Policy reforms and economic development : an institutional perspective on the Nigerian experience (1986 to 1993)

Abstract

African economies, including Nigeria continued to perform poorly despite the adoption of economic policy reforms in the 1980s. An explanation for the failure of economic policy reforms was therefore sought from an institutional perspective. Since active state intervention in the economy was the rationale given for the economic crisis of developing countries, the conventional case for an active state which rested on the need to correct for market failure was counterposed with the argument that the economy was best coordinated by market forces given that the state was not benevolent, omniscient or omnipotent. However, the state has played an important role in the transformation of late developers while a state-market dichotomy takes no account of institutional factors. The widespread adoption of economic policy reforms owed more to an ideological shift in the development paradigm than to the debt crisis and there was a great deal of controversy about the theoretical foundations and impact of these reforms contrary to claims of a consensus. An institutionalist political economy which recognises that the market is not the only institution and that economic transformation requires the positive use of political power was proposed. Such an approach takes account of history, politics and the institutional diversity of capitalism. A more nuanced view of state intervention was therefore advocated. The importance of institutional arrangements in the quest for economic transformation underscored the inadequacy of structural adjustment which was hampered by the lack of price and institutional flexibility as well as other institutional constraints. The Nigerian experience of structural adjustment shows that long term growth prospects were not enhanced and that the reforms tended to favour the financial sector over the real sector. The failure of economic policy reforms in Nigeria can be attributed to the continued presence of constraining institutional factors and the absence of a positive use of political power.