Presented by Murray Fulton, University of Saskatchewan

In recent years there has been a marked increase in interest in what constitutes good government, good governance and quality of government. In addition to a broad consensus that government is no longer the key player in governing the economy, a concern has emerged that pursuing economic growth alone will not generate the best outcomes for society. In this paper, we examine these questions through a political economy model of governance in which power, economic payoffs and governance arrangements co-develop. Using this model we explore how corruption and ignorance affect the two underlying political economy problems of wealth generation and wealth distribution. We show, as other authors have done, how corruption generates outcomes that fail to grow the pie, while at the same time generating distributional outcomes that are highly disadvantageous. We then show how ignorance can have one of two effects, depending on the context. In the one case, ignorance—through its impact on transaction costs—can result in a failure of the pie to grow, often with detrimental distributional impacts. In the other case, ignorance can lead to increases in the size of the pie, albeit at the cost of redistributing the benefits of this growth to a particular group to such an extent that political instability ensues.