Nobel lessons: fixing Pakistan's broken institutions

Economists Daron Acemoglu, Simon Johnson and James Robinson have been awarded the 2024 Nobel Prize in Economics for their groundbreaking research on the vital role institutions play in driving economic development. Their findings carry profound implications for Pakistan, a country grappling with economic struggles intricately linked to governance and institutional quality.

The trio's work reveals that the key difference between prosperous and struggling nations lies not in natural resources or geography, but in the strength and inclusiveness of their institutions. They argue that inclusive institutions - those that encourage equality, innovation and investment - are the bedrock of sustained economic growth. In contrast, extractive institutions, which concentrate power and wealth in the hands of a few, hinder progress and lead to poverty and instability.

Pakistan's persistent challenges, both related to economy and governance, can be traced to long-standing institutional weaknesses that perpetuate inequality, corruption and inefficiency. The country has endured "elite capture", where a small group of powerful families, politicians and military leaders dominate resources and shape institutions to serve their interests. This dynamic closely mirrors the extractive institutions identified by Acemoglu and his colleagues, which stifle long-term prosperity.

While the Nobel-winning economists focus on the broader role of institutions, the role of civil society, though implied, is critical to the success of inclusive systems. Inclusive institutions often rely on mechanisms supported by a vibrant civil society, including a free press, the rule of law, and public participation in decision-making. These components are essential for keeping governments accountable, preventing extractive tendencies, and ensuring that inclusive institutions remain resilient.

In the Pakistani context, this analysis underscores the pivotal role civil society must play in addressing institutional shortcomings. For too long, Pakistan's political instability and concentration of power have fostered extractive institutions that prevent equitable growth. Civil society must be strengthened to foster more inclusive systems that promote citizen engagement, accountability, and broad-based economic participation.

Civil society's role in promoting inclusivity is multifaceted. First, it serves as a watchdog, holding officials accountable and preventing the concentration of power. Second, it advocates for inclusive policies, such as investments in education, healthcare and infrastructure. Finally, civil society helps build social capital and fosters civic engagement, which creates a more favourable environment for inclusive institutions to flourish.

However, civil society in Pakistan faces considerable challenges, including government restrictions, censorship and harassment. Additionally, resource limitations and capacity constraints often reduce the impact of civil society organisations.

The insights from the Nobel laureates offer a critical reflection on the institutional failures that have plagued Pakistan. Their work leaves no room for ambiguity: nations trapped in poverty and instability are often held back by self-serving elites who manipulate weak institutions to consolidate power. In the current extractive system a few benefits at the expense of the many, stifling innovation, equality and true economic progress.

For Pakistan to escape this vicious cycle, superficial reforms won't cut it. The legislation and execution must be directed at taking decisive, courageous steps to dismantle the stranglehold of the entrenched elite. This means not only reforming institutions on paper but ensuring that these changes are backed by genuine enforcement. Civil society must be empowered to hold the government accountable. Lifting restrictions on free speech, dismantling laws that allow for harassment of activists, and fostering a free press are crucial first steps. If the government truly intends to build inclusive institutions, it must allow civil society to operate freely, without fear of retaliation.

Only by embracing these bold actions can Pakistan hope to break free from its cycle of poverty and underdevelopment.