Please enable JavaScript.
Coggle requires JavaScript to display documents.
The search for good institutions - Coggle Diagram
The search for good institutions
What are institutions in the context of development economics?
Can be formal or informal - institutions can facilitate social norms
Range from economic institutions such as, banks to education institutions like schools.
OECD, World Bank, IMF, UN, The EU and lots more
Institutions are bodies which institute laws and guidelines to achieve particular goals and human behaviour such as, rule of law, protection of private property or democracy. *
Foster stable conditions needed for development
International trade and investments have forced countries to adopt
institutional reforms
Resource-allocation
Interest in this topic sparked in the 1990s - way to explain international differences
What explains Africa's poor development?
Neopatrimonialism
Facade of modern bureaucratic institutions i.e. courts, parliament and security forces nominally in charge of applying the rule of law
Based on
Weber's
concept of
patrimonialism
Political domination based on personal power exerted directly by person or household. Ruler claims the realm as their own personal property
Patron-client
relationships
Loyalty of key-actors is bought
Those with connections are the ones with real power
Official rules occasionally apply
A&R think if a country is neopatrimonial it won't develop, this isn't always true
Does perpetuate inequality, hinder development and undermine democratic principles; however
In some countries
neo-patrimonial
features co-existed in the post-colonial period with relatively high levels of development and political stability (Côte D'Ivore, Kenya)
Social-hierarchy where patrons use state resources to secure the loyalty of clients in the general population
State resources for personal gain
Fiefdom
Sierra Leone
was ran as a personal fiefdom, civil-war sparked by power hungry dictator
Taylor
Critique:
It has become a catch-all concept to explain all sorts of outcomes some scholars argue
Mkandawaire 2015
Legitimises
neo-liberal reforms
and downplays external factors
Mkandawaire 2015
'Neo-patrimonial'
states have been developmental i.e. Côte D'Ivore, Kenya
Mkandawaire 2015
Corruption
Colonialism
Purposeful colonial incentives which constrain colonial economy and boost metropole's
Dual-economy
of South-Africa *
"Colour bar"
Titled playing field
Mining industry created a
Caste system
Only Europeans could be blacksmiths, brickmakers, boiler makers, this was then expanded to whole economy in 1926
Black people could work in mines as unskilled labours, this meant wages were low and elites profited
This exploitation and
dual-economy
meant the contraction of its economy during the
apartheid
Resource-curse:
resource-rich countries may face challenges like corruption, inequality and lack of diversification *
Neo-liberal Structural Adjustment Programmes
Perverse institutions such as the slave-trade and colonialism
Transition to non-absolutist and non neo-patrimonialism has not happened in many parts of Africa
Slavery:
Lawlessness - slaves kidnapped, no matter the crime slavery became the punishement
Institutions perverted by the desire to sell and capture slaves
Demographic decline
Disrupted family and marriage structures
Reduced fertility
What is the difference between extractive and inclusive institutions?
Inclusive
A&R think they have a historically determined development
Enforce
property rights
Level-playing field
Encourage
investments
in new tech and skills
Political power is distributed but still centralised
Extractive
Destroy incentives
Discourage innovation and entrepreneurship
Create a titled playing field robbing citizens of opportunity
Power condensed in the power of a few and so only a few elite benefit from the system
And extraction of minerals, forced labour, or protected
monopolies
Extract resources from the many for the few
What is the good governance agenda?
Heterodox view:
that 'good governance' reforms are truly good for development
The process of measuring how public institutions conduct public affairs and manage public resources and guarantee human rights, in a manner free of corruption and abuse with regard to the
rule of law
Set up by the
World Bank
Broad indexes
World Bank Worldwide Governance indicators
Transparency
Voice and accountability
Responsiveness
Consensus-oriented
Rule of law
Participation
Control of corruption
Often set up through surveys with businessmen and experts who share a bias toward Anglo-American style liberal institutions (Chang 2011)
discourse on institutions is influenced by
neoliberalism
i.e.
private property rights
and maximising
economic freedom
Good governance = we need the right states
Minimal -> effective state
Why are some scholars sceptical about the institutional reforms promoted by the WB and dornors?
'Institutions first' is a partial reading of historical and contemporary evidence - other factors play apart
For example, European countries are mainly wealthy because of colonial exploitation not superior institutions
Wallerstein
No consensus among historians
No
time-series analysis
to see the consequences
These show what factors influence certain variables from period to period
Institutional difference argues
Pomeranz
does not explain why the
Industrial revolution
happened in Europe and not China or India
Good governance measures and identifications are misleading
Ha-Joon Chang
(2011) good institutions emerge as a by-product of development rather than the opposite way around
Indexes usually have a bias towards Anglo-American and liberal style institutions as they are usually based on surveys from businessmen and experts
How trustworthy are third parties?
New-form of colonialism?
Fungibility
Instruments like,
Worldwide Governance Indicators
have too many dimensions to be useful
They point to four different institutions which are 'good'
Market-related
Formal democratic and representative
These can still limit human rights,
freedom of association
and speech and lead to an
elected autocracy
Rule of law and respect individual rights
Ones with broader accountability
What measures take priority?
Linear, assuming universalism
The debate surrounding institutions oscillates between two extreme binaries. Where is the nuanced middle-ground?
conclusion point
Voluntarism
World Bank and Donors
Countries have the freedom to change their institutional set-up if there is enough political will
Can lead to institutions which are inappropriate, costly or don't work when in specific locations/contexts
Fatalism
All institutions are stuck in this system of
path-dependency
and do not have the autonomy to change their historical history or workings in the short/medium term
Always elements that are favourable/unfavourable in a country's institutional set-up
Acemoglu and Robinson
Require that for borrowing countries that they adopt 'better' institutions - informal pressure from think-tanks and policy forums
WTO
has forced developing countries to adopt American-style Intellectual property rights
Global Standard institutions
- informal + formal organisations pressure them to adopt
What does Ha-Joon Chang say about institutions?
