SOC300 Week 8: Institutions Slide # Slide 1 Slide Title Introduction Slide Narration Welcome to the Sociology of Developing Countries.

In this weeks lesson, well see how institutions, such as the many forms of government, economic frameworks, religious compositions, armed forces, banking systems and rules of law, all interact with one another. Slide 2 Topics The following topics will be covered in this lesson: The invisible world of systems and cultures, which enable modern societies to function; Good and bad governance; Banking and financial stability; and Justice and rule of law. Slide 3 The Invisible World of Systems and Cultures When we speak of an invisible world of systems and cultures which enable modern society to function, we are actually referring to how forms of government, economic frameworks, religious compositions, armed forces, banking systems and rules of law all interact with one another. These entities are referred to as institutions, and they define the character of a state and how its people integrate with one another. Some state institutions run smoothly, as you see in the First World, where democratic norms allow: Citizens to associate with whom they please; Vote in free elections; Work in any field they qualify for; Practice any faith of their choosing; and Rely on their armed forces to protect them from foreign aggression. People in other states, however, are not so fortunate, and live under repressive governments that:

Hold fraudulent elections or none at all; Forbid one from worshiping freely; Follow ruinous economic policies; and Rely on the armed forces to stay in power. These states are found throughout the Third World and some of them, such as Zimbabwe, Sierra Leone and Somalia, scarcely function at all, leading one to describe them as failed states, which we will discuss a bit further on. Although we can see certain institutions at work, like an army keeping the peace or a legislative body in session, we are interested in the concept of how the elites in a government organize them. This happens either for the benefit of the people, as you see in the developed world, or for their own benefit, as you will see in much of the developing world. So let us begin by looking at how different political institutions function.

Slide 4

Good and Bad Governance

Looking at our first institution under review, we should be able to tell whether a country experiences good or bad governance. If it is a democratic state, then we can make the assumption that every person has a certain number of inalienable rights, like life, liberty and the pursuit of happiness that cannot be taken away by the government or anyone else unless they break a law. If that occurs, however, the dynamic changes entirely because they forfeit these rights. Under normal circumstances, a democracy allows one to vote freely, live where and with whom they please and earn a living in an open market system that operates under the profit motive. Democratic socialist countries that are found in much of the European Union operate somewhat differently, meaning that their political systems remain much the same in the democratic sense, but their state, or public sectors may differ. We see that many of these countries may own some large enterprises and have extensive socialized medical, labor and educational schemes that are not found in a country like the United States. Nevertheless, their political systems are democratic and their economies are largely market-oriented, just like any other country one would find in

the industrialized world. If a country suffers from bad governance, however, then it may well be one of the many autocratic states which can be found in many parts of the developing world. Then they can be further subdivided into authoritarian or totalitarian. Authoritarian regimes like Algeria, Venezuela, Angola, Russia, Iran, China, Vietnam, Zimbabwe and Sudan, may be communist or not, but what defines them is that they tend to rest on the power of an individual, and when the leader falls, the regime may also fall. These governments do not suggest utopian goals, but often say that they are the agents of modernization and will become more democratic as changes take effect. These regimes have a primary objective of retaining power, which they often maintain by allowing some liberties such as: Religious and educational choices; The pursuit of economic gain; and The freedom to form clubs and even unions as long as they are not manifestations of political opposition. Totalitarian regimes, conversely, are infinitely more repressive and rest on the power of an ideology, so that when the leader falls the regime may well go on. There are very few of these still operational, North Korea being among them, and they tend to be statist and more revolutionary in nature with the primary objective of instilling an ideology. These governments acquire and maintain control largely by using forces that penetrate every area of an individuals life and allows almost no liberties. Slide 5 Good and Bad Governance, continued Finally, there are statist regimes, which many developing countries have become, for economic purposes alone. This theory of the forceful origin of the state was developed mainly by Georg Hegel and Friedrich Nietzsche, both of whom are from the nineteenth century. They believed that the state was created by force, but rather than this being an evil characteristic, it dignified the state. Force was not necessarily something to be avoided because it was the primary value in society. The state, institutionalizing the power of the strong over the weak, was considered to be above moral and ethical restraints and simply arranged affairs as they should be.

