Ineffectiveness of Institutions Has Given Way to Corruption

The role of institutions in the economy is much more important than you think. Believe that markets are autonomous entities that move in the middle of an immense social and institutional vacuum, and always tend to efficiency barring interference by political authorities, is like believing that the low level of employment Spanish economy is due to the excessive rigidity of the labor market, rather than the mediocrity of a productive generator products and services of low value-added enterprises composed of very small and unable to adapt to the new conditions imposed by the global competition.

Indeed, in the absence of institutions to ensure that markets work effectively, these simply do not exist. No regulatory legal frameworks that force companies to comply with the basic rules of competition, to repel corruption, assuming the negative environmental effects of their actions, or remove information asymmetries between the actors involved in them, markets would be a mere pipe dream that anyone would recognize as such, except of course, those who derive substantial income, the result precisely from the failure of such rules. A troubled waters, fishermen gain.

That said, it is not just to create institutions, but they should be sufficiently effective and reliable. So when country’s institutions responsible for shaping and controlling regulators  behave completely irresponsibly, it all comes down like a house of cards. Consequently many companies find it more profitable to devote their efforts to woo the governing political parties to achieve agreement or predispose regulators in their favor, which compete in an open market with the company ‘s own weapons; namely: quality, productivity and innovation.

Join all the growing legal uncertainty or exasperating slowness of justice in matters of civil or commercial character, and add the commitment shown by all public authorities to obstruct the creation of new businesses through all sorts of bureaucratic trickery, and we have the most complete picture of the plight that our production model is from the start of the crisis and beyond.

In short: a strong economy needs strong, effective and reliable institutional frameworks. Everything else is very important, but is second in the ranking of our immediate priorities. Sorry, but so it goes.

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Posted by Jamshed Sindhu on May 7 2014. Filed under Opinion. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.