Developing Democratic Institutions in Ethiopia: The Challenge of Building Enabling Institutions for Economic Growth and Development

Introduction: Objectives and Assumptions

This article provides some perspectives on contemporary political and economic development policy problems in Ethiopia. It is intended to provide a critical input to the process of constructive policy dialogue aimed at enhancing democratic institutional building and reform for the economic development of Ethiopia. First, it must be stated that a serious economic and political reform in Ethiopia is in everyone's interest regardless of political views and orientation. Such a move is in the enlightened self-interest of the civil society, the current government, the various opposition groups, and the population in general. It would be a positive-sum move from which everyone may gain in the long run. Second, a serious and sustained institutional and policy reform must be focused on a significant reduction of poverty, in a country with about 50 percent of the population below the global absolute poverty line, and with one of the lowest per capita incomes in the world¹ with recurrent famines and high dependence on foreign food aid. This harsh reality in which Ethiopia finds itself is not because it lacks human and natural resources. Ethiopia is a large nation of close to 80 million people, the majority of whom are rural based and hard working. In addition, the persistent poverty is not caused by a lack of the necessary natural resources; Ethiopia is endowed with enough natural resources if properly managed and utilized. The recurring problem of poverty and food insecurity cannot be primarily attributed to drought, although drought plays some part. The discussion in this article is based on the basic assumption that the poverty problem in Ethiopia is fundamentally a problem of the institutional failure and lack of democratic governance that has prevented the country's human and natural resources potential from being realized or channeled toward productive activity.

Some Concepts of Institutions and Their Critical Role in Development

It is important to be clear about what is meant by "institutions" for the purpose of this article. Institutions are rules of human behavior that provide incentives under which rational people act. They are accepted modes of behavior protected by culture (Powelson 2000). They involve laws, social norms, traditions, beliefs, and other established rules of human behavior. Institutions provide incentives that direct all forms of human activity, including economic activity. Institutions and organizations are not the same, although the words are sometimes used interchangeably. Organizations operate within a set of institutions. Faulty institutions lead to faulty organizations.

Whether organizations and individuals serve a constructive or destructive social purpose depends on the institutional framework in which they operate. For example, the market system is a set of institutions, and so are the systems of democracy and socialism. A particular government or political party such as the Democratic Party of the United States is an organization that operates within the institution of the American democratic system. The World Bank and the International Monetary Fund (IMF) are organizations that operate within the global financial system, which can be regarded as a system of global financial institutions.

A critical task for any society is to develop a set of institutions and rules that enables individuals and organizations to behave in a constructive rather than destructive manner. Depending on the institutions that provide the incentive structure, individuals and organizations are capable of behaving and acting in either a productive or an unproductive manner. Van den Berg captures this idea well when he states that "Economic disasters are caused by rational behavior reacting to incentives by faulty institutions" (Van den Berg 2001, 409).

The challenge of overcoming poverty in any society is to develop institutions that support and promote economic growth. In order to promote economic growth, institutions should provide an environment conducive for individuals to work hard, to save and invest, and for entrepreneurs to take risks and to actively pursue economic opportunities, for firms to improve their production methods, for governments to use public revenue efficiently and equitably to provide public goods, and to design cost-effective programs to meet socially well-defined goals. Institutions...