According to force theorists, the weak should be ruled by the strong, making statism a system in which a government has a moral importance that outweighs individual claims. Statism does not speak of government as a collection of agencies, departments and limited constitutional powers, but as the embodiment of the collective good, as a community unto itself. In this view, government should make the decisions for individuals, but since individuals prefer to make their own, coercion often becomes a necessary corrective. As the most extreme form of nationalism, this force theory looks at the state as a self-contained entity and an organic personality that is all-powerful and total. Given this definition and our familiarity of the culture of developing states that weve studied so far, we can see that many developing world states fall into this category. Slide 6 Good and Bad Governance, continued A second institution we now look at is the economic system a country decides to adopt. Most authorities would list three primary types of economic activity as the pure market, the planned and the mixed, so we will look at type in turn. Purely market economies allow the laws of supply and demand to evolve in an unimpeded fashion and take the market where they will. Theoretically, these laws work out perfectly, with a price set created by the demand consumers have for a good or service, but the real world does not allow these fixtures to operate in a vacuum. Droughts and floods ruin crops, foreign suppliers control access to strategic raw materials, unions go on strike, natural resources dry up, and a host of other variables interrupt this perfect model of market supply and demand. This then forces the government to act to get goods to the market and to set price ceilings. The government also provides a social safety net for those unable to fend for themselves, so technically speaking, these economies that you find in the First World are not pure markets, but they do have many of their features. Slide 7 Good and Bad Governance, continued Planned economies, on the other hand, are almost the opposite of pure markets. We found them mostly in the former communist countries of the Soviet Union and Warsaw Pact states, and they still operate in a modified version in Vietnam, China, Cuba, and much of Africa. However, North

Korea is the only country in the world today that still practices it in its original form. These models have failed, and for a very good reason because they were unable to sustain economic growth. They avoided any reliance on the normal laws of supply and demand to stabilize markets and left decisions about what and how much of a good or service to produce to non-specialist technocrats who rarely had any formal training in economics, but who were politically well-connected government officials. Consequently, these individuals planned their economic paths instead of allowing consumers to do so, and the results were uniformly disastrous. Once communism collapsed as an ideology in 1991, planned economies disappeared virtually overnight. This was due to countries seeing the benefits of market economics and then began privatizing inefficient industries and adopting Western models of growth. As mentioned, however, only North Korea was stuck to its original system, with predictable results of periodic famines, incessant shortages of essential goods, and an outbalanced expenditure on military readiness at the expense of modernizing its economic infrastructure. Slide 8 Good and Bad Governance, continued Finally, we can see that since there is no truly pure market economy in the world, the First World really is a combination of market and planned economics. These economies are mixed, in that they are market-oriented in the sense that entrepreneurs are permitted to operate and make a fair profit. They are also planned in the sense that the disadvantaged in society, such as the elderly and infirmed and poor, are taken care of. You would not see the government assume any role whatsoever in a classical market system, but this participation is a necessity in economic decisionmaking today in order to control wages and prices, interest rates, the money supply and tax policy. Although the federal government technically does not influence monetary policy, it does control fiscal policy. Without a fiscal policy, we would not have a tax base to depend on for financing defense spending, Medicare, Medicaid, educational allowances and other measures designed for a host of public policy initiatives necessary to improve our standard of living. Placing this in a Third World context, we see ruling elites waste a great deal of the money on personal preference projects or engage in the outright theft and black marketing of stolen foreign aid goods. This matter of integrity is probably

one of the most significant differences between the First and Third Worlds. Our public officials are accountable to the public because they are elected, but many of those in developing countries are in office by virtue of a stuffed ballot box or electoral intimidation and are accountable to no one. Therefore, if there is one institutional difference between these two worlds, it is that of transparency. Slide 9 Good and Bad Governance, continued A third institutional reference we can look at is the role that the state allows religion to play in peoples lives. In the Middle East, Christian churches are generally supportive of authoritarian states. In countries like Egypt, Syria and Iraq, this is not hard to determine, because less than ten percent of these populations are Coptic or Orthodox. This means that supporting the minoritarian regimes in power is a matter of survival when these groups are faced with overwhelmingly large communities of Shia and Sunni Muslim majorities. As a result, there is a quid pro quo operating here, whereby Christian communities are guaranteed security in return for unquestioned obedience and support of regime initiatives. Moreover, their communal challengers in the population are dissuaded from harming members of these sects who endorse the authoritarian status quo rather than encourage the promotion of democracy, in case they lose their favored status. If religious organizations have one responsibility, it would be to create a constructive conflict culture whereby they help end inter-communal and international violence. Religion plays such a significant role in conflicts between nations now that the world will be unable to survive without the benefit of a new global ethic put into place that seeks religious peace as a fundamental objective. With this in mind, we can identify several institutional strengths and weaknesses of religious organizations and their potential for engaging in constructive conflict management. First, two out every three people on earth belong to some type of organized religion, with enormous infrastructures that can communicate and exercise leadership when it comes to conflict management. Second, by their very nature, religion is supposed to cultivate a peaceful and humanitarian sense of compassion of one person towards another. Their organizations are also expected to mediate and dictate whether the behavior of a person or a state is appropriate and acceptable. But third, by failing that, religion can still be a very persuasive force for coercive purposes by mobilizing great numbers of people to

