Development Institutions

May 21, 2012 Editorial

If our country is to continue to develop and, as is necessary to catch up with even our CariCom neighbours in the next decade, accelerate the pace of development, our squabbling politicians will have to take some time out to agree on the major fetters to our efforts. This does not mean that the present enthusiasm for housecleaning has to be abandoned, but merely suggests that even if the house is cleaned we are still left with the question as to what to refurnish it with.
The factors for development are multiple and diverse. We all know, from our personal experience, that there isn’t one simple answer to the question why each of us becomes richer or poorer: it depends on inheritance, education, ambition, talent, health, personal connections, opportunities, and luck, just to mention some factors. Hence we shouldn’t be surprised that the question of why whole societies become richer or poorer also cannot be given one simple answer.
Different experts have different views about the relative importance of the conditions and factors that make countries richer or poorer. The factors they most discuss are so-called “good institutions,” which may be defined as laws and practices that motivate people to work hard, become economically productive, and thereby enrich both themselves and their countries.
Among the good economic institutions that motivate people to become productive are the protection of their private property rights, predictable enforcement of their contracts, opportunities to invest and retain control of their money, control of inflation, and open exchange of currency. For instance, people are motivated to work hard if they have opportunities to invest their earnings profitably, but not if they have few such opportunities or if their earnings or profits are likely to be confiscated.
There is no doubt that good institutions are important in determining a country’s wealth. To our credit, we have introduced most of the above institutions since 1990. So why haven’t we progressed farther? There is the question of time. A long history of government doesn’t guarantee good institutions but at least permits them; a short history makes them very unlikely. One cannot just suddenly introduce government institutions and expect people to adopt them and to unlearn their long history of backward organization. Next Saturday is the 42nd anniversary of our Independence from Britain: this is a blip in the life of nations. Our politicians must appreciate we are a very young work in progress.
An additional factor behind the origin of the good institutions is that in our country, Europeans introduced corrupt “extractive” economic institutions, such as slave and indentured labour and confiscation of produce, to drain wealth from our country. There were also authoritarian political institutions. In our case “extractive economic institutions” meant practices and policies designed to extract incomes and wealth from our entire society to benefit the foreign imperial power. For instance, even though we produce sugar, not a single refinery was established here to give a higher value added product. This is the ‘underdevelopment’ of which Rodney spoke.
This was unlike countries such a Canada and Australia where European settlers had to work themselves and they developed institutional incentives rewarding work. When the former colonies like ours achieved independence we inherited the extractive and authoritarian institutions that coerced the masses to produce wealth for dictators and the elite. In the ‘settler’ colonies of Australian etc, they were left with institutions by which the government shared power and gave people incentives to pursue. The extractive institutions retarded economic development, but incentivizing institutions promoted it.
But while we have noted the comparative youthfulness of our nation, this does not give our political elite an exemption. It is an indictment of their maturity that while the questions above were confronted by the founders of our independent nation some seem to revel in fingerpointing. Unless the institutions undergirding our flawed systems are modified to match our circumstances and patience is exercised to ensure their rules are inculcated in our people (including mainly themselves) we will be arguing about our ‘underdevelopment’ forty-two years from today.

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