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Sani Abacha seized power in Nigeria
in 1994. His corrupt dictatorship was
above the jurisdiction of the courts,
which allowed his family to appropriate
more than $2.2 billion from state funds.See also: Free market economics 54–61 ■ Institutions in economics 206–07 ■ The theory of the second best 220–21 ■
Economic growth theories 224–25 ■ Independent central banks 276–77 ■ Asian Tiger economies 282–87
expect to see their privilege
disappear as a result of economic
reform, they may use their influence
to introduce economic policies that
redistribute income or power to
themselves. Alternatively, they may
distort policies so that measures
are not implemented effectively.
Acemog ̆ lu has argued that this
often happens when political elites
are highly unaccountable, so there
are limited checks and balances on
their actions. Reforms typically fail
in these cases because they tend
not to address these deeper
political constraints. However, in
countries with highly accountable
leaders, the benefits of reforms
may already have been reaped.
For these reasons reforms are most
effective in “intermediate countries,”
where reforms are likely to have
significant and positive results,
and at the same time the political
elites are not dominant enough
to derail them.Winners and losers
However, there are also problems
when introducing reform into
intermediate societies. When
economic reform is proposed, it
is often not clear who the winners
and losers of the reform will be.
This discourages people from
accepting the measures, even
where there would ultimately be
more winners than losers. There
may be a bias toward maintaining
the status quo; individuals like to
protect what they already have
and minimize the risk of losing out.
If a beneficial economic reform isproposed but shelved due to lack
of popular support, politicians and
economists may later propose it
again in the belief that it will
benefit the economy and society.
However, without new, supportive
information a society may well
reject the measure again. On the
other hand if beneficial reform is
implemented despite a lack of
popular support and goes on to
create more winners than losers,
it often goes on to gain popular
support and is not repealed.
Most attempts at reform focus
on measures designed to change
“formal” institutions such as
courts and voting systems.
Their success depends on whether
underlying “informal” institutions
and surrounding politics support
them. Without this, reforms of
laws and constitutions are
unlikely to change much. ■The Washington Consensus
The term Washington
Consensus was first coined
in 1989 by British economist
John Williamson to refer to
the package of free market
economic reforms prescribed
to developing countries in
crisis during the 1980s.
These policies aimed to
move the state-run economies
of Latin America and post-
socialist Eastern Europe
toward the privatized free
market. They focused on
privatization of state enterprises,liberalization of domestic
and international trade, the
introduction of competitive
exchange rates, and balanced
fiscal (tax) policies.
The Washington Consensus
was discredited in the 1990s.
Reforms were said to have been
implemented with little
sensitivity to the differing
political constraints evident
in such a diverse group of
countries. In Africa, in
particular, dynamic markets
raise the poorest out of poverty.CONTEMPORARY ECONOMICS
Policies that work do become
popular, but the time lag
can be long enough for the
relationship not to be
exploitable by... reformers.
Dani Rodrik