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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Convergence, Crisis, and Capacity Building in Emerging Europe


by Nemat Shafik

Central, Eastern and Southeastern Europe has been through a lot. In two short decades, the region moved from a communist planned system to a market economy, and living standards have converged towards those in the West.

It has also weathered major crises: first the break-up of the old Soviet system in the early 1990s, then the Russian financial crisis in 1998, and finally the recent global economic crisis. How did these countries do it?

From the Baltic to the Balkans, the region’s resilience and flexibility are the result of hard work and adaptability. But more than anything, it is the strong institutions built over the last two decades that have enhanced the region’s ability to deal with the momentous challenges of the past, the present—and those to come.

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