As the government starts to ease the lockdown, and the socio-economic effects of COVID-19 become apparent. Policymakers and experts from different fields in our society have been discussing measures on how to support the economic recovery from the impact of the lockdown. Numerous decent ideas revolving around the size and contents of a stimulus package to different social protection measures have been extensively discussed.
However, the role of institutions is missing in these discussions. It is as if our experts have forgotten that economic and political institutions influence the quality and success of any policies and interventions. Or maybe they assume our institutions are perfect!
What are institutions? Institutions thinly defined, are the humanly devised constraints that shape human interaction. Institutions are distinct from organizations. Institutions are like rules in sports that shape the interaction and behavior of the players. Similarly, institutions influence and dictate the behavior of different decision-makers in the economy whether government, businesses, investors, or even consumers through incentivizing their actions.
In the process, institutions shape the organization of our economy, the nature of transactions, the distribution and utilization of resources, and the characteristics of our markets. Therefore, institutions can greatly determine social and economic outcomes like growth rates, poverty levels, and inequality. For example, look at South Korea. After the Korean War, South and North Korea were identical in most socio-economic aspects. South Korea adopted capitalist institutions with private ownership of the means of production and legal protection for a majority of private enterprises. On the other hand, North Korea adopted communist institutions with a centralized command economy and a limited role for the private sector. The result was South Korea transforming massively to become the 12th largest economy by 2019. While North Korea still languishes in poverty, struggling to feed her citizens.
Before 1970, China was struggling economically, dominated by state ownership and central planning. Its GDP per capita was growing at an average rate of 2.9% per annum. Around 1970, China made reforms in its institutions that liberalized its economy. As a result, China grew at an average rate of 9.5% per annum from 1978 to 2013, becoming the second-largest economy in the world after the USA.
Today, there is consensus among development experts that good institutions improve a county’s chances of attaining rapid economic growth and development and hence transformation. And as a country, it’s high time we started discussing the kind of institutions we need to adopt to transform our economy and country. Even if we start by reforming institutions like the legislature and the judiciary to empower them to execute their roles in the best interests of the greater society. An independent legislature pursuing the interests of the people they represent will ensure good governance, promote efficiency and equity in the allocation of resources, and will ensure transparency and accountability.
A strong and independent judiciary will enforce the protection of property rights, contracts, rule of law, human rights, etc. And it will be instrumental in the fight against corruption and upholding the integrity of other institutions like the central bank, civil society organizations, and even political parties.
Stronger institutions will surely save us the horrors of watching our MPs allocate themselves billions of shillings in the middle of a national emergency. They will save us the sight of vulnerable Ugandans slipping into poverty because of the lack of social protection. We need to build strong institutions that will guarantee and promote our social and economic rights. Institutions that will enable resilient and inclusive policies as we recover from the coronavirus pandemic. This will enable all Ugandans to undertake different income-generating activities that will help our country transform.
Finally, for the government to consistently, effectively, and efficiently deliver public goods and services to its citizens. It must have a strong base of institutions. Strengthening our institutions will have a long-term impact on our social and economic wellbeing.