COVID19 - EU - AFRICA

EUROPEAN LETTER OF THE EUROPEAN SOCIETY COUDENHOVE-KLERGI, Hubert Fromlet, Professor in International Economics,Linnaeus University in Växjö and Kalmar, Sweden To avoid any misunderstanding: Covid-19 is a global disease and not only spread in emerging markets or developing countries. Advanced OECD countries were also badly hit. Obvious institutional shortcomings in the fight against corona can be found all over the globe. Institutions matter in many respects. The different ways of dealing with covid-19 provides us with concrete examples from institutional reality. Quality and effectiveness of institutions play a decisive role Nobel Prize winner Douglass North - the “father” of New Institutional Economics – remains the most convincing economist about the decisive importance of institutions for growth and wellbeing of a country. ("Institutions form the incentive structure of a society, and the political and economic institutions, in consequence, are the underlying determinants of economic growth”). There is no doubt: Insufficient health care - also when it comes to covid-19 - must be regarded as an institutional failure. However, if this described relationship between institutions and economic development is so logical and correct - why are so many emerging countries incapable of managing necessary institutional improvements? A possible (partial) answer is given by professor Olivier Blanchard (MIT, in his textbook “Macroeconomics”). He comes to the conclusion that low (high) institutional protection is associated with a low (high) GDP per capita. This means in other words that many emerging or developing countries suffer from insufficient financial resources. Mutual benefit from European institutional support to Africa ¤ There is no doubt that the corona epidemic – if we reconnect to this example - in many emerging and developing countries to a high extent can be referred to institutional shortcomings. The factor of financial shortcomings for improvements of institutions should be considered more seriously by international organizations, the EU included. ¤ It should not be neglected that many emerging market countries also face a large number of hidden corona cases since statistical quality still must be regarded as poor in many lagging countries. The real number of corona infections may be strongly underestimated (for example in Indian and probably also in Chinese statistics). Also generally spoken, the lack of reliable statistics or the unwillingness to open for more transparency are critical institutional factors for most lagging (poor) countries. Foreign support could be very useful also in this institutional context. ¤ International organizations should develop mechanisms that encourage and reward specific kinds of institutional progress, measured by, for example, “Doing Business” of the World Bank and the rankings of Transparency International. The creation of incentives has unfortunately become a mostly forgotten tool in economic policy. ¤ In a European perspective, the EU, single EU-member countries and the UK could act more ambitiously to support improving institutions in lagging developing  countries, particularly in Africa. People in Africa need hope, driven by political, institutional and social improvements – including health and education with their strong institutional nexus. Africa’s population will double in the next three decades, with a gigantic potential new labor force growing up in the meanwhile. The important institutional link between Africa and Europe It is certainly not very difficult to conclude that Africa’s economic long-term future should be developed and built in Africa itself. However, Europe could be helpful by giving promising input from the structurally oriented supply side. In this article, the main focus is on the idea of ambitiously finding new and more efficient ways to improve non-existent, weak and/or coruptive institutions in the lagging parts of Africa. Hopefully, such a policy change can give sustainable relief to the European migration problem in a somewhat longer perspective, originated by sizable institutional progress in Africa itself. All this could become a win-win-development for both continents. Always remember what Douglass North has been saying and writing about the decisive contribution of institutions to economic growth! There is no promising alternative.