BY AYSO VAN EYSINGA
At our current juncture, due to the lack of a fundamental explanation for the huge variation in growth trajectories of countries, the role of institutions has become increasingly important in theories of economic development. The importance of “good” endogenous institutions that assure long-term, inclusive growth and development is now accepted in theory and practice; however, the question of how such institutions are established remains a matter of debate. Theorists contend whether institutions are the prerequisite to development, or if they can improve during the process of development.
While there now exists general consensus around the critical importance of institutions in development, the heterogeneity of experiences of developing countries in the post-colonial world cannot be overlooked. Policies on institutional development must be grounded in the multiplicity of experience across the developing world, as the one-size-fits-all approach so popular in the past failed to achieve sustained economic growth.
Institutions are a broad concept, with the most widely accepted definition being “the humanly devised constraints that structure political, economic and social interaction,” thus implicitly including both political and economic institutions that shape incentive structures, whether promoting or hindering the development process. The view that institutions are inherently endogenous and prerequisites for development, especially in the long-run—what Przeworski refers to as “new institutionalism”—dominates the institutional discourse.
Political and economic institutions are inherently linked. Political institutions shape economic institutions, which in turn generate economic outcomes that reinforce political institutions in perpetual feedback. The emergence of institutions is based on the endowment of power—a balance between the de-jure power of political institutions, and the defacto power of economic strength due to the distribution of resources—producing institutions that vary in their degree of accountability to the majority of people. In this model, “good” institutions are those that provide a secure environment for the majority of the population through economic and political inclusion, and are committed and credible; conversely, “bad” institutions favour a small elite, are unstable and insecure, and therefore do not incentivize development.
“Bad” institutions persist insofar as political institutions captured by elites lead to extractive economies, which then produce economic outcomes that only benefit the elite. This vicious cycle often stems from colonial history, and the path to breaking the cycle is neither agreed upon in theory, nor clear from experience. One school of thought stresses the primacy of political institutions, asserting that stable institutional change—and therefore growth and development—is not possible without first improving political institutions. The policy implications of this school of thought are limited, as self-reinforcing institutions cannot be altered exogenously; hence the outlook is bleak for countries trapped in this vicious cycle. The alternate view is more optimistic: Building upon Lipset’s Modernization theory, the “growth” school of institutional development stresses the direct link between institutions and economic growth, pointing to empirical evidence that growth can lead to institutional reforms through human and civic capital.
Beyond these two contradictory views, a more pragmatic approach considers the “large element of context specificity, arising from differences in historical trajectories, geography, political economy or other initial conditions.” The heterogeneity of countries implies that conforming to one model is inherently flawed. The contextual approach contends that both institutions and development are endogenous, countering persistence theory and pointing to randomness in country-specific contexts that can lead to institutional change. Attributing development to “confluence factors”, including critical junctures, existing institutions, and even a dose of luck, paves the way for targeted development policies within each country’s unique context.
Côte d’Ivoire’s post-colonial trajectory is an ideal example of such a pragmatic approach, as its path cannot be explained by either primacy of institutions or modernization theory, but instead exhibits features of both.
The complexity of the Ivorian experience must be contextualised with its colonial history. The French had a particular style of colonization in Sub-Saharan Africa, centered on an extractive, export-centric economy, and an elite educated class of Africans that assimilated into French culture. Starting from an initially exclusive political institution, the French gradually increased the level of inclusion of Ivorian elites in an attempt to justify and maintain control over the colony, particularly with the erosion of their power after the Second World War due to national and international pressures. The French model can therefore be characterized as a mixture of exclusive and inclusive institutions.
Exclusive institutions with inclusive elements also formed the foundation for the post-colonial political and economic framework under Côte d’Ivoire’s first leader, Félix Houphoüet-Boigny. Houphoüet-Boigny and his political machine, the Parti Démocratique du Côte d’Ivoire (PDCI), consolidated power through a combination of elite cooperation from the pre-colonial period, and a policy of co-option that allowed for the entry of new actors into the political power balance as seen necessary for stability. Thus, institutions continued to be exclusive to elites, while adopting a process of inclusion, thus allowing for a degree of ambiguity in power structures, and an expansion of the political and economic base over time. Despite its ostensibly extractive political institutions, Côte d’Ivoire prospered under the PDCI, with gains reaching all levels of society, albeit unequally. Autocratic rule, with state-led growth based on extraction from export-centric agriculture, led to Côte d’Ivoire’s “economic miracle” from 1960 to 1980, with an average growth rate of 7 percent over this period, refuting predictions of the vicious cycle of persistence.
The late 1970s saw the PDCI at the height of its power, profiting from a commodity boom that spurred massive government spending and high hopes for the future. The success of benevolent autocracy seems to have proven that modernization works; that development, both of a country and its institutions, can catalyze growth, regardless of the context. Yet Côte d’Ivoire subsequently collapsed in the 1980s, as commodity prices fell and the PDCI could no longer sustain increasingly inefficient para-statal industries, an enormous public sector, and artificially high commodity prices. Economic malaise across the country incited urban unrest and, in a last ditch attempt to maintain power, Houphoüet-Boigny called for democratic elections in 1990. These elections marked the beginning of the prolonged civil instability that continues to plague Côte d’Ivoire, fragmenting society and increasingly creating an atmosphere of exclusion previously contained under the PDCI.
The fall of Côte d’Ivoire was dramatic, as what was initially considered a “miracle” by the international community descended into a “mirage.” Three factors contributed to this decline: inherent changes in society since independence, exogenous commodity price shocks, and poor policies from the PDCI. The balance under the PDCI fractured as new political parties sought support through differentiation, and fueled by xenophobia and ethnicity—a by-product of rapid democratization. As political institutions fell apart, so did the economy, which was reflected in worsening living standards and falling growth rates. Institutional decay could either be attributed to failed attempts at institutional improvement, or the legacy of exclusive institutions; therefore, both modernization theorists and those who consider institutions as primary for development could use the Ivorian case of success and then decline to support their arguments.
The experience of Côte d’Ivoire illustrates the need for pragmatic approaches to development, institutionally and otherwise, and the need to consider context-specific factors in policymaking. In the absence of such a contextual approach, any attempts to engage in exogenous reform by conforming to the constraints of a single theory will only result in the same failures that have marked prior attempts at development.
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