as in Scotland, Wales and Northern
Ireland. In Kosovo, similar claims were stubbornly rejected, eventually pushing the
region into a vicious spiral of rebellion, repression and ethnic cleansing.
These recent examples illustrate the fluidity of the territorial organisation of
governance. By the year 1500, there were around 1 500 sovereign political units in
Europe. One and a half centuries later, at the conclusion of the Peace of Westphalia,
Governance in the 21st Century
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there were some 300 independent territories, bishoprics and city-states in Germa-
ny alone. The empires which eventually swallowed many of these units, large and
small, were highly heterogeneous not only in their ethnic composition but also in
the degree to which political authority was exercised in different parts of the realm.
Many versions of local immunity, liberty or autonomy survived in the imperial com-
pounds. Yet there were also hegemonic and centralist tendencies that eventually
endangered the survival of the vast empires, not least through the nationalist and
separatist reactions they engendered.
The systems of governance that have been established in the modern world
are inextricably linked to the different waves of nationalism that have swept
through all continents in the last two centuries. The sequence of state-building and
nation-building has differed in various countries; we have seen both “nations in
quest of a state” and “states in quest of a nation”. Yet the keenly felt need for a
sense of social and cultural cohesion has underlain all efforts to consolidate legiti-
mate political systems. What the anthropologist Benedict Anderson in a famous
book-title has called “imagined communities” have played a large role strengthen-
ing the underpinnings of modern government.
A democracy cannot survive without a “demos”. Unless the electorate is held
together by a sense of
or shared fate, a common legacy and a
common destiny, the political authorities will encounter great difficulties in enforc-
ing their decisions. While governments derive their legitimacy from multiple sourc-
es – such as the constitutional procedures by which they are elected or appointed,
the quality of the services they deliver, and the respect