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The Royal Swedish Academy of Sciences has awarded the 2024 Nobel Prize in Economic Sciences to Daron Acemoglu, Simon Johnson and James A. Robinson "for studies of how institutions are formed and affect prosperity." Jakob Svensson, Chair of the committee for the prize in economic sciences, says, "Reducing the vast differences in income between countries is one of our time's greatest challenges. The laureates have demonstrated the importance of societal institutions for achieving this". [Officially known as the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, it is the final prize awarded this year and is worth 11 million Swedish kronor (US$1.1 million).]
A building is built over a foundation. Even when the foundation is weak, the building may rise higher and higher temporarily. However, one day the building will come down crumbling rapidly when the foundation is severely weak. Like a building, the country's foundation is its institutions such as judiciary, police, election commission, anti-corruption bureau, civil bureaucracy, education, financial sector, media, etc. When those are politicised and weakened, disasters are in wait to happen.
The previous autocratic regime of Sheikh Hasina zealously highlighted the mega infrastructure projects in the form of roads, highways, metro, bridges, as the benchmark for development, undermining the importance of quality institutions. The 'Frankenstein' institutions, such as security agencies, judiciary, civil bureaucracy, and the Machiavellian institutions, like election commission, financial sector, media, anti-corruption bureau, educational administration created by the previous regime have placed the country in a precarious situation with uneven development and anarchy. Severity of the situation can be gauged by how some major key institutions went into hiding at the fall of the government, which is unprecedented in Bangladesh's history.
To build a viable nation from the fractured society, the process of institutional building is of urgent priority. Severely painful it may be, nothing else would play a more vital role in the long-term sustainability of the nation. In a transparent and participatory society, these institutions would be the foundation of the nation enforcing the "checks and balance" ideals. Competent institutions will guide and navigate through the risky and uncertain landscape full of dark storms and flashy thunders to the one with sunshine and relative calm. Those institutions would establish a mechanism for conflict resolution among the competing interest groups, which in essence lead to minimizing inefficiencies and social losses (economic losses).
Two of this year's winners, Acemoglu and Robinson, using historical observations in their masterpiece, 'Why Nations Fail', argue that the key to sustained prosperity for a nation is inclusive institutions, both political and economic. Inclusive political institutions distribute power broadly in the society instead of power concentrated in the hands of the narrow elite, and allow meaningful constraints on the exercise of this power. These kinds of institutions would most likely support the establishment of inclusive economic institutions, which would not allow expropriation of resources of the masses by the elites. Those economic institutions secure property rights, erect unbiased rule of law, and offer public services that provide a level playing field encouraging wide participation of the mass people in beneficial economics activities.
They identified the classic example of the once-united homogeneous Korean peninsula, where the two different sets of institutions in their respective countries led to hugely divergent economic success-- North being one of the poorest and South being one of the most prosperous in the world. Similar evidence exists all over the world, including a recent study by Professor Simeon Kaitibie and team, which highlights a positive mediating role of the institutional quality on the impact of agricultural public services in Sub-Saharan Africa and Asia.
Acemoglu and Robinsonhave demonstrated that some of the sub-Saharan African countries, such as Sierra Leone and Zimbabwe, missed the golden opportunity for long-term benefits for all after independence due to the continuation of the harmful extractive institutions that existed in pre-independence colonial time. In contrast, enlightened leadership along with efforts in creating inclusive institutions in the early stages of independence has led to remarkable growth and prosperity in Botswana.
Political process sets the rules of governance in a society. The economic sciences laureates have shown that the extractive (non-inclusive) political institutions in most cases enable the elites in power to structure the economic institutions, extractive ones, to enrich themselves at the expense of the rest of the society. Those institutions provide short-term gains for the people in power. The power of this disproportionate economic wealth further consolidates their political dominance. Sadly, the cycle may continue even when a new group challenge and successfully take over the power from the existing elites. The new group in control has the incentives to maintain the status quo of extractive political and economic institutions to solidify their hold on power.
Bangladesh style crony political and capitalist system has created wealth for a very few oligarchs who are at the centre of power and their political and personal network at the expense of the vast majority. They have found ways to plunder the national resources and smuggle the hard-earned foreign currencies out of the country, leading to concentration of wealth and power at the hand of selective few.
Good institutions, by encouraging trust, would establish the environment to pursue peaceful ways to resolve any conflict among the competing interest groups. The destruction of institutions in Bangladesh has been alarming since independence, with occasional success stories. However, history had taught us repeatedly that man's ingenuity has the power to overcome geological, psychological, economic handicaps. "Man, not the earth, makes civilisation", as Will and Ariel Durant, Pulitzer Prize winning historians, concluded.
The nature of weakness in institutions is one of the most significant features along with other conditions that contribute to underdevelopment and, in any case, delayed development. Following the recent successful student-led uprising in Bangladesh, to start a new beginning with long-term sustainable prosperity, there is no alternative but to make the institutions strong and establish "checks and balance" ideals.
With sincere initiative and efforts of galvanising leadership and supporters, why would not Bangladesh overcome its obstacles? Slow it may be, but the leadership must lay the foundation for the future.
Dr Ishrat Hossain is an Adjunct Associate Professor in Economics at East West University, Bangladesh and former Economics faculty at Qatar University and former Research Fellow at University of Technology Sydney, Australia.