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GLOBAL MARKETS : Elections Don't Matter, Institutions Do

Global Affairs

WEDNESDAY, JANUARY 15, 2014 - 04:01 

Many years ago, I visited Four Corners in the American Southwest. 

This is a small stone monument on a polished metal platform where four states meet. 

You can walk around the monument in the space of a few seconds and stand in four states: Arizona, New Mexico, Colorado and Utah. People lined up to do this and have their pictures taken by excited relatives. 

To walk around the monument is indeed a thrill, because each of these four states has a richly developed tradition and identity that gives these borders real meaning. 

And yet no passports or customs police are required to go from one state to the other.

Well, of course that's true, they're only states, not countries, you might say. 

But the fact that my observation is a dull commonplace doesn't make it any less amazing. 

To be sure, it makes it more amazing. 

For as the late Harvard Professor Samuel P. Huntington once remarked, the genius of the American system lies less in its democracy per se than in its institutions. 

The federal and state system featuring 50 separate identities and bureaucracies, each with definitive land borders -- that nevertheless do not conflict with each other -- is unique in political history. And this is not to mention the thousands of counties and municipalities in America with their own sovereign jurisdictions. 

Many of the countries I have covered as a reporter in the troubled and war-torn developing world would be envious of such an original institutional arrangement for governing an entire continent.

In fact, Huntington's observation can be expanded further: The genius of Western civilization in general is that of institutions. 

Sure, democracy is a basis for this; but democracy is, nevertheless, a separate factor. 

For enlightened dictatorships in Asia have built robust, meritocratic institutions whereas weak democracies in Africa have not.

Institutions are such a mundane element of Western civilization that we tend to take them for granted. 

But as I've indicated, in many places I have worked and lived, that is not the case. Getting a permit or a simple document is not a matter of waiting in line for a few minutes, but of paying bribes and employing fixers. 

We take our running water and dependable electric current for granted, but those are amenities missing from many countries and regions because of the lack of competent institutions to manage such infrastructure. 

Having a friend or a relative working in the IRS is not going to save you from paying taxes, but such a situation is a rarity elsewhere. Successful institutions treat everyone equally and impersonally. 

This is not the case in Russia or Pakistan or Nigeria.

Of course, Americans may complain about poor rail service and deteriorating infrastructure and bureaucracies, especially in inner cities, but it is important to realize that we are, nevertheless, complaining on the basis of a very high standard relative to much of the developing world.

Institutions, or the lack of them, explain much that has happened in the world in recent decades. 

Following the collapse of the Berlin Wall, Central Europe went on to build functioning democracies and economies. 

With all of their problems and challenges, the Baltic states, Poland, the Czech Republic, Slovakia and Hungary have not fared badly and in some cases have been rousing success stories. 

This is because these societies boast high literacy rates among both men and women and have a tradition of modern bourgeois culture prior to World War II and communism. And it is literacy and middle class culture that are the building blocks of successful institutions. 

Institutions after all require bureaucrats, who must, in turn, be literate and familiar with the impersonal workings of modern organizations.

The Balkans have been less fortunate, with bad government and unimpressive growth the fare in Romania since 1989, semi-chaos rearing its head in Albania and Bulgaria, and inter-ethnic war destroying the Yugoslav federation in the 1990s. 

Here, too, a history of lower literacy rates, weak or in some cases non-existent middle classes, and an Eastern Orthodox faith that, because it is more contemplative it does not encourage impersonal standards, at least to the degree of Protestantism or even Catholicism, have all been factors in a weaker institutional basis for economic growth and political stability. 

Russia, too, fits into this category. Its system of oligarchs is a telltale sign of weak institutions, since corruption merely indicates an alternative pathway to getting things done when laws and the state bureaucracies are inadequately developed.

Then there is the greater Middle East. The so-called Arab Spring failed because the Arab world was not like Central and Eastern Europe. It had low literacy, especially among women. It had little or no tradition of a modern bourgeois, despite commercial classes in some cities, and so no usable institutions to fall back upon once dictatorships crumbled. Thus, what was left in North Africa and the Levant after authoritarianism was tribes and sects; unlike the post-communist civil society that encouraged stability in Central Europe. Turkey and Iran, as real states with more successful urbanization and higher literacy rates, are in an intermediate category between southern Europe and the Arab world. Obviously, even within the Arab world there are distinctions. Egyptian state institutions are a reality to a degree that those in Syria and Iraq are not. Egypt is governable, therefore, if momentarily by autocratic means, whereas Syria and Iraq seem not to be.

Finally, there is Africa. 

In many African countries, when taking a road out of the capital, very soon the state itself vanishes. The road becomes a vague dirt track, and the domains of tribes and warlords take over. This is a world where, because literacy and middle classes are minimal (albeit growing), institutions still barely exist. 

The way to gauge development in Africa is not to interview civil society types in the capitals, but to go to the ministries and other bureaucracies and wait in line and see how things work -- and if they do.

Indeed, people lie to themselves and then lie to journalists and ambassadors. So don't listen to what people (especially elites) say; watch how they behave. Do they pay taxes? Where do they stash their money? Do they wait in line to get drivers' permits, and so forth? It is behavior, not rhetoric, that indicates the existence of institutions, or lack thereof.

Elections are easy to hold and indicate less than journalists and political scientists think. 

An election is a 24- or 48-hour affair, organized often with the help of foreign observers. But a well-oiled ministry must function 365 days a year. 

Lee Kuan Yew is one of the great men of the 20th century because he built institutions and, therefore, a state in Singapore. 

For without basic order there can be no meaningful freedom. And institutions are the foremost tools of order.

Because institutions develop slowly and organically, even under the best of circumstances, their growth eludes journalists who are interested in dramatic events. 

Thus, media stories often provide a poor indication of the prospects of a particular country. 

The lesson for businesspeople and intelligence forecasters is: Track institutions, not personalities.

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