Financial Sector Development in Africa: Opportunities ... - World Bank

The Potential of Pro-Market Activism for Finance in Africa: A Political Economy Perspective 199
of states versus markets of the Washington Consensus and sees a role
for the state in improving the functioning of the market. This insight is
important because it acknowledges that market failures could make
providing financial services to some groups of society prohibitively
costly and that a modernist approach alone is not likely to broaden
access to finance in the medium term. It also acknowledges that—at a
time of unprecedented concentration of capital in a small number of
banks—uncoordinated, decentralized actions by civil society, business
associations for underserved sectors, and social entrepreneurs are
unlikely to result in substantially increased access to investment
resources for SMEs or agriculture. Furthermore, the state might play an
important role in negotiating and implementing large-scale, collective
solutions involving public and private actors.
• Second, the current view on activism is promising because, informed
by past experience, it recognizes that although globally acclaimed bestpractice
institutions might offer a first-best solution to market failures,
transplanting these solutions to Africa without taking into account the
region’s local political conditions is unlikely to work. A consensus that
“no size fits all” and that building best-practice institutions in Africa
takes time has emerged; thus, in the meantime, public action could try
to find alternative second-best solutions as transitional devices. This
gives policy makers in countries at a lower stage of economic development
more policy space.
• Third, the current view on activism offers a promising way forward
because it has incorporated insights from research that identifies politics
as a key explanatory variable for the success and failure of activism.
15 It is now widely accepted that the differences in the objectives
and the functioning of institutions governing activist policies are the
result of political factors. At the core of this “institutional turn” and the
renewed interest in political economy are the propositions that states
and markets are politically determined and that good governance is a
precondition for the success of activist policies. The current approach
to activism does not deny that other country-specific factors—such as
ideology or the ability to identify the binding constraints in an
economy—determine the effectiveness of interventions, but it is
assumed that these concepts can explain only part of the cross-country
variation in the effectiveness of activism and interact significantly with
politics.