How efficient institutions can optimise pandemic resilience
Covid-19 showed "no mercy" to more than 200 countries. Some countries are hit hardest and some resisted the intensity of this catastrophe. But, why are some countries able to fight the disease better than other countries? Multiple factors have been influencing the differentials in managing Covid-19 crisis in different countries.
However, what is the "game-changer" in managing Covid-19 optimally for countries? The answer is -- the institutions. The nature and strengths/ weaknesses of the institutions induce the differences in deriving successes to fight the pandemic.
Two major arguments can strengthen my hypothesis in favour of the significance of the institutions in managing the Covid-19 emergency optimally across countries. First, all the countries initiated the same policies such as lockdown, social distancing, and a mix of both but some countries implemented the policies optimally through their vigorous institutions compared to others.
Second, the trust between government and citizens is higher in the countries where institutions are stronger and that increases the number of citizens abiding by the policies of the government. Hence, developed countries (European countries, Japan, Singapore, and the USA), despite being in a complete disaster during the first few months, eventually managed the Covid-19 crisis optimally through better implementation of the policies.
Whereas, developing countries (such as Bangladesh and India) who initiated similar policies performed poorly in managing the pandemic crisis due to the failure of institutions responsible for implementing. To make it easy for the readers, I want to recall what we mean by institutions in Economics.
According to Douglass C North (1991), "Institutions are the humanly devised constraints that structure political, economic, and social interaction. They consist of both informal constraints (sanctions, taboos, customs, traditions, and codes of conduct), and formal rules (constitutions, laws, property rights)."
The objective of institutions, devised by human beings, is to create order and reduce uncertainty. Thus, bureaucracy, administration, political parties, judiciary system, secretariats, health regulations, financial system, law and order, ministries, and governance can be the major institutions of a country.
Bangladesh is facing supreme difficulties in managing the Covid-19 crisis due to its weak institutions. The trust between government and citizens is also low due to the inefficacy of the institutions. During the first month of lockdown (from the last week of March to the end of April 2020), the government of Bangladesh faced several challenges.
First, it encountered the misuse of public funds and aids. Lockdown offered opportunities to political leaders, bureaucrats, administrators, and local leaders to earn direct money by storing foods and aid items. There is evidence that political motives drive the allocation of the relief effort in disasters such as earthquakes, floods, and hurricanes (Garrett & Sobel, 2003, Reeves, 2011, Gasper & Reeves, 2012).
After investigating more than 70 national and local newspapers (print and online), I identified that 140 protests took place in 43 districts of the country where poor people came out in the streets demanding the aid during the first month of lockdown. I have also found from the same sources that, more than 50 protests occurred in 35 districts complaining against the corruption in the aid distribution.
Second, the influential business groups such as Ready-Made Garments (RMG), responsible for almost 80% of the export income of the country, imposed pressure on the government to open the economy for maximizing their profits. These are the strongest business groups who finance elections and political parties; they have also control over a large number of voters.
Hence, the first step by the government towards relaxing the lockdown on 28 April 2020 (after one month's lockdown) was reopening of the garment factories.
Third, the lockdown was exposing increased misuse of public funds, higher-level corruptions and bureaucratic-administrative incapability of the government that could have a significant political cost for the incumbent political party in the future. Thus, opening the economy after only one month's lockdown essentially shifted the concentration of the citizens from failures of the government to getting back to economic activities and fear of the disease.
Imagine, if the government had a strong bureaucracy and strict authority over the business pressure group to implement the lockdown or extend the lockdown, the country would not have been suffering poorly as it is doing now.
In June, the government opened the economy fully and then identified high-risk zones to impose lockdown. The health safety guidelines and economic policies of the government are no less well designed principally likewise the developed countries. However, Bangladesh is failing to implement the guidelines and policies due to its fragile institutions. Citizens also do not follow the instructions and policies exploiting the weaknesses of the institutions.
Moreover, the trust between the government and citizens is crucial in determining the success of lockdown policies. A recent study also showed that a credible government could improve the efficiency of the lockdown policy and increase welfare (Moser & Yared, 2020). Therefore, the credibility, transparency, and accountability of a government are crucial to achieving the perceived success through lockdown or/and social distancing policies.
Countries having stronger institutions perform better in several major indicators such as government effectiveness, regulatory quality, rule of law and control of corruption. According to the World Governance Indicators (calculating from 2009 to 2018), Bangladesh's average percentile ranks in indicators such as government effectiveness, regulatory quality, rule of law, voice and accountability and control of corruption are 24, 20.47, 25.1, 33.18, and 18.12 respectively.
It is clear from the performance of Bangladesh in these indicators that the institutions of the country are weak. Developed countries perform among the top percentiles for these indicators through their stronger institutions.
Therefore, it is high time for the government of Bangladesh to rethink about the reconstruction of the institutions. That can certainly reshape the country's future. The public sector has a sound skill to formulate robust policies but it fails in enforcing those. Hence, the country is in need of efficient "doers" compared to many "planners".
Many people may claim that institutions can only be stronger in developed countries where resources are infinite and the population is of small size. Thus, it is difficult for a country such as Bangladesh to build stronger institutions with limited resources and pressure of managing a huge population.
The way I see it is- institutions are machines where you insert policies and planning as inputs. In the end, you produce some desirable outputs utilizing the machines (institutions). Now if your machines are weak whatever inputs you use you are not going to produce quality outputs. Your inputs (policies) should also be designed considering the efficacy of the machines. Thus once the government builds stronger institutions, it can utilise the best polices as inputs to produce the desired results.
Therefore, a country that has limited resources and a huge population can optimise its welfare by strengthening its institutions as per its own socioeconomic landscape. Absence of stronger institutions or the presence of "extractive institutions (exploit the public resources for personal gains)" (Acemoglu and Robinson 2012) can result in "state capture" by elite groups (Kraay and Kaufmann 2002).
Covid-19 has exposed how certain business groups put pressure on the government to withdraw the lockdown and diverge from social welfare. These groups only care for their profits and captured the state through their collective power as an "extractive institution".
It is a clear signal to the government that without having stronger institutions it is not possible to manage a crisis such as Covid-19 effectively. From the past few weeks, changes have been taking place in bureaucracy (secretariat) and administration which is a good signal and late but better than never.
Henceforth, the triple R (rethink, reconstruct and reshape) is the way out for Bangladesh to build stronger institutions and optimise the welfare of the country.
Writer: Mohammad Nazmul Avi Hossain is a PhD Researcher, European Centre for Advanced Research in Economics and Statistics, Brussels.