May 1997 An honest and competent civil service is essential for public sector efficiency and economic development. As a complex institutional challenge, civil service reform is worth doing only if it is done well. But even when circumstances are not ripe for genuine reform, governments and development institutions should keep a watching brief on civil service issues - recalling that the slide of many of today's failed states began, in part, with the degradation of their civil service. Schiavo-Campo, de Tommaso, and Mukherjee try to replace myths about government pay and employment with reliable facts from a survey of international, national, and primary sources for about 100 countries in the early 1990s. The study also outlines the general nature of civil service problems in the different regions. Nevertheless, while the facts are useful to flag possible problems and initiate a dialogue, recommendations for reform must be based on country-specific analysis. Globally, government employment is negatively associated with wages, and positively with the fiscal deficit (although the availability of financing is more important) and with per capita income (confirming Wagner's Law). But the global results stem almost entirely from strong results for Africa and Latin America. Civil service reform has suffered in the past from an overemphasis on retrenchment for fiscal reasons. Its true objective, for each country, is to achieve a civil service of the size and skill-mix, incentives, professional ethos, and accountability needed to provide public goods, help formulate and enforce the rules, and intervene to remedy market failures - as these government roles happen to be defined in the country in question. Civil service reform can begin with various diagnostic and fact-finding activities. The key measures concern rightsizing, incentives, and accountability. These are all relative notions: the right size of the workforce depends on the roles assigned to government; wage adequacy depends on private compensation levels; and strengthening of accountability must define accountability for what and to whom. When retrenchment is warranted, it must be carried out with great care to avoid skill reduction, demoralization, and lower-quality service. Adequate compensation is a must, and wage compression is to be avoided. But performance bonuses, popular in some advanced countries, have been only marginally effective in improving performance in developing countries, even in the private sector. And they can be dangerous in countries with ethnic, clan, or religious conflicts. Finally, improvements in accountability will most often require greater external openness and systematic feedback from service users. This paper - a joint product of the Office of the Chief Economist and Senior Vice President, Development Economics, and Europe and Central Asia, and Middle East and North Africa Technical Department, Public Sector Management and Information Technology Team - was produced as a background paper for World Development Report 1997 on the role of the state in a changing world.