The importance of institutions: We do not have institutions that support prosperity! It is no coincidence that almost all prosperous countries are business friendly and they work hard to make sure that their citizens prosper. On the contrary, in poor countries, doing business is extremely difficult. Developed countries have institutions that support idea – finance them – limit bureaucratic procedures – give tax breaks and other incentives – let them prosper. Ethiopia is disappointing on this aspect. We do not have institutions at all. In Ethiopia, if you have a brilliant idea and do not have money to finance it – you will remain poor. Why? No institution/investor will step up to finance it. To make things even worse, if you have a brilliant idea and as well as money – you have to go through untold bureaucratic procedures and unheard corrupt officials – to see it materialized. Legislatively speaking, there are laws that intend to ease the bureaucratic procedures of doing business. However, those corrupt officials are never shy to ask for your money. The bottom line is we need institutions that encourage smart idea, finance it, limit bureaucratic procedures, see it materialize, and provide monetary and non-monetary incentives. Equally important, we need toimplement it in real life not just on paper. If doing business in Ethiopia is easy, at least two important things will happen. One – citizens will put their idea forward and that idea will become money – prosperity. Two – foreign investors will come and do business in Ethiopia. You may say – are you crazy? Investors are pouring their money in Ethiopia – because ETV sings it all the time. I know ETV talks, but things are different on the ground. Foreign investment in Ethiopia is very low – $366m in 2013. It is less than one percent of the GDP. It is even less than remittance – the sum of money we send to assist our families. To understand how powerful institutions are – refer to Belgium (2007-2011) Belgium was in a political crisis from 2007 to 2011. Following the 2007 winless election, Belgium could not form government. It took them 194 days (over six months) of negotiation to form government. That wasn’t enough. The 2010 election did not lead to immediate formation of government – the negotiations following that took whooping 541 days. Belgium, again, was without government for more that one and half years. Despite all that, Belgium persevered. Because of its awesome institutions, Belgians carried on their usual life. Belgian institutions kept on providing normal services without serious interruption. That is the type of institutions I am talking about. To understand how strong institutions lead to prosperity – refer to The Korean Example Korea is a very good example to show how things end up in different destination when countries chose separate ways. North and South Korea are the same in everything – they have the same culture and speak the same language, you name it. Following their divorce in 1948 – they follow separate ideology. South Korea chose establishing strong institutions while North Korea chose to anoint strong men. Their differences have never been clear. Now – South Korea is one of the richest countries in the world while North Korea is one of the poorest countries in the world. South Korean companies – Samsung, Hyundai, LG and others – are generating billions of dollars. As I write, I can’t name a single North Korean company. The Question The question comes down to this: if institutions are so important, why don’t we establish them and let Ethiopians prosper. So – why not? Well-connected and corrupt leaders of ours are the problem Our selfish and corrupt leaders are the ones standing on our way from getting those awesome institutions. If they let institutions to be established, they will lose money they would get in some form of corruption. Here is the paradox. If institutions are established, our leaders will only get their normal pay. Essentially – they will not be rich or super rich. On the other hand – if institutions are not established, our leaders will benefit from it and become super rich. Unfortunately, their richness is at the expense of the whole country. And Ethiopia will remain poor. Paying a lot of money to the leaders does not guarantee the establishment of institutions. Take Kenya as an example. The Kenyan President earns more than the American President in salary – but it did not lead to the establishment of institutions. We only need just one selfless administration to establish institutions It takes just one administration to change everything. I am not saying one leader – rather I am saying one administration – one administration that devises laws – form institutions – and implement it just as what is written in the law. If we have that and you, my reader, have a business idea – you can read the law, walk in confidently to those institutions knowing that the law is there to support your idea and getting things done without bribing (giving away your hard earned money) anyone. Why I say one administration? It is because it takes the whole people involved to get the law approved, institute it as institution and implement it exactly as it is written. After that one exemplary administration, all will follow its footsteps. One selfless leader does not work. He cannot be everywhere. One selfless leader, even, has negative sides. It creates strong man. When it comes to strong men – Ethiopia seems to have been heavenly blessed. Minilik II, Haile Selasie I, Mengistu Hailemariam and Meles Zenawi, all of them, were strong men. All of those enjoyed personal honors and fames. All their personal fames were, however, at the expense of the country. We do not need strong men. We need strong institutions. If strong man had been the silver bullet for prosperity – we would have been in a different place now. It is insane to still look for a strong man while knowing that it is not the answer to our prayers. By the way – strong men are not necessarily selfless leaders. Never mind – Human beings are limited in time but institutions are not People are limited in time. The life of a person is fragile. People die. The problem with having strong leaders is that when they die, everything falls apart. Institutions, however, live without limit. The writers of the US constitution are not alive. The constitution (an institutions itself) is well and alive now – no doubt it will be there even after we all die. Institutions cross generation. They provide a foundation for secured and prosperous life for multiple generations. They benefit law abiding citizens – punish the others. For our poverty – don’t blame anyone or anything. Blame those who stand on our way from having strong institutions. I have to admit. We are not the hard working people of the world. Our culture is not the one that encourages innovation and prosperity. Our religion is not money/business friendly. But I do not see them as the main reasons that make us poor. If we establish institutions that support all the good things I discussed above – everything else becomes trivial. Who is to blame – the administrations that refuse to institute awesome institutions. All past and present governments of Ethiopia are to blame for our poverty. By the way – democracy is an institution that makes sure that power transfer is smooth. It gives business people the assurance that their business will continue to operate even after the current leaders are gone. That, my friend, is the reason – many sing democracy is the way to salvation. This great article is by Girum Derib. Stay tuned....
Posted on: Tue, 21 Oct 2014 12:30:08 +0000
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