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Institutional reforms fundamental for Zim

A reformed Zimbabwe Anti-Corruption Commission (Zacc) is now visible on the ground and biting, highlighting the power of institutional reform.

Institutional reform and improving the quality brings growth, which makes it important to understand what exactly institutions are. Heterodox economics through specialised fields such as institutional, new institutional, organisational and behavioural economics, bring the importance of institutions as a determinant of economic growth, macro-economic stabilisation and in addressing equity concerns.

Orthodox or mainstream economic thinking does not give much importance to the role of institutions in reducing costs in the economy and, as such, ignores institutional reforms. Most policymakers, including global institutions that are based on this economic orthodoxy, do not place much emphasis on institutional reform in their programmes.
From the Auditor-General’s report on parastatals, it is clear that weak institutional frameworks are bleeding the economy and contribute immensely to the current economic menace. Yes, the scourge of corruption is also to blame, but if the country had stronger institutions, the impact could have been limited and contained.

Research points out that for an economic policy such as a monetary policy tightening through increased rates to be effective, it requires a better monetary transmission mechanism and that, in turn, depends on sound economic institutions. Better policy formulation and implementation requires even improved economic institutions. This message of research on the side of heterodox economics has not been able to penetrate the thinking of most policymakers and economic programmes in Zimbabwe. Institutions of higher learning in the country are also lagging behind in terms of spearheading this class of thinking.

Institutional reform is a positive change in institutional frameworks, which is composed of institutions and the underlying organisations they formulate. Such frameworks evolve over time through the interaction of institutions and organisations. The organisations, in turn, interact with economic agents both within the domains of the organisation and in markets. Markets, therefore, are also a part of these frameworks. Institutional reform, therefore, is not only limited to laws and the power to enforce, but includes the reform of markets.

To understand institutional reform requires elaborating on its components. Institutions are the laws, rules, and procedures which define the environment, or more formally the rules of the game.

Government ministries and departments for instance, are institutions, while public sector enterprises and private entities are organisations, with underlying markets working under their respective domains. Moreover, there are primarily two branches of institutions, and these are economic and political institutions. While the political institutions evolve on the basis of the prevalent or desired political philosophy, economic institutions belong to four sub-domains,namely the real sector, fiscal sector, monetary sector and external sector.

Political institutions, likewise, have underlying organisations like the Zimbabwe Electoral Commission, political parties, among others, along with markets, for example the market for elections, where the supply of votes is provided by the electorate, while the demand for votes is by the candidates. Both economic and political institutions need positive change for the country to achieve its macro-economic objectives.

Apart from need for institutional reform, public sector enterprises or organisations, for example railways, national airlines, and in the energy sector, among others, are also in dire need of institutional reform. After the initial euphoria of the current government to prioritise such reform, not much in terms of policy tangibles has surfaced. Therefore, it makes sense to look at the institutional frameworks and approach the reform process in a holistic sense.

Tinashe Kaduwo is a researcher and economist. — kaduwot@gmail.com

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