Why are some countries richer than others?
Why are some countries richer than others? The question often crops up in relation to South Africa’s colonial history or when comparing our economy with that of other developing nations.
Three globally-acclaimed economists believe they have the answer, and it is likely to ring true with anybody with an interest in South African politics.
The fundamental determinant of national prosperity, or the lack thereof, is the strength of a country’s institutions and rule of law, the economists found in a research project that won them this year’s Nobel Prize for economic sciences.
“Societies with a poor rule of law and institutions that exploit the population do not generate growth or change for the better -- the laureates’ research helps us understand why,” said the Royal Swedish Academy of Sciences which administers the prestigious award.
Colonial conquest was not uniform in the manner it impacted the colonised, with some colonial powers establishing institutions purely for extractive reasons, while others build more sophisticated institutions better able to service a settler population, their research showed.
“Some countries become trapped in a situation with extractive institutions and low economic growth,” the RSAS statement goes on to say by way of summarizing the laureates’ work. “The introduction of inclusive institutions would create long-term benefits for everyone, but extractive institutions provide short-term gains for the people in power. As long as the political system guarantees they will remain in control, no one will trust their promises of future economic reforms. According to the laureates, this is why no improvement occurs.”
No doubt these research findings will have broad relevance given the long and worldwide history of colonial conquest. But they have particular relevance to South Africa’s ongoing debate about the health of our own institutions, a debate that reached its zenith during the build-up to this year’s national elections.
On the one hand our rule of law, judiciary and media are often cited as attributes when adjudicating South Africa’s international competitiveness; on the other hand our recent history of state capture has left many questioning whether we have reclaimed all the lost ground.
Many analysts believe this year’s dismal voter turnout suggests we still have a long way to go to restore public trust in our key institutions and their ability to effect meaningful economic growth.
The Nobel laureates’ work is a reminder to remain vigilant about the state of all the key institutions underpinning our democracy. They need sufficient staff, competent staff, and regulatory support to fulfill their mandate of broadening our democracy, rather than repeating history by simply serving the political elite.
John Lawson
CEO of the Cape Chamber of Commerce and Industry