Assignment: Business in Emerging Markets
By Justine MARTIN – n° 17097930
Before the 1980’s, China and Africa had two different pasts.
On the 1st October 1949, Mao Zedong announced the People’s Republic of China. Then, Maoist years had started for 30 years. At this period, China is mainly rural and poor and Mao decreed a power policy (ideological education, propaganda). Maoism is an adaptation of Marxism to the Chinese situation and it denounces the Occidental imperialism. In 1958, Mao Zedong established the “Great Leap Forward” in order to catch up on foreign economy quickly. This policy was about increase dramatically industrial and farming productions by the collectivisation of the land and by major public works to improve infrastructure. However, the fail happened: farmers could not manage their crops and the industrial production. Moreover, the compulsory deliveries for the State worsened the situation because of its rise in 1958. Farmers starved from 1959 to 1961. Nevertheless, thanks to the cultural revolution in 1966, this regime generalised access to care, to education, and search to modernise China with economic policies but with limited success. Mao Zedong died in 1976 and the next government started improving the situation in China thanks to reforms.
In Africa, from the 1950’s, the decolonisation started. Between 1956 et 1966, most of colonised countries were independent but some countries met some difficulties to become independent because of long negotiations and wars of independency began. Nonetheless, African countries discovered the idea of Nation-State and needed to build and affirm themselves but democracy was not established. Corruption and underground economy developed. Then, Africa knew a demographic transition, in fact, the mortality rate reduced and a young population emerged. However, consequences are significant: food, healthy, school, housing, and employment problems erupted. Moreover, industries were nearly non-existent so countries had to import many products. No infrastructure was developed and wrong economic choices such as a soviet planning in Ghana or Tanzania worsened the negative spread in Africa.
However, thanks to institutions, China succeeded to become one of the most powerful countries in the world and Africa can become a continent for the future with the improvement of institutions. Thus, from the perspective of institutional theory, I will explain the contrasting growth and development experience of China and sub-Saharan Africa since 1980.
The role of institutions in emerging markets
In an economic meaning, institutions are used to decrease the uncertainty about human relationships. Indeed, they are the humanly devised constraints that structure political, economic and social interactions (D.C. North, 1991, “Institutions”, Journal of Economic Perspectives). They are composed of formal constraints (such as property rights, laws, or constitutions), informal constraints (such as behaviour norms or...