Why Developing Countries Kill Their Best Ideas

Every developing nation has a minister, or a candidate, or some other idealist who for one reason or another has been able to see beyond the fires of every day and starts thinking long term. He or she is intelligent, has read the literature and may have visited Singapore, Shenzhen and Dubai and come back with photographs and a conviction that the problems of the country are not incurable. He or she commissions studies, builds coalitions and obtains presidential support, finding somewhere in the machinery of government enough political will to act.

A thorough piece of legislation is drawn — something with genuine teeth, with rules that bind the government itself, which is how you know it is serious. The legal architecture is sound. The incentives are properly calibrated. The first international investors begin to arrive.

The country's President cuts the ribbon and starts contemplating his legacy through that particularly bold reform. International development organizations praise it for its boldness and innovative solution, which validates them.

A few weeks later, months if they are lucky, the attacks begin. Mostly from the opposition, but some from people who seem perfectly respectable. Some may be from supposedly independent NGOs, some from religious leaders and some from academia. Eventually the private sector joins the chorus of complaints. The reformers' political enemies grab the opportunity and start campaigning on repealing the reform before it even has a chance to bring any kind of meaningful change. The reformists lose the next election, partly because the opposition managed to politicize the reform and galvanize the vote through fear. Those who would have benefited the most from the reform being properly implemented vote to kill it. It gets repealed or bent beyond recognition and made toothless. Years later somebody writes a paper or a blog post about what could have been and that is all that remains of the valiant effort.

No one quite explains what happened. The official account involves sovereignty, or the interests of the poor, or foreign interference. The real account is shorter: the constraints that made the framework credible were also the constraints that made it politically inconvenient. And when the inconvenience became acute enough, someone removed them.

This is not a story about bad ideas. The ideas are almost always good. It is not a story about incompetence, or corruption — though both are usually present. It is a story about time.

Institutions take time to become real. A central bank charter is a piece of paper until it has survived a crisis. An independent court is a building until it has ruled against the government, and the ruling has been respected. A special economic zone is a legal structure until the first investor has arrived, employed people, and seen contracts honoured across multiple administrations. Credibility is not declared. It is accumulated, slowly, through the repeated demonstration that the rules apply even when they are inconvenient — especially when they are inconvenient. It has been said that it took Singapore three generations to become what it is today, but at any given moment, had Prime Minister Lee not been able to maintain his coalition and stand his ground, it could have taken mere months to dismantle it.

Political cycles operate on a different clock. Elections come every four or five years. Coalitions shift faster. The President who cut the ribbon may not be the one who has to live with the constraints three years later. And his successor, who made different promises to different people, does not look at the framework as a source of credibility. He looks at it as a source of friction.

The machinery that took years to build can be dismantled in an afternoon.

It becomes nearly impossible to create results in such a short window, and getting people who live day to day to see the benefits of the long term is a Herculean task, rarely carried out successfully. Once a country has taken an undesirable path it becomes almost impossible to get it out of it.

Take Argentina as an example. The country that was once among the wealthiest nations on earth has become a case study in repeated cycles of hyperinflation. Milton Friedman once said that inflation was always a monetary problem, and he was proven right in neighbouring Chile. It should be straightforward for Argentinians to simply copy what the Chileans did, yet they fail to do so time and time again. I would argue that the mechanism that creates inflation is indeed monetary, but the root is institutional. Argentina keeps proving it.

I have had occasion to observe this type of failure from closer than I would have preferred. I spent several years helping to design an institutional framework in Honduras — the kind that required constitutional anchoring, international-standard legal architecture, and a genuine delegation of governance functions to an independent structure. The design was serious. The economics were sound. The first investors arrived.

What followed is being written elsewhere, at greater length, and with the care it deserves. What I will say here is that the mechanism of destruction was not what the critics predicted. It was not investor malfeasance, or legal failure, or economic underperformance. It was the older, simpler problem: the constraints that gave the framework its credibility became, in time, inconvenient to those with the power to remove them.

The question worth asking is not whether developing countries can design good institutions. They can. The design knowledge exists. The templates are available. The technical assistance is abundant. The problem is not diagnosis — it is protection.

Can a society protect its own best frameworks long enough for the constraints to become real? Long enough for credibility to accumulate, for investors to arrive in sufficient numbers, for the cost of dismantling to exceed the political benefit?

This is, in the end, the same question that Friedman's formula leaves unanswered. He told us what inflation is. He did not tell us how to build institutions strong enough to resist the temptation to cause it. That is a harder problem — not a monetary problem, but a political economy problem. The problem of how to make the long-term interests of a society survive contact with the short-term interests of its governors.

Marcus, the Roman soldier who tasted copper in his coin, understood the result. He did not understand the cause. Two thousand years later, we understand the cause rather well.

We have not solved it.