Abstract

The study focuses on the related issues of the new institutional economics and political economy research: the evolution of formal economic and political institutions overtime; the causality between political institutions and economic institutions, and that between institutions and economic development; and the role of institutions in economic development. The issues are discussed in six sections. The study adopted the conceptual framework on institutions proposed by Douglas North that provide the basic scaffolding for human interactions, what he calls an institutional framework that nurture market exchange by lowering the cost of transacting, encouraging trust, and motivating the powerful to protect the property and individual rights of the weak. In Douglas North’s view, institutions are the product of intentional human efforts to provide structure in an uncertain world. They reduce uncertainty and risks by making others’ actions more predictable. Although many rules and habits change frequently, these fundamental institutions are more persistent and deeply rooted, which is termed the institutional environment or institutional framework. It has been noted in the study that a society’s institutional framework is the product of its history. Powerful groups and individuals shape fundamental institutions to perpetuate their power, and some of these structures persist. They endure, and not just because powerful elites enforce them. Overtime they become part of society’s shared beliefs about how the world works, or should work, beliefs about how others will behave, or should behave; they become internalized norms and can be difficult to change and impossible to ignore (North, 2005b). The study argues that despite pressures from the populace, political leaders and their interest groups holding de facto political power entrench themselves in the system under weakly institutionalized environment, and oppose reforms by all means including force, since such reforms go against their interests. The delay in such reforms often leads to the breakdown of governance. Such breakdown inevitably leads to conflict and social crisis such as the Buganda Crisis of 1966 and the related coup de tats that followed.

Keywords: Institutions, Development, High performing, Good governance, Sustainable development