MENA must focus on developing strong institutions for positive economic change
by The Ideation Center
Institutional economists assert the important role of institutions in affecting economic change. They underscore the evolution and interplay of demography (quality and quantity of human capital), the stock of human knowledge, and institutional change in conquering the physical and the human environments in order to reduce uncertainty and the cost of doing business*.
The precipitous rise of the MENA region’s population shows tremendous progress in conquering the physical environment. Infant mortality rates have declined to record lows over the past four decades and thanks to an improved healthcare system people are living longer. Similarly, on measures of human development such as education, there has been tremendous progress in providing access to education for the region’s population and in reducing illiteracy rates across the board. Realizing that quality is just as important as quantity, the MENA region has started over the past decade to focus on the quality of human capital although much work needs to be covered in this respect.
Similarly, initiatives throughout the region to develop local versions of Silicon Valley and to build ecosystems for promoting creativity and innovation underscore the need of the region to create knowledge clusters and build their own stock of knowledge. Indeed, several Arab countries are making progress in innovation measures such as patents. In Saudi Arabia, for example, 2007 US granted patents for one of its top universities was a meager 4 patents ranking the university at 176 worldwide. By 2012, however, the number of patents increased by 575 percent reaching 60 patents and ranking the university 55 in patent issuance worldwide.
However, whether these initiatives will reach their true and full potential in terms of adding value and positively impacting the region’s economies will depend on the sustained efforts of leadership and peoples of the region to develop strong institutions that can facilitate business and commerce. These institutions are important because they define individual rights, the governments’ roles and commitments to their peoples, legitimatizes the society in which they live, and maintain order which is important for economic development. Governance measures can be a good proxy of how far institutions have been developed. For example, perceptions about control of corruption in a country reflect the trust in governments in insuring protection of the country’s resources.
In most measures of governance (voice and accountability, political stability and absence of violence, government effectiveness, regulatory quality, rule of law, and control of corruption) the MENA region has a long way to go. World Bank Global Governance Indicators, for example, show that the MENA region scores last among regions with a 24 percent (out of a possible 100) while regulatory quality scores at the 45 percentile. Moreover, progress over time for many countries in the region has not been encouraging. According to a recent IMF report, the MENA region, especially countries in transition, have scored considerably worse in ‘government effectives’ and ‘control of corruption’ in 2011 than in 2000.
Despite this, there is a realization among the leadership and the people of the region that the way forward for economic progress is through developing strong institutions. Anti-corruption agencies created in recent years (despite their perceived weakness and lack of independence), for example, are a sign for the need to change the status quo. Whether these are a result of the Arab Spring or not it does show that change is taking place. Understandably, the development of institutions will not be done overnight especially given the history of neglect of such institutions and the absence of cultural elements that support their development. But the governments of the region can use enablers — not available in the past — to start these changes. Technology has proven a good tool in many countries for tracking progress and ensuring accountability of results. Indeed, government effectiveness has improved in several countries — with the UAE strongly leading in this measure — in part because of the use technology in providing efficient services and gauging the opinions of the public on public services such as the quality of education.
The MENA region and its peoples must be more optimistic about the future of their region and translate this optimism into a belief system that can engender positive change. Indeed, it is through beliefs that the right institutions can be developed; and through these institutions organizations can be established and policies formulated to engender sustainable development and a prosperous future for the region at large.
* See, for example, Douglas N. North. 2005. Understanding The Process of Economic Change, Princeton: Princeton University Press.
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