embrace certain policies. Religions can also serve as impartial intermediaries between antagonists in seeking peaceful solutions to conflicts, but without appearing to lobby for their own special interests. On the other hand, organized religion has some inherent weaknesses, one of which is the ease with which it is hijacked by extremists who selectively utilize portions of a doctrine to encourage violence, political repression and terrorism. Second, a religious organization usually becomes involved in conflict management only after the fact, and is, therefore, more of a third party than a major player. This does not necessarily negate the influence it can bring to the table, only to demonstrate that it plays more of a reactive role. Then there are those religious organizations that have shown support for structural violence by lending support to authoritarian governments. Finally, most peace-keeping efforts tend to be disorganized, both because the aforementioned timing of its entry into conflict management, and because it does not always have the type of personnel at its disposal whose expertise is in conflict resolution. Slide 10 Good and Bad Governance, continued Another institution we should examine is the armed forces. It is quite common in the developed world to speak of cuts in defense spending as equating to what is referred to as a peace dividend, or the reallocation of these monies to the sectors of a countrys economy that are more needful. Sometimes these funds may indeed end up helping various sectors, but more often than not, they fail to do so because of the costs of adjustment associated with reallocations. Developing countries have no such worries, however, because they rarely cut defense spending in any event. Perhaps if they were aware that economic and environmental security are every bit as important to growth as military security, their attitude would change toward the proportionately large percent of their GDP that routinely goes toward defense spending. There is however no evidence in any region to suggest that this will happen anytime soon. The armed forces can serve a very useful purpose if it trains its personnel in technical and administrative skills that they can later transfer into civilian fields. This process can also work in reverse and have dire consequences if the services conscript those very same people from the public and private sectors. In this case, military spending may well come at the expense of furthering the education and training of much needed professionals who keep the economy running. Second,

in industrial countries, it is normal to finance military spending from consumer and corporate tax bases. Since developing countries have no such luxury, defense appropriations invariably come from foreign exchange reserves, or worse, monetizing the public debt, because the fact that the government prints more money, will simply lead to inflation and a reduction in public savings. Military spending can boost demand in some industries and have a beneficial effect on the economy by increasing investment. This spending can be so isolated and remote that only a few infrastructural sectors will benefit. Armed forces can also facilitate a governments foreign policy by taking part in peacekeeping and humanitarian relief missions with their use of aircraft to deliver food medical supplies and the personnel needed to combat health problems. But there are risks to consider when a countrys armed forces are mobilized. If it is a major arms exporter, then the positive effects this has on its earnings are obvious. There are however a few Third World states that fall into this category and most are importers, which place additional burdens on their budgets by using foreign exchange reserves to make the purchases. Import substitution and foreign military aid can offset these expenditures, but in the 1980s, arms imports still accounted for up to ten percent of all imports of developing states, which placed an enormous burden on its accounts balance. Another problem witnessed throughout Latin America from the 1950s through the 1970s was the use of armed forces for domestic political purposes instead of protecting the state. By engaging in such abstract, nontraditional tasks as intervening in the political environment, military forces can slowly militarize a society. We see that this has happened in Argentina under the Peron regime, where political leaders were given a readily available option if they decided they needed to reduce the influence of other political opponents. As the armed forces acquire more power in the political arena, the public comes to rely on it to provide needed services. This where we see military leaders begin acquiring their own bases of power within the civilian community, setting up possible confrontations with political leadership elements that lead to civil strife. This could cause the government to lose control of the armed forces and lead to such a degree of destabilization that coup attempts follow, with the military leadership arguing that it took these measures to replace the sitting political leadership in order to stabilize the government!