Discourse on institutions continues to be influenced by
neo-liberalism
Private property
Max economic freedom
State or communal ownership may have superior results than private ownership *is there any case-study evidence?
Favour rich over poor, capital over labour, finance capital over industrial capital
Discourse on institutions is linear, simplistic and static - relationships differ across time and space
Ignore the changes
within
institutions so can be overly optimistic or pessimistic about the feasibility of institutional reform -
fatalism/voluntarism
Why economic growth fosters better institutions:
(stronger historical evidence)
increased wealth = demand for better quality institutions, transparent and accountable ones
Greater wealth = institutions are cheaper to establish and run
Economic development = new agents of change = new institutions i.e. working class encouraged rise of welfare state and protective labour laws
Anglo-American countries with GSI did not have such before but after they became rich - democracy, IPRs, Banking, modern bureaucracy
Three case-studies
Somalia
Lags developmentally due to corruption
North-Somalia in a state of violence
Grand-corruption
in the state
Sierra-Leone
3rd lowest
GDP
in the world
Government is corrupt and incompetent
Education system is corrupt - only 2% of youths aged 14-4 reach post-secondary school level of education (
Kim, 2019
)
Insufficient legal system - police conducts arbitrary fines and courts aren't vigorous
Institutions are a hinderance and hold back innovation and inspired youths
Petty-corruption
Singapore
Aided development with strong
private property rights
GDP
has risen by 7.7% since independence
Investments in health-care and education
Pro-business environment, encouraging
FDI
What does explain, according to Acemoglu and Robinson, Africa's poor development record?
*40 mins on article
Ineffective, authoritarian,
gerontocratic regimes
and exploitative institutions. These predatory institutions were only exacerbated and entrenched more by slavery and colonialism
Colonialism blocked chances of institutional reform
Absence of
political centralisation
Where there was such a system,
absolutism
made property rights insecure and economic arrangements exploitative
Need an effective system of laws, mechanisms for resolving disputes, checks and balances and basic public goods/ services.
Colombia
lacked this
No central authority = no public goods = no law and order, a legal system,and education system which are needed and so no real economy
Gerontocratic institutions
Oligarchical rule
in which an entity is ruled by leaders who are significantly older than most of the adult population.
They build on
neo-patrimonial
literature
Elites block new people and firms and create their own
monopolies
Gain masses of profits but block opportunities for citizens to escape poverty
They are historicists
Africa is so large that results cannot just be pitted to one conclusion
Not due to their culture or geography but their historically evolved institutions
Evidence on such cases do not withstand scrutiny as well, effects of health on development are inconsistent
Citizens have bad interlocking economic and political incentives
Why were sub-Saharan African governments localised and weak to begin with?
Critique different illnesses with one diagnosis
10 reason countries fall apart (A&R):
Extractive institutions
Corruption and exploitation has to collapse at some point
Newer states more susceptible to corruption due to mismanagement, lack of trust, incentive and development
A titled playing field
Lack of
property rights
In
North Korea
economic institutions make it almost impossible for people to own property, the state owns everything.
People work for the ruling class so have no incentive and thus the people and economy has failed to flourish
Colombia:
lack of institutionalised property rights means that rural Colombians have informal titles or titles lacking
legal validity
Undermines incentives (and thus modernisation) to invest and uncertainty leads to violence, land expropriated at gunpoint was common in the 1990s-2000s
Forced labour
People lack innovation and technology lags behind
The 'big men' get greedy
Elites block new technologies
New technology can change existing social structures, business models and make existing skills and organisations obsolete
Redistribute wealth, income and political power
Leaders have an incentive to stop them, thus stopping progression and economic growth
19th century railways spreading across Europe and USA, there was only one railway in vast continental Russia in 1840s - was not for the people - Technologies blocked
Tsarist regime
was safe for a while
Counter-arguement:
May not
innovate
but can
adopt
Military sector innovations by authoritarian regimes can spill into civilian economy
No
Law and Order
A
Weak central government
Bad
Public services
Political exploitation
One-party
systems
"Iron law of oligrachy"
'Fighting over the spoils'
The process of institutional change:
Institutions shape how societies evolve over time
Conflict/crises that trigger the
critical juncture
Critical junture:
major episode of institutional founding - epoch-making, external shock
Aftermath:
legacy emerges
Legacy
Samuel Huntington
:
Challenged dominant view of institutions facilitating development in
Political order in changing societies
(1968)
Political development doesn't go hand-in-hand with modernisation
Urbanisation, literacy and mobilisation can cause instability
This change can effect unstable institutions and traditional authority
Political order
rather than institutions
Not
form
but
degree
of order
Accused of spreading western justification for
authoritarianism
and military leaders
Didn't regard communism negatively, political order could be any regime
Why do certain institutions arise?
Colonialism/path-dependenct
State-types- patrimonial, predatory, neopatrimonial
These sorts of states maximise personal gain and manipulate institutions
Geography
Industrialisation
More industrialised and countries with higher economic standards may want more
accountability
in their services
Diverse economical set-ups
Regime type
Organisational power can decide which institutions and policies are likely to persist and be developmental in that context
Conclusive points:
Unfavourable geography can also cripple states
Geopolitical threats
Where countries want to invest - infrastructure matters/geography
Profitability of various economic activities - agriculture and mining
Health