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

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Although the current consensus on activism provides a positive perspective
on the role of government in financial markets and offers a promising
starting point for thinking about how to raise finance for investment in
Africa, a major drawback remains: the associated policy implications are
not quite clear. It is recognized that activism can work in principle, but it
is not clear under what conditions governments are willing to pursue and
capable of pursuing activist policies successfully. When do political leaders
choose a governance structure that, on the one hand, resists political capture
by private interests, and, on the other, avoids public authorities using
their political power in a way that merely benefits the state apparatus, politicians,
or their political supporters? It seems clear that without good governance
conceived in this way, government interventions will rarely be
successful. However, although it has become part of mainstream economic
thinking that it is necessary to “get the political conditions right” before any
type of government intervention, assessing ex ante whether a state will
demonstrate adequate governance is less straightforward. This makes it difficult
for donors to direct their resources for the support of activist policies
only to those governments that are likely to implement them successfully.
A large body of literature on the welfare economics argues in favor of
government interventions, but there is little research that tries to contribute
to a positive theory of activism—that is, a concept that helps assess
ex ante whether a state has the willingness and capacity to pursue activist
policies successfully. The small body of research in political economy that
explores the determinants of financial policy making has taken up this
challenge, advancing us closer to such a concept of effective activism.
Through its focus on endogenous policy choices, a political economy
perspective would not only help to evaluate the chances for success of an
activist approach, but could also inform policy making in those countries
that currently lack adequate governance to pursue activist policies successfully.
There is a high added value to country-level political economy
research that explores the potential of activism, because it would allow
prioritizing avenues for reform and, as a consequence, would offer more
effective guidance for policy makers.
Activism as a Tool to Increase Finance for Private
Investment: A Political Economy Perspective
Contrasting the positive experiences with activism in Northeast Asia
with the failures in many African countries highlights the influence of
politics on the effectiveness of activist policies and the need to study the