Slide 11

Banking and Financial Stability

The banking system in the Third World is weak in comparison to Western institutions, and is extractive in the sense that it is under the control of the government and used by many officials to finance their own projects. As an example, look to the Mubarak regime in Egypt, which came to power in the wake of Anwar Sadats assassination in 1981 and ruled Egypt until it was overthrown in 2012. At the time of his arrest, Hosni Mubarak had stolen at least seventy billion dollars from the country, mostly by using banking officers to manipulate deposits into foreign bank accounts. This is exactly what Egyptian rioters complained about as they were demonstrating against the government. There was too much corruption at all levels, making it nearly impossible for people to trust their financial institutions because they had no idea where their money was going. One of the most fundamental problems for foreign banking systems is a lack of foreign exchange reserves and low capital stocks. As a result, developing countries are forced to borrow because at early stages of development their capital reserves are low and they need investments for projects that may be risky but have high returns. Often these investment opportunities involve a significant public component, such as transportation, infrastructure, education, and public health, but because government budgets and domestic savings are low, these countries must turn to external sources of funding. Of course, the riskier the project, the higher the interest rate, but poor and less creditworthy countries may qualify for concessional lending by official creditors. This is especially prevalent with multilateral development banks and other governments, while creditworthy middle income countries are able to borrow at market rates from official and private lenders. Because so many countries must borrow from abroad at high rates to finance development, they can get into debt trouble quickly. When this debt exceeds the capacity to service it, that is, to pay the interest on it, and then the debt burden becomes unsustainable and hinders development. Therefore, the goal of the IMF and World Bank is to make debt manageable for poor countries so that it will free up resources which can be used to support economic growth and social development. The global financial crisis of 2008 hit developing countries

especially hard because they were unprepared for the contraction in lending that resulted. Financing dried up overnight and left banks undercapitalized, developing projects unfinished and unemployment at high levels. Without any loans to underwrite these projects, poor countries were unable to generate income and repay outstanding loans, deepening their already fierce debt burden and making them even more unattractive as clients for potential loans. It was a terribly vicious circle from which many countries, even now, have been unable to disconnect themselves. Slide 12 Justice and the Rule of Law The banking system is not the only weak institution in the developing world. Legal systems are plagued by corruption, favoritism, untrained jurists and an uneven enforcement of laws. In autocratic countries, which proliferate in the Third World, judges and prosecutors are universally appointed by the government to enforce the bidding of its officials, and what we in the West think of as fair trials, are anything but routine. A weak judicial system is a product of poor governance that has no respect for the concepts of free and fair elections, individual liberties and property rights and a free and vibrant press, all of which reflect the breakdown of public accountability. A good example of this is the years immediately following the breakup of the Soviet Union in 1991. When communism collapsed, taking its planned economies and authoritarianism with it. Left in its wake was the weak state of Russia which had no idea what to do with the results. New to democratic norms and market economics, the leadership was like a captain sitting at the helm of a ship with no rudder, as Russia glided about in the hands of a group of young, aggressive oligarchs who manipulated the system to make tens of billions of dollars for themselves at the expense of the state. The judicial system, such as it was, was theoretically under the control of the government, but the government was in debt to the oligarchs to help finance many of its operations. Therefore, the conflict of interest was quite evident, and prosecutions of any among this group were unheard of. Unless, of course, one of them crossed someone particularly important in the government, and then an exception was made and the courts would do the bidding of the offended official. The law was applied in a completely arbitrary, capricious and biased manned, thus losing the confidence of the public and being reserved by the powerful to settle old scores with opponents. All too often, this is exactly how the law is applied in many developing countries today.

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Every state has a constitution embodying laws which are supposed to protect the rights of individuals, but imagine how far that takes one who tries to apply it on his behalf in a country like North Korea or Venezuela. At the end of the day, states fail because their institutions fail. We do not have to look at a country that is poorly situated geographically, or debilitated by its cultural patterns or atrocious leadership as much as we do at institutions that the country builds to provide political transparency, economic productivity, educational opportunities and research and development. States fail because their leaders fail to generate an environment suitable for economic growth and power-sharing. Prosperity does not occur without the enforcement of property rights, a fair dispersion of revenues from the sale of commodities or natural resources, an open society where religion can flourish, health and educational systems that function properly with the necessary equipment and trained staff, and an electoral process free of elites who manipulate the system. These are precisely the foundations lacking in places like Zimbabwe, Haiti, North Korea and Somalia. It is places like this where an extremely narrow clique of elites rely on their armed forces to keep them in power and have organized society around themselves at the expense of their citizens. These authoritarian regimes see no reason to encourage innovation or private investment, nor are they the least bit creative in planning for long-term growth or adopting technologies that can serve as incentives for foreign investment. In a word, if institutions are malfunctioning or manipulated by elites for their own purposes, then failure as a state is guaranteed. Ok, lets check your understanding of some this lessons material. Match the term on the right side by dragging it to its matching description or definition in the left hand column. Then click the Submit button.

Slide 13

Check Your Understanding

Slide 14

Summary

We have now reached the end of this lesson. Lets take a look at what weve covered. We started our discussion by looking at the invisible world of systems and cultures, which enable modern societies to function; Then we discussed the types good and bad governance under which many Third World states operate; We then compared the banking and financial stability of Third and First World institutions; and We finished up examining how Third World governments interpret the concepts of justice and rule of law. This completes this lesson.