OPEN ECONOMY: Moving away from base assumptions

21 Jun, 2015 - 00:06 0 Views

The Sunday Mail

It is my observation that the difference between prosperous nations and ones stuck in hardship can often be as simple as how content each nation becomes with its base assumptions.

As individuals, how we go about achieving our personal aspirations, in many cases, has never been proven to have absolute certainty.

In fact, the way we carry on our lives is often in conformity with many unproven inferences. The margin of uncertainty that we submit to finds solace in our base assumptions.

A base assumption is an acceptance that a notion is at the very least correct, and for the time being one can settle to disregard the probability of its in-correctness.

For instance, many of us send our children to school on the notion that later they will get a good job and have gainful livelihoods. This is a base assumption.

We never consider the possibility that our kids may in fact never get a job after getting an education.

Many of us probably know a few well-educated people in such a situation. Yet parents will still send kids to school regardless of the evident limitations of the base assumption.

Base assumptions appear in many ideals of life.

Some guys think having a certain amount of wealth places them well to marry a good woman. Some people diet on the basis that it will extend life expectancy.

We live by base assumptions daily.

While there is no absolute certainty that our ideals will be realised, base assumptions give personal effort benchmarks that make us content as we simply hope for the best.

Perhaps, naturally then, when people come together as a country they construct base assumptions on shared ideals such as economic development.

The most common of these base assumptions is establishment of an economic architecture represented by institutional design. We found institutions on the premise that through their delegated functions we will realise economic development.

For instance, with the purpose of striving towards achieving economic empowerment, Zimbabwe has designed a Ministry of Youth, Indigenisation and Empowerment.

I’d like to emphasise that it is imperative for us to perceive our economic architecture and its institutions as base assumptions.

It is of paramount importance to use such a lens because only when we consciously perceive our institutional structures as base assumptions on how to achieve development can we liberate ourselves from having unqualified loyalty to their design without interrogating usefulness.

Regrettably, we seem to view institutional design as somewhat of an irrefutable ideal.

This psyche has to be readjusted because from it we have fallen victim to what I would call a “reversal of analysis”.

For instance, we lament the high default rate of youth loans instead of inquiring if the administering ministry is designed well enough to improve chances of those loans being successful. Likewise, we emphasise the lack of FDI instead of doing due diligence on whether the NIEEB is structured well enough to execute viable indigenisation propositions.

Therein lie inconspicuous but profound analytic differences.

I suggest we readjust mindsets to properly put our institutional designs under analysis and consciously evaluate them as the base assumptions that they are.

Assuming your agreement with my generic understanding of institutional designs, then perhaps we can find relevance in inquiring how we can improve them to fulfil their existential purpose.

Two words come to mind: responsiveness and assimilation.

Responsiveness is how well an institution is able to adjust to take advantage of, or to mitigate effects of, changing external conditions.

Over the past decade, Zimbabwe’s economy has experienced economic shocks such as hyperinflation, sanctions, loss of currency and dollarisation.

All these occurred within very short economic cycles.

Currently, we are going through the uncomfortable shock of price adjustments in order to achieve stability.

It would be beneficial for us if we took time to study how well our institutions have responded to these sudden changes in macro-economic conditions, or if they are better prepared to do so in the future.

For instance, are our ministries financially designed to accumulate savings during good times, in order to have resources to use during lean years? Do our public institutions like schools and hospitals have operational designs that enable them to maintain service standards when experiencing economic shocks?

This is the type of analysis necessary to construct responsive institutions.

Sure, economic shocks and the mental hangover they have brought have been unfortunate. However, the greater loss would be if we are not going to be proactive and take lessons to make structural reforms.

Perhaps unknowingly to the general population, the RBZ is following a well-moderated programme of shock therapy.

However, benefits will not be sustainable if institutions are not designed with corresponding supportive reforms!

Assimilation is how well an institution absorbs information or competency into its structure.

If our institutions are going to be able to assimilate information or competency, they must start by reflecting on the social capital they have with their citizens.

Creating favourability and trust between institutions and citizenry is the first step in a strategy towards assimilation.

It’s important that ministries and public institutions build interactive relationships with citizens.

Large institutions are by design inherently rigid, bureaucratic and likely to have structural barriers for them to access absorb information quickly.

Thus, competitive economies have had their institutions intentionally forge interactive relationships with student networks, research agencies, entrepreneurial hubs and science civic groups.

This is a strategy to create channels that avail information quickly through easy access.

In Zimbabwe, our institutions tend to be distant from the citizenry; unfortunately this diminishes chances of taping into human ingenuity found in our population! Innovation is often found at the edges of society and within small groups such as common interest hubs and incubators. Hence, it is important for institutions to have structures that can assimilate these ideas and competency easily.

For example, ministries within science and engineering fields must have access to groups like bridge clubs or host public science fairs. Economic institutions must have interactive relationships with business schools and entrepreneurial hubs.

This is how our institutions can stay up to speed with competitive innovations that can create new markets, reduce functional costs and discover strategic efficiencies.

Ultimately, my generic view of our economic architecture and its institutions is just a base assumption; a notion of how we can achieve economic development.

It is my observation that the difference between prosperous nations and ones stuck in hardship can often be as simple as how content each nation becomes with its base assumptions.

We have gone beyond content and reached a point of unqualified loyalty that our institutional designs suffice to reach our objectives.

Share This: