Sta. Ana coordinates Action for Economic Reforms. This article was published in the January 18, 2010 edition of the BusinessWorld, pages S1/4 to S1/5.

We weep for Haiti—scores of thousands killed, millions injured, hungry, and homeless.

Strong earthquakes are unavoidable, but massive loss of lives and breakdown of governance to administer relief are preventable.

The story we hear is a Haiti of doom and despair.

Haiti is one of the poorest countries on earth, its human and income poverty comparable to sub-Saharan Africa.   Haiti is in fact the poorest country in Latin America. Based on the international poverty line, 75 percent of Haitians subsist on US$2 per day, and more than 50 percent are extremely poor (US$1 per day).

In the Food and Agriculture Organization’s global hunger index released in 2009, Haiti’s score indicates “alarming” hunger. The index consists of a) the proportion of undernourished to total population, b) the prevalence of underweight in children below five years old, and c) the mortality rate of children below five years of age

Haiti’s extreme poverty cannot be divorced from its long history of brutality, exploitation, corruption and instability.

Colonialism imposed forced labor on the natives and brought slaves from Africa to work in the plantations.  Hundreds of revolts spanning centuries eventually culminated in a revolution that won independence in the early 19th century

Imperialist France, resorting to military force, imposed upon Haiti the massive payment of reparations in exchange for recognition of its independence. Reparations ate up as high as 80 percent of Haiti’s government budget, paralyzing the country’s growth for many decades—from 1825 to 1947.

But the situation never improved in the post-World War II period.  Haiti was ruled by an inept, corrupt, and savage dynasty of dictators—first by “Papa Doc” Duvalier” and later by his son Jean-Claude.  The introduction of elections did not stimulate development either, as the weak state allowed the perpetration of violence and plunder. For example, Jean-Bertrand Artistide, elected Haiti president twice, was notorious for having his political rivals physically silenced, for embezzling the Treasury, and for allowing the proliferation of narcotics trade.

Douglass North and his co-authors categorize Haiti as belonging to countries with “fragile limited access orders,” the worst of the lot.  Limited access order or LAO is the opposite of the open access order found in the highly developed, wealthy countries. Open access order is characterized by “open competition, competitive multi-party democratic political systems, and a secure government monopoly over violence.”   LAO is thus “a social order with a fundamentally different logic than the open access order.”  North et al state that a feature of LAO is having “political elites divide up the control of the economy, each getting some share of the rents.”  To ensure the stability of the rents, the political elites allow a social order and shape institutions shape institutions that limit access and competition. (See “Limited Access Orders in the Developing World: A New Approach to the Problems of Development,” 2007.)

Reforming or building new institutions thus becomes the central question for LAO countries to advance towards a higher level of development. But institutional reforms get harder to implement when bad institutions have hardened over time.  A compounding problem, as articulated by Kenneth Sokoloff and Stanley Engerman, is that initial conditions—what economists also call as “factor endowments”—likewise influence the institutions and thus long-term development. (See “History Lessons: Institutions, Factor Endowments and Paths of Development in the New World,” 2000.)

Specifically, Sokoloff and Engerman suggest that countries in the new World including Haiti that are known to have high inequality today suffer from the lingering effects of initial conditions, “not only because certain fundamental characteristics
of New World economies were difficult to change, but also because government
policies and other institutions tended to reproduce them.”

Further, for “those societies that began with extreme inequality, elites were better able to establish a legal framework that insured them disproportionate shares of political
power, and to use that greater influence to establish rules, laws, and other government policies that advantaged members of the elite relative to nonmembers—contributing to persistence over time of the high degree of inequality.”

On the other hand, in societies with greater equality or homogeneity at the beginning, the elites found it hard “to institutionalize an unequal distribution of political power,” thus leading to more equal opportunities for the mass of the people to prosper.

Hence, even as the whole world is fixated on providing immediate relief to Haiti in the wake of the killer quake, we need to remind the elite and the policymakers that the biggest challenge is how to change the institutions and the power structure that have made Haiti a hapless and helpless society.

Jess Agustin, a Filipino who works for Development and Peace—a Canadian, Catholic-based non-governmental development agency that works in Haiti—has grasped this central challenge  In an email, he said:

“The physical reconstruction will be easy but re-constructing the political and social infrastructure will take time.  The greater issue is:  Out of the destruction (human and natural) will there be a new Haiti that will emerge from the rubble?”