High Performing Institutions and Economic Development: A Case Study of Uganda

Abstract

The study focuses on the related issues of the New Institutional Economics and Political Economy research: the evolution of formal economic and political institutions overtime; the causality between political institutions and economic institutions, and that between institutions and economic development; and the role of institutions in economic development. The issues are discussed in six sections. The study adopted the conceptual framework on institutions proposed by Douglas North. Every society has a set of fundamental institutions that provide the basic scaffolding for human interactions, what North (1999) calls an institutional framework. In modern developed societies, institutional frameworks nurture market exchange by lowering the cost of transacting, encouraging trust, and motivating the powerful to protect the property and individual rights of the weak. Institutional frameworks that encourage modern markets only developed in the last 300 years. Institutions are the humanely devised constraints that structure human interaction (North 1990, p.3). That they include written, formalized constraints such as constitutions and laws, and tacit, informal constraints such as norms, conventions and self-imposed codes of conduct (ibid, p.3). In Douglas North’s view, institutions are the product of intentional human efforts to provide structure in an uncertain world. They reduce uncertainty and risks by making others’ actions more predictable. Greif (2006) has a broader definition of institutions as a system of shared beliefs, internalized norms, rules, and organizations that motivate, enable, and guide individuals to follow one rule of behavior thereby generating regularities of behavior. In Greif’s view an institution is by definition self-enforcing; a rule imposed by the state would not constitute an institution unless it affected behavior. Every society has a set of fundamental institutions that provide the basic scaffolding for human interactions, such as constitutions or widely held norms. Although many rules and habits change frequently, these fundamental institutions are more persistent and deeply rooted, which is termed the institutional environment or institutional framework. It has been noted in the study that a society’s institutional framework is the product of its history. Powerful groups and individuals shape fundamental institutions to perpetuate their power, and some of these structures persist. They endure, and not just because powerful elites enforce them. Overtime they become part of society’s shared beliefs about how the world works, or should work, beliefs about how others will behave, or should behave; they become internalized norms and can be difficult to change and impossible to ignore (North 2005b). Hence, today’s successful market economies are characterized by institutions that support impersonal market exchanges, sometimes spanning long distances and extended periods of time. Barter and the bazaar have not been eliminated, and trust and reputation are still important to trade. But these traditional forms of exchange and enforcement exist side by side with hands-off transactions between multiple layers of strangers governed by regulators, courts and police. The central theme of the research across all sections is the demonstration of how political players holding de facto political power operating under weak political rights and civil liberties use legal operators to benefit themselves and their close associates. For instance, starting with the British rule, an extensive legal apparatus designed by those holding de facto political power expropriated much of the land in many colonies and redistributed it to themselves at the expense of the indigenous populations whose political rights and civil liberties were grossly undermined. However, after independence, several political players in the newly independent Uganda made little effort to fundamentally change the colonial laws that governed land rights and could not as well promote strong political rights and civil liberties. The dissertation argues that despite pressures from the populace, political leaders and their interest groups holding de facto political power entrench themselves in the system under weakly institutionalized environment, and oppose reforms by all means including force, since such reforms go against their interests. The delay in such reforms often leads to the breakdown of governance. Such breakdown inevitably leads to conflict and social crisis such as the Buganda Crisis of 1966 and the related coup de tats that followed.