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Where Does the Economy Suffer: the Institutional Quality of the Business Environment

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Most of the times, economic performance is associated with a financial-quantitative context, which decadently captures the postmodern moral with respect to capital accumulation and business success: who invests money has success and vice-versa. Rarely this debate comes down coherently to the foundations of economic logic. Because who has time to discern on capital accumulation, while banks are blamed especially now, in the post-crisis period, for the financial instability that characterizes the business environment. Still, economic progress goes beyond this simplistic financial-budgetary framework. In order to explain the economic gaps between countries we need to understand, among other things, why in some countries people save, accumulate and invest more than in other countries. Gradually, economists understood that they don’t necessary need to pay attention to the economic activity per se, but to the institutions which “govern” its functioning. In this respect, the institutions are the economic, social, political rules governing resource allocation in society. In this logic and at this level we can find the key to economic prosperity, a key that economists are continuously seeking, often through “social engineering” which fails miserably.

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Cosmin Marinescu