Institutions, institutions!

In his seminal work, Nobel laureate Douglass C North argues that “the central issue of economic history and of economic development is to account for the evolution of political and economic institutions that create an economic environment that induces increasing productivity”. These “rules of the game”, as North calls them, are the critical factor in development. Economic historian Niall Ferguson tends to agree with North and notes “that institutions — in the broadest sense of the term — determine modern historical outcomes, more than natural forces like weather, geography or even the incidence of disease”. Thus, if good and strong institutions are not built, economic, nay any kind of sustained development and growth cannot take place.

In their recent work, Jim Robinson and Daron Acemoglu, further distinguish between two different types of institutions, ‘extractive’ and ‘inclusive’, with the former inhibiting growth and the latter fostering it. They give the example of England and Egypt in 1688, when both of them were comparable, but drifted apart since the Glorious Revolution in England limited the powers of the Crown, gave people more political and property rights and led to an expansion of economic opportunities.

The development of institutions is also critically tied to the promotion of justice. As Nobel laureate, Amartya Sen, notes: “Any theory of justice has to give an important place to the role of institutions, so that the choice of institutions cannot but be a central element in any plausible account of justice.” Thus, institutions are the basic framework on which modern societies are built and growth is predicated.

In the South Asian context, the role of institutions has been, and is, critical. In my recent visit to India, I had a chance to revisit the reasons behind the different development trajectories of India and Pakistan. Among the other very good reasons, I found the divergence in institution building and strengthening rather startling. There are lots of examples here, but let me mention a couple.

First, both India and Pakistan were conceived as parliamentary democracies — on the style of the United Kingdom. This meant that the legislature should have been the most important institution in the country — and let us not forget that even the monarch is ‘Sovereign in Parliament’. Since the last elections before independence were held in 1946, the next parliamentary elections should have been held in 1951. India followed this policy and held elections in 1951, followed by 1957, 1962, 1967 and so on. While the Congress won all elections till the 1970s, never did the leaders of India, especially Jawaharlal Nehru, think that they should not go to the electorate. For democracy to take root in India and for parliament to become the key governance institution, this recurrent recourse to the people was essential. Of course, as we know, in Pakistan, elections kept getting postponed for one reason or another and the first general elections were held 23 years after independence — in 1970 — and led to the break-up of the country, since the ‘powers’ could not accept the popular mandate. This blatant disregard of the legislature and its primacy and the refusal to let the people decide who to rule them, is one of the primary reasons for the weakness of democracy in Pakistan.

Secondly, and this became more patent in my recent visit to India, both countries have divergent views when it comes to rules — of any kind. In my conversations in India, both a senior foreign service officer and a highly placed government official told me stories of how they had to deal with a long list of formal rules and procedures when their issue could have been resolved rather quickly. While I also saw the annoyance in following all the rules, which at times feel tedious and unnecessary, analysing it from an institutional perspective, I feel that following such rules is really important. No institution can be strengthened if people simply bypass rules and break them. If the same rules are applied and followed by a cabinet minister and a common man, it gives people confidence that the ‘rules of the game’ are being followed. This ‘inclusionary’ institution then gives confidence to the people and leads to development. Here again, as we know, Pakistan is in sharp contrast to India and people break rules at will — from the clerk to the secretary. Therefore, no strong inclusionary institutions have developed in the country.

While the role of the people is important in the development of any country, the existence of inclusionary institutions is a sine qua non and so, Pakistan needs to radically rethink its focus.

Published in The Express Tribune, February 12^th, 2013.