This, in turn, typically reduces rather than increases their political capital. Governments thus have been unable to reform flawed political and economic institutions, from weak courts and corrupt bureaucracies to lax regulatory systems and cozy business government relations. This analysis helps explain why reform proposals to strengthen the banking systems in Indonesia, South Korea, and Thailand that aimed to prevent partyrelated lending failed before the crisis, and why suggestions for breaking up large conglomerates in these countries were scorned and resisted. A typical example is a weak legal system, among the most common institutional deficiencies in emerging markets. Courts that lack autonomy and effectiveness are fundamentally products of the political system.
Weak courts can increase the costs of economic activity enormously.
Bribery inevitably increases the costs of doing business and, eventually, the prices of goods and services for consumers. The corrosive effects of weak institutions become clear only after an unusually severe economic crisis exposes their underlying frailties. But at that point, the costs of improving poor institutions have already accumulated, and the economy and the government end up paying a steep price. Indonesia's collapse was all too vivid an illustration. Several regimes eventually made the transition to democracy.