Growing Institutions? Grow the People!

By Sharmini Coorey

(Version in Español)

“When you speak about institutions, in fact, you are speaking about the people.” These words, by Kosovo’s central bank governor Gani Gergüri at a recent conference in Vienna, capture an important truth that is often overlooked when we economists discuss amongst ourselves: without sound institutions, it’s very hard to achieve sustainable economic growth.

And the quality of those institutions hinges on the quality of the people running them―their educational background and training, and the prevailing business culture and approach to policymaking.

The work of Douglass North and the school of thought known as the new institutional economics has taught us that differences in deep institutions—defined as the formal and informal rules of economic, political and social interactions—are responsible for sustained differences in economic performance. This is also the central thesis in Acemoglu and Robinson’s fascinating new book, Why Nations Fail.

Inclusive (as opposed to extractive) economic and political institutions are central in nations’ efforts to avoid stagnation and ensure sustained prosperity. This is because sustained prosperity is a dynamic process of constant innovation and a never-ending cycle of Schumpeterian creative destruction, which can only be supported by open, inclusive institutions. Their thesis is certainly consistent with the contrasting experience of different countries in Central, Eastern and Southeastern Europe under communism and during the past two decades.

The current crisis in the eurozone also highlights the importance of coherent economic and political institutions at all levels of economic development. Weaknesses in national macroeconomic and statistical institutions in supposedly “advanced” countries were at the root of the crisis, especially in Greece. And the lack of supportive fiscal and regulatory institutions at the European level—which require making additional steps in political integration—is behind the markets’ continued anxiety surrounding the common European currency.

The IMF takes institutions seriously. The lesson we drew from the experience of transition and the current crisis is that we neglect them at our peril. That’s why the Fund recently created a new Institute for Capacity Development.

The idea is to take a holistic look at our capacity development work and to develop, over time, an IMF-wide strategy for capacity development.

Taking stock

As part of our efforts to rethink how we help our 188 member countries train skilled professionals and build institutions that can be held accountable for their delivery of public goods―including a stable currency, efficient tax collection, and trustworthy data, to name but a few―the IMF co-sponsored a conference in Vienna with the Austrian government.

The conference marked the 20th anniversary of the Joint Vienna Institute, a training center financed by the IMF and Austria and which also involves several other international institutions.

The JVI has been at the heart of the IMF’s capacity building efforts since it was created in 1992, three years after the fall of the Berlin wall. For the past two decades, close to 30,000 officials at all levels of seniority―from Belarus to Bulgaria, Mongolia to Montenegro, and the Ukraine to Uzbekistan ― have received some form of training in applied economics and finance at the JVI. Many JVI alumni were present at the conference, which convened more than 140 policymakers and academics to discuss lessons learned from the global economic crisis, the challenges ahead for the countries of Central, Eastern and Southeastern Europe, and the implications this might have for training and capacity development.

A new approach to people and institutions

What areas to prioritize in terms of future training clearly depend on many factors: countries’ levels of economic development, their state of integration in the European Union or other regional structures, and other individual circumstances.

This heterogeneity brings to the fore the need for more tailored approaches to training and capacity development, more coordination between technical assistance and training, and closer integration of training in national capacity development strategies.

One way to make progress in this direction is to go beyond assessments of training and capacity development activities in terms of improvements in the skills of individuals being trained and examine the impact of training on the capacity of the units and organizations to perform their functions. This will require us to think creatively about ways to make training and technical assistance more demand-driven and to pay attention to how well units and organizations utilize the people who have been trained. We will also need to find more ways to exploit the synergies between technical assistance and training.

Clearly, we also need to do much more to harness the potential of e-learning or we will be left behind. Many informed people think that we are on the cusp of a revolution in the delivery of education via the internet.

Web-based tools would allow us to reach the many officials who are not able to come to Washington or the regional centers where training is delivered.  It would also allow officials to prepare better for the courses they are able to attend.  It may even allow us to explain the IMF’s purposes and policies to a broader public, including civil society, than we can with our traditional approach to training.

Also important for capacity development is the learning that takes place outside formal courses, in small, informal, high-level meetings that involve peer-to-peer interaction. We want to explore ways in which the JVI―and the IMF’s other training centers around the world―can be part of this network. We want to go beyond the standard two-week courses and consider flexible, customized seminars on special topics of interest to senior policymakers.

We also intend to enhance our outreach efforts to civil society, journalists, parliamentarians, students, and the public at large.

We also need to do more to incorporate non-traditional thinking in our training. The crisis is forcing a reconsideration of economic doctrine and policies.

Old lessons are being rediscovered. Textbooks on macroeconomic stabilization, growth models, and modes of financial system supervision and regulation are being rewritten. We already invite experts to present alternative views in our training courses.

But we need to do this in a more systematic fashion so as to reflect emerging, non-conventional thinking in our training programs.

Making a difference

In short, we have a lot of work to do. Apart from the excellent discussion and the many ideas that were offered by our speakers as well as the audience in Vienna, what really struck me personally was the great enthusiasm that many JVI alumni expressed for the training they had received after the fall of communism and during the hard years of transition that followed.

Governor Gergüri expressed these feelings most eloquently:  “It was my first time going outside the country. I remember it still, very much. It was exactly ten years ago here in Vienna, in this very melodious city. I came here, had the three-week course in monetary and financial statistics. I was flooded with enthusiasm because I was opening a small window for big opportunities―for my institution, and then this is the way I started in fact to build also my career.”

Building people, building institutions: that’s what we at the IMF hope we can continue to achieve—and become even better at in the future—working in partnership both with countries that receive technical assistance and training and with the many donors around the world whose financial support enables us to provide these services.

3 Responses

  1. As for the modern financial industry, sound institutions play central role! In addition, in the context of the current financial crisis, the financial competitive regime is one of the initiative institutions, especially in China and other developing countries.

  2. Developed nations are developed only because they have sound financial and political institutions. Poor nations are lagging in these areas. For example India, which is acclaimed of having good academic brains (intellectuals), is in reality full of Universities filled with bigoted professors, making a University a place for future criminals, corrupt politicians, and Jihadists who can rip the nation apart. As a result, there is a degeneration and degradation of a nation-state. Only a few academicians who are not bigoted, orthodox have been taken by institutions of developed nations (brain drain).So reforms and revolutions are the need of the hour, not only in India but all poor nations.

  3. –Build institutions; build people –

    A comprehensive and instructive article by Sharmini.

    Nations fail which do not have inclusive political and economic institutions. A recent example is the revolt by some countries under the Arab Spring movement. The institutions were not allowed to be developed and to have a change, so much loss of human lives and financial assets was incurred. A change has been achieved after a lengthy struggle.

    The IMF’s efforts for capacity development in the shape of Institute for Capacity Development are commendable.

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