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.

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Why the Arab World Needs an Economic Spring


By Nemat Shafik

(Version in عربي)

What strikes you on a trip to the Middle East is that everyone is talking politics—all of the time. That had been the case in countries like Lebanon where it is a national pastime, but it is a new phenomenon in countries across North Africa and the Gulf.

Constitutions are being rewritten, political parties and youth groups are vibrant, and everyone has an opinion on current events. The older generation seems worried by the uncertainty associated with change. The young generation continues to be energized.

Need for an economic rethink

But, what I noticed during a week of travel through the region is that almost no one is talking economics, and that is a worry. Because while 2011 was a year of major transitions in the political domain, almost every economic indicator in the non-oil countries went in the wrong direction. Growth halved, unemployment rose, reserves came under pressure and deficits ballooned as governments responded to social pressures by increasing spending on wages and generalized subsidies.

New governments across the region are keen to respond to the demand for jobs and justice that brought them to power but are quickly faced with the hard reality of limited resources and powerful vested interests.

So, just as the “Arab Spring” opened a debate about politics in the Middle East, we now need an “Economic Spring” on how to rethink the region’s economic future.

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