Walter Molano | The new era of de-institutionalisation and political mavericks
In 1993, Douglas North of Washington University won the Nobel Prize in Economics for his work on institutions.
His research criticised classical economics for not focusing on the role that institutions played in creating efficient markets. Through the use of formal laws and informal norms, developed societies create organisations to monitor transactional activities.
Given that property rights and contractual obligations are the key elements of a modern economy, the efficiency of markets depends on compliance with rules. The role of institutions become ever more important as distances increase and urbanisation expands, due to the difficulties in enforcing economic rights and obligations.
Within two years of publishing his seminal paper, North was awarded the Nobel Prize, thus emphasising the importance of his work. His concepts were embraced high and wide, particularly as globalisation began to emerge as the dominant paradigm.
The collapse of the Soviet Union in 1991 made it clear that the global political system was morphing from a bipolar construct to a hegemonic or multipolar arrangement, where international institutions would play a dominant role.
There were some muffled criticisms of North's work, arguing that it was nothing more than a revival of modernisation theory and structural functionalism, but for the most part, it was heartily embraced by policy elites and academics.
Multilateral agencies, such as the IMF and the World Bank, pushed the concept on to developing countries.
Argentina was lauded as a role model for its Convertibility
Plan and its institutional characteristics. We must recall that the monetary arrangement was a hard rule, where every peso in circulation was backed by a dollar in international reserves. Not only was this the foundation of the country's monetary system, it was the bedrock of the regulatory and financial frameworks. Hence, when convertibility collapsed in 2001, the country descended into anarchy.
However, institutions are far from perfect. They have flaws and limitations. To begin with, they can be captured. Anyone with sufficient resources can find ways to hijack them or minimise their enforcement capacities.
Corporations used phalanxes of lobbyists and lawyers to do so, devising legal structures, trade deals and offshore entities to mute the efficacy of institutions. Starving political entrepreneurs, such as Tony Blair and Bill Clinton, became agents to reduce the power of institutions in return for personal gain.
Likewise, institutions encounter evolutionary problems when faced with a rapidly changing landscape. This was recently true on the technological front.
Traditional media institutions had no way to confront the challenges created by Facebook, Twitter, Instagram and Snapchat. They no longer guarded the portal between politicians and the electorate, or between reality, perception and interpretation.
In other words, we are now entering an era of de-institutionalism.
Institutional constructs such as NATO, the European Union and political parties lost their credibility.
Even traditional investment vehicles, such as hedge funds and mutual funds, have been eschewed in favour of ETFs, which are free of the abuses that have become endemic in the industry. There is also a frontal attack on political correctness.
In essence, the formal rules and informal norms provided by institutions are being whittled away.
Clearly, the result will be chaos.
Just as Argentine society was reduced to mayhem as its single institutional bedrock was shattered, the same will happen when traditional institutions
are circumvented. We are shifting to a more personalistic arrangement, which tends to be more capricious and arbitrary in the enforcement of property rights and contractual obligations.
Perhaps the personalisation of the political process is a societal reaction to globalisation, where there was such a mish-mash of cultures that individuals lost their sense of identity.
One of the accolades accredited to Donald Trump, by the left and right, is his strong sense of authenticity. It is one of the things that also attract many Filipinos to Rodrigo Duterte. And the same can be said of Vladimir Putin and Recep Erdogan.
To many foreigners, these individuals may be stereotypical clowns, but to many locals they embody the essence of their national characteristics, thus rejecting the amorphous globalised actor that is a little bit of everything and a lot of nothing.
Therefore, institutionalism has run its course by sowing the seeds of its own demise. By allowing itself to be manipulated by elites and captured by special interests, it no longer played the role of improving the general welfare.
The rigidity of institutional design also became an impediment when dealing with highly dynamic technological changes.
Now, we have to deal with the aftermath - a more chaotic and capricious international and political environment.
Dr Walter T. Molano is a managing partner and the head of research at BCP Securities LLC.