Do political institutions matter?

Its always interesting seeing something you read play out in real life.

A little background first: Economic opportunities are governed by rules. The rules determine what people can or cannot do. These rules, popularly called economic institutions, more often than not determine who gets what. These rules determine who “wins”.

But contrary to what some may have you believe, rules don’t magically appear. Rules are made by people. Political institutions determine who makes these rules. In Nigeria for example the law says XYZ has the authority to regulate matters concerning A, B, and C.

But who decides what the political institutions look like? And who determines the rules that are actually made? The people with political power. Political power is a very interesting idea and depends a lot on the issue being discussed. The bottom line however is that the people with political power almost always shape the rules. As a result it is very difficult to imagine a set of rules that ends up with the people with political power losing. Or to be more paranoid, it is very difficult to imagine a set of rules that doesn’t end up with the people with political power winning. Take for example the Nigerian financial industry. Political Institution: CBN. Political power? 🙂
Although every once in a while you end up with radical leader, it’s safe to say the banks have gradually gained de facto political power. As a result it is difficult to imagine any regulation that doesn’t end with the banks somehow winning. On the flip side it is difficult to see non-bank driven financial innovation succeed. Think mobile money for example. That is the down side. Groups with political power will almost always work to block any change that may erode their power, and as a result their “winning”. Again think non-bank driven financial services like mobile money.

The ideal scenario is to have political power that is evenly distributed. Strong financial groups open to non-bank financial players countered by strong consumer protection groups and maybe a strong and independent regulator to balance the two. But how do you get to the ideal scenario? That answer to that question is still up for debate.

NB: This post has absolutely nothing to do with ATM charges.

For more interesting stories about political institutions follow this blog

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One thought on “Do political institutions matter?

  1. The way to check that is to get the mass of the people to become more politically educated so they can insist on their rights and elect people into offices who care about them. Rules and institutions are creations of the law. Nigerians tend to focus attention on the executive when in actual fact the legislature and the kind of jobs they do should be considered as serious too. Wrong people in power create laws that protects and promotes their class interest. Finally eternal vigilance.

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