An Institutionalist Assessment of Structural Adjustment Programs in Africa

By Schneider, Geoffrey E. | Journal of Economic Issues, June 1999 | Go to article overview
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An Institutionalist Assessment of Structural Adjustment Programs in Africa

Schneider, Geoffrey E., Journal of Economic Issues

The failures of structural adjustment programs (SAPs) in sub-Saharan Africa have been well documented.(1) In response to these failures, the World Bank has recently adopted a more institutionalist approach to these programs. However, the brand of institutionalism adopted is new institutional economics (NIE), rather than original institutionalist economics (OIE). NIE posits that the key institutions contributing to economic development are stable property rights and monetary incentives. Drawing on a narrow interpretation of the successes of the Asian newly industrialized countries (NICs), NIE assumes that these institutions are common to all developing societies, and that they can be readily transplanted to Africa. In this paper, I briefly document the limitations of the NIE approach to development in the African context, and I assess the particular characteristics and institutions common to African economies that limit the success of SAPs in Africa. I then formulate an alternative to SAPs based on OlE principles of economic development.

Because development economists must address the evolution of diverse economic systems within the context of their unique institutional characteristics, Phil Klein [1994, 238] has argued that even "mainstream development economics is basically institutionalist." The World Bank itself is seemingly moving in this direction. In a recent World Bank publication, the president of the World Bank, James D. Wolfensohn [1998a, xi], admitted that "more than ever the role of institutions is central to development effectiveness." But the kind of institutionalism promoted by the World Bank is NIE. Eduardo Wiesner [1998, 114] described the NIE perspective as distinct from the institutionalist tradition of Veblen and Ayres:

What distinguishes neoinstitutional economics from previous "institutional" or "historical" schools is that the former has more of a theory behind it. That particular theory has two interdependent components: first, a reliance on competition as the condition that induces efficiency, and second, the belief that the right incentive structure is the best answer to the restrictions that arise from the neoclassical model.

The success or strength of neoinstitutional economics is largely attributable to its microanalytical orientation. In essence, this means devoting less attention to the traditional aggregate questions of resource allocation, equilibrium, and scarcity and more to incentives, contracts, transactions costs, organization, information, process, rent-seeking, rules of choice, and asset specificity.(2)

In contrast, Eiman Zein-Elabdin [1996, 940] described the NIE of the World Bank as follows:

The World Bank reform is based on the "new institutional" concept of institutions as the incentive structure for society, hence the Bank's notion that institutional reform is needed to allow efficient decisions by individuals. This view perceives that people uniformly respond to stimuli, thereby entirely missing the cultural idiosyncrasy and path dependence of institutions. It also misses the nature of institutions as habits of thought. . . .

In short, we are faced with a barely modified version of neoclassical economics that recognizes some of the barriers to traditional neoclassical analysis that arise in the developing world, without the sophisticated cultural, holistic analysis of society that original institutionalists undertake, which is so vital to understanding economic development.

The presumption of an NIE-based approach is that export-oriented growth will occur in Africa as it did in Asia if property rights and incentives are adjusted correctly. What is most troubling about NIE-based SAPs in Africa is that while SAPs continue to emphasize the benefits of unimpeded markets for a/l societies, they also demonstrate a lack of understanding of how particular markets work and how culture and habits of thought cause African "markets" to operate differently from Western "markets.

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