In his lecture as the recipient of the Alfred Nobel Memorial Prize in Econo-mic Science, Douglass North (1994, p. 360) noted that, “Institutions are the humanly devised constraints that structure human interaction. These constraints may be formal – rules, laws, constitutions – or informal – norms of behavior, conventions, self-imposed codes of conduct – coupled with their enforcement characteristics, a combination which defines the incentive structure of societies and, specifically, economies.” He went on (p. 361) to distinguish organizations from institutions, by stating, that “if institutions are the rules of the game organizations are the players. Organizations include political bodies (e.g., political parties, city council, regulatory bodies, etc), economic bodies (e.g., firms, trade unions, family farms, co-operatives etc), social bodies (e.g., churches, clubs, athletic associatives etc), and educational bodies (e.g., schools, universities, vocational training centers)”, inter alia.
“North (1994 p. 364) contended that cumulative past experience of a society will not necessarily fit them to solve emerging problems; that stagnant societies embody belief systems and institutions that fail to confront and solve new problems of societal complexity and that there is no guarantee that the beliefs and institutions that evolve through time will produce economic growth.” True as these assertions may appear there has been evidence to the contrary.
Today the importance of institutions, particularly their effect on the narrower notion of economic growth and per capita income and more generally wealth creation and development, is fiercely debated in the literature. Acemoglu, et al, (2001), noted that at some point institutions do matter and this may explain why countries that pursued centralized planning differed in their economic performance from those that focused on decentralized planning, private property rights and the market as a tool for allocating resources. They explain-ed too that it is plausible that rich economies can afford better institutions than poor ones but found- using European settlement mortality rates as an exogenous instrument/indicator of current institutions – that colonies where European mortality rates were high are poorer than those with lower European settler mortality rates. Consequently, they concluded that colonization created different policies that in turn created different institutions. The premise on which the conclusion is based suggests that in colonies where Europeans could not settle they set up “extractive states”, the institutions for which private property was not well protected and insufficient mechanisms for detection of government expropriation, while in colonies that Europeans settled they replicated institutions of the colonizer with strong emphasis on property rights and the prerequisite checks and balances for government expropriation.
Subramanian, et al, (2004) were keen to highlight that institutions are in some way a cumulative outcome of past policies and customs. Their conclusion was, of the three most critical historical explanations (geography/location, integration and institutions) for economic performance, institutions are the most superior. Institutions have a significant impact on integration, while geography has a significant effect on the quality of institutions. This partially supports Acemoglu, et al (2001) results. Quere, et al, (2005) found that overall public efficiency is a major determinant for inward FDI and supports the notion of increasing the quality of institutions in developing countries, if they are to attract more FDI. Gwartney, et al, (2006), concluded that strong institutions have a positive impact on private investment, and private investment enhances long-term growth. However, no evidence was found to the contrary, that is, economic prosperity improves institutional quality; as a matter of fact poor economic performance presents favorable conditions for the strengthening/reconstruction of weak institutions.
It is at this point that we beg the ever important question that Guyanese have asked since independence, that is, do we possess the requisite institutions or institutional arrangements to pursue our developmental aims and objectives? Equally important, are the existing institutions and institutional arrangements adequate to confront and solve new or emerging societal problems?
The evidence suggests that, apart from the short-lived macroeconomic success story, the apparent degenerating social, economic and political conditions may be attributed to weak institutions or to the failure of institutions or those responsible for their functioning to act on enforcement of the ‘rules’ some of which may no longer be applicable to the way the society is functioning. Available measures of institutional quality suggest: (See table)
Official statistics based on recent attempts to estimate governance issues show slippage in these indicators. Between 1996 and 2004, there is less voice and accountability, the country is more politically unstable, government is less effective, there has been a decline in regulatory quality, a breakdown in the rule of law, and a mild increase in the control of corruption, Kaufmann, et al, (2005). Despite these showings there is no official empirical pronouncement as to what is responsible for this beakdown.
Where do we go from here?
To the ordinary Guyanese we need no further evidence to target and tackle the source of some of the more critical issues which issues can be traced to institutional failure. And, these issues can be perpetual, since the institutions existed before most of us were born and will continue to be there after we pass on. The technocrats and bureaucrats will need hard evidence to design and target areas for improvement, and, as such, may require empirical support to motivate the necessary reforms.
Either way there is no question that tackling some of Guyana’s most critical problems has to commence with an institutional focus as these have implications for economic growth and development. In this regard, the recommendation by Professor Norman Girvan (2006) for the CSME to first identify sectoral proprieties and their sequencing to frame existing institutional agenda and a needs test for new institutions can perhaps be adapted to the local situation.
