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Institutional Change in Africa: From Imitation to Innovation Print
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By: Hisham el Moussaoui
Exclusive for Al Waref
Translation Editor: Jennifer Young

Despite the institutional reforms undertaken in the 1980s and 1990s, African countries are still in a time behind that of other more developed nations.

They fail to achieve the same performance as other countries, including Southeast Asia (South Korea, Thailand, etc…). However, despite their slow beginnings, they have finally managed to start their economic development.

While African countries have more or less accepted the necessity of the market economy, experience has clearly shown the lack of importance placed on institutions that have proved successful elsewhere in ensuring economic development. The success of the transplantation of the market depends not only on the complementary aspects of "import" institutions (rule of law, property rights, etc..), but also their consistency with existing local institutions. Respect for complement and compatibility between the "imported" and local institutions is inevitable.

A 1993 recipient of the Nobel Prize in Economics, Douglas North, defines institutions as the set of rules, formal (laws, regulations, codes, etc.) and informal (social norms, customs, etc.), which govern the interactions of individuals. Advocates of global institutions (Washington consensus) believe that there are institutions (mostly Anglo-American) that all countries should adopt if they want to survive in a world that continues to globalize. The changes of institutions for “developing” countries are reduced to imitations of the market, regardless of the existing local formal and informal institutions.

However, institutional imitation is rarely enough to ensure the success of institutional development just as an imitation technology is rarely enough to ensure the success of a technological development. Introducing the official institutions does not produce the desired results if the countries lack the "importer" informal institutions which are necessary for its operation. Hence, it is necessary to take into account the compatibility of new and existing institutions. For example, it will be difficult to introduce value added tax (VAT) in countries where people do not usually seek or prepare receipts. It will be impossible to introduce a system of lean production in countries where there is no sense of “industrial” time. In the case of Algeria, the development of banking and financial systems cannot succeed because the Algerians do not have a culture compatible with bank use, as proof in the fact that cash makes up half of the money supply. In the case of Morocco, illiteracy does not facilitate the development of the use of modern means of payment such as checks and credit cards.

As imported technology must be adapted to local conditions, it takes some degree of adjustment for an imported institution to work. The case of privatization of the Russian energy sector is revealing in this respect. Indeed, privatization implies a change in the relationship between employer and employee, which is regulated by the constraint of profitability and productivity. But the legacy of a planned economy controlling the wages is based on the principle of full employment, which raises a conflict in shifting the system. Therefore, in return for maintaining the work force, there was adjustment in wages, making payments lower or using payments in kind (barter). This of course has prevented the upgrade of the companies and overcrowding has led to perpetual inefficiencies in production practices. Thus, countries that undertake reforms without considering the informal institutions suffer the effects of the conflict between the "imported" and pre-existing local institutions.

In contrast, countries that have made the effort to adapt institutions imported to the local institutions have managed their institutional reform. For instance, China has adapted the Anglo-Saxon institutions to realities on the ground, creating coherence between the institutions of "free market" and the existing local institutions. Thus, the creation of Township and Village Enterprises (TVEs) has granted property rights to local communities (midway between private and public property) and has been the engine of growth in China until the mid-1990s. Federalism in China has left the regions considerable autonomy and has created competition between regions. Finally, the introduction of anonymous bank financing has enabled the development of the financial sector, restricting the ability of governments to expropriate large repositories.

The lesson for Africa is that the developmental experiences are always very different for countries, dependent on their indigenous conditions. There is therefore no ready-made solution applicable to all countries, providing access to development. A balance is needed between the institutions imported, which are important for market functionality, and local institutions, which represent the specificities of the countries. This means that the role of African reformers will be to use the spirit of innovation to find an “appropriate” model.

Hicham El Moussaoui has a doctorate in economic science, head of media for the project
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