Understanding Institutions in the African Development Context
The recent economic performance of Sub Saharan Africa has been very disappointing. Its poverty has many dimensions and causes, both internal and external. This paper focuses on the role of the state and institutions in promoting or hindering economic development in Africa. It questions our understanding of institutions and how they develop and warns against simplistic assumptions in this regard. It highlights the importance of taking cognisance of institutional diversity and of ensuring that institutions are embedded in local realities.
The paper highlights a number of things that we know about Africa’s underdevelopment as well as a number of things we are less sure about. We know that kleptocracies are bad for growth, that macroeconomic stability is important, that the international financial institutions have not addressed the root causes of underdevelopment, that markets are not miracles and that they do fail but that they should not be undermined, that the state has a vital role to play as a catalyst in development, and we know that development requires appropriate investments in institutions. We know that institutions cannot just be parachuted in but we are less certain about how it is that institutions evolve and how we can affect them. We also do not sufficiently understand indigenous African institutions and how they affect development e.g. the chieftainship. We do not fully comprehend how national or ethnic identities emerge and the ‘webs of association’ through which they affect development but we suspect that they may be important. We know that investment in human capital is essential but if it is subject to increasing returns we are less sure about how to prevent the resulting brain drain.
Lastly, we must beware of simply reducing the complex causes of African underdevelopment to mere institutional shortcomings and focusing all our attention on building institutions at the expense of more direct interventions which address disease, geographical isolation, poor infrastructure, poor human capital which in turn affects technological productivity, and resource gaps which trap these countries in poverty. Whilst good institutions would certainly make these interventions more successful we need to realise that they are a means to an end rather than an end in itself.
Luiz John (South Africa)
Wits Business School
University of the Witwatersrand
John Luiz has a Ph.D. in Economics and is an Associate Professor at Wits. He was a Visiting Scholar at the University of California Los Angeles (UCLA) in 1999. His research interests lie in the following areas: the long run determinants of growth, political and development economy, and business economics. He has published in numerous international journals including: The International Review of Law and Economics, the Journal of Applied Business Research, International Journal of Social Economics, and the Cambridge Journal of Economics. John also works as a consultant and has undertaken research for the Development Bank of Southern Africa, the Industrial Development Corporation, the Department of Trade and Industry, the United States Agency for International Development, the Johannesburg Development Agency, and the Centre for Development and Enterprise amongst others.
(30 min. Conference Paper, English)