Document Library

Key Text Reforming Institutions: Where to Begin?

Author: M. Idrees Khawaja, Sajawal Khan
Date: 2009
Size: 27 pages (420 KB)

Access full text: available online

Summary

How can institutions in Pakistan be reformed? This working paper from the Pakistan Institute of Development Economics analyses the current literature on institutional change. For institutional change to happen, cultural belief systems must be shaped in a way that provokes a shift in the institutional power structure. Given the current institutional framework and social situation in Pakistan, institutional reform should focus on changing cultural belief systems through education policy reform.

According to Douglass North, institutions are “humanly devised constraints that shape human interaction”. They can take the form of either formal rules and organisations, or informal behavioural norms. While all societies have institutions, the relevant question is how certain societies develop the sort of institutions that promote economic growth and social development.

One of the major issues in the study of institutional development is the problem of endogeneity. This means that elites with de jure power benefit from a certain institutional arrangement, and therefore have no reason to develop better institutions. Additionally, social beliefs are significant in that they define society’s ability to question, participate in and reform the current set of institutions.

Historical examples prove that successful institutional reform results when citizens with de facto power are able to influence the elites who rule by de jure power. For lasting results, this must be done gradually. According to history, de facto power can overcome de jure power where:

Fiscal constraints and commercial interests require good institutions
Elites do not benefit from poor institutions through rent-seeking behaviour or where they stand to benefit from institutional reforms
There is serious threat of a revolution or ideological reform
World powers do not provide aid or support to rent-seeking rulers
There is political stability

Pakistan's social belief system needs to become more conducive to supporting institutional change; for a society to agree on an institutional change, belief convergence within that society is essential. For this to happen, Pakistan's present heterogeneous educational system should be replaced with a single educational system for all up to a certain grade. The rationale is that different readings foster different beliefs. Reforms in Pakistan should therefore focus on the educational system as a method of changing beliefs in order to better balance de jure power and de facto power. Educational reform should be supported because it:

Shapes the beliefs of those in a position to enact institutional change in the future.
Does not threaten the immediate future of elites, which means that it will be less likely to meet resistance than more overt policies.
Forms consensus by bringing the interests of the elites and other citizens in line, which will make change long lasting.
Increases the ability of the citizenry to comprehend the effects of bad institutions and demand the creation of more beneficial institutions.

Access full text: available online

Source: Khawaja, M.I., and Khan, S., 2009, 'Reforming Institutions: Where to Begin?', Pakistan Institute of Development Economics, Islamabad, Pakistan
Author: Idrees Khawaja , khawajami[at]yahoo.com
Organisation: Pakistan Institute of Development Economics, http://www.pide.org.pk