Future of Emerging Economies - Africa

[Edward Campbell]

I decided against resurrecting a necro-thread – the topically closest being from 2003 and not exactly full of ideas or information – but Mods may wish to merge this with something I missed.)

It looks as though it’s the annual “let’s all wring our hands about Africa” weekend for Canada’s opinion leaders, amongst whom we must count the publishers and editors of the  Globe and Mail and the National Post and the organizers of the forthcoming Munk Debates.

The agent provocateur for this little burst of attention is Dambisa Moyo, an African economist with a few controversial ideas.

The validity, or otherwise, of Moyo’s ideas is not at issue; she’s not a pioneer in suggesting that most Western aid to Africa has done as much harm as good.

There are, broadly, two views on aid to Africa: one school, we can safely call it the Stephen Lewis school believes that all that needs to be done is, guiltily, to throw more and more and more money at Africa. Some of it, he agues, must, eventually, stick, and that which doesn’t is “owed,” anyway, as “payment” for the evils of colonialism. The other school, the one we might call the Calderesi-Moyo school says that the traditional pattern of aid for Africa has failed and we need to take another hard, cold eyed look at what we want to do and why we want to do it.

But the problem isn’t aid, per se. It is security and I posit that Africa will, over the next few decades, equal and then dwarf the security threat posed by radical Islamist movements today.

The Arab/Persian Islamist threat is based on some comprehensible “grievances.” Even if we reject those grievances and even if we, correctly, refuse to offer redress, we can understand what infuriates bin Laden et al. The same is not true for Africa. The “threat” from Black Africa is inchoate but it is very real. In fact chaos, itself, is at the root of the African security threat. The 50± “nations” of Africa are, in the main, a bit of a joke. There are only about two dozen functioning “national” governments – the rest are facing separatist movement, break-away states and provinces and outright civil wars. The African “economy” – never strong – is a shambles. Systems, like education and public health, are collapsing. AIDS is destroying the very fabric of society. The “casualty rate” from AIDS will exceed anything that made the First World War so frightening in its social implications. Soon children will be raising children.

Africa will explode into a series of increasingly violent and dangerous crises – an explosion is, after all, just a very rapid series of little fires. Each “fire” may be unique and unrelated to the next. They may relate to money or trade, race or ethnicity, religion, and so on. But the individual problems will not matter when they come at us with increasing frequency, as an explosion. We will have to “do something.”

Of course the time to “do something” is now, when the “something” can be done without great cost or violence. But we have decided, without discussion, on a “hands off” policy so we will not do anything now; we will wait, and wait, and wait for the inevitable explosion. Then the ‘something” will involve more than just one Canadian Army battle group and one Canadian air wing serving in larger, poorly organized "coalitions of the willing".

But we – the collective Western we, led in our opinions by folks like those who publish and edit our major media outlets – have decided to ignore Africa. I think we’ve done so mainly because it’s just too complex. We can wrap our collective mind around Osama bin Laden and al Qaeda, as I said, their “grievances” are comprehensible, even as they are false. Many of Africa’s grievances appear, to most of us, to be more like self inflicted wounds – somehow more worthy of censure than of relief. There is also, I think, more than just a whiff of racism in our attitudes towards Africa and Africans. We appear to suspect that Africans are, somehow or other, not quite ready for self-government in the 21st century. Discussions – in books and the media and amongst the talking heads on TV (the source of most “information” for most people) – drift, more often than not, towards the “idea” that the solution to Africa’s problems will, somehow or other, require re-colonization. The idea is that only Westerners (or Chinese or Indians) can “manage” a complex socio-economic makeover of the sort that many experts suggest Africa requires. And empire and imperialism are bad words in America (and Europe), despite Niall Ferguson’s attempts to paint a fresh face on a mouldy old corpse.

Almost every year superannuated rock stars, earnest, grey G-8 “leaders” and opinion makers in the media and academe trot out a new “plan for Africa.” About a week later all is forgotten - and maybe a few ill conceived loans are forgiven. It is possible – I do not know about the probability – that we might “fix” many of Africa’s problems over the next decade with about the same amount of money (and a whole lot fewer lost lives) than one or two years of military operations will, inevitably, cost. Since we will not do that we can count on spending a lot more money, over many, many years, in a long, dirty “war” (or series of wars) that will make us look fondly back at the Afghan adventure.

 

[FoverF]

"Sorry, Africa, but we JUST gave out our last $700 BILLION. Maybe you can try asking our bankers if they want to lend you some of that scratch?"

 

[54/102 CEF]

Africa would be a great training area

See - http://www.africom.mil/ - lots of stuff going on

 

[Edward Campbell]

I'm reviving a very old thread and asking:

1. Members to take a look at this video about which I will have more to say; and

2. Moderators to rename this thread "Future of Emerging Economies."

At first glance this video appears to be, mainly, about China - and, indeed, that is Bill Easlerly's current preoccupation - but it is not the main point.

Let me begin by saying that we have three levels of economies:

1. Established;

2. Emerging; and

3. Underachieving.

There are, of course, subsets: within the established economies some, like America and Italy are in trouble, others, other, like Greece, are failing; some, like Canada and Germany are sound but bedeviled by slow growth, thanks to e.g. Italy and Japan; while still others, like Australia and Norway are both growing nicely and don't have any (apparent) fiscal cliffs, etc. Within the emerging economies we have both high growth regions - China and India, for example; and low growth or stagnant economies, like Brazil; and failing economies like Ukraine and Croatia. I am classing pretty much every country (there are a couple of exceptions, like Iceland and Vietnam, of course) with a GDP of less than $200 Billion as "underachieving." Some underachievers, like Mongolia, Ethiopia and Panama have very, very high growth rates, while others, like Yemen, have equally remarkable reates of contraction. The problem is that Yemen (-10.5% growth) could change places with Mongolia (+13.2% growth) in a year.

The issue is that we can, by reading history, assume that:

1. Established economies are unlikely to cause strategic or security problems - not even when, as in the Greek case, they fail;

2. Emerging economies are at risk but still unlikely to cause serious strategic problems; but

3. Underachievers are very likely to be sources of serious strategic/security threats.

While I agree, broadly but not in detail, with Easterly that freedom leads to economic growth, it is not clear, to me, anyway, that freedom has to equate to the Anglo-American liberal democratic model. I think Dambisa Moyo is closer to the mark: some freedoms - especially property rights - are essential to economic growth (see, especially, Hernando de Soto), but political freedom is a "should have" not a "must have."

I also agree with Moyo that the long established aid model has failed, but we, the US led West, still have some rather altruistic interests in the "Underachieving" nations plus it is in our strategic/security interests to help them become more prosperous and, concomitantly, more peaceful.

Many years decades ago there was a McDonalds Rule which said that no two countries that had McDonald's franchises would go to war with one another. (I think the Falklands War broke the rule.) The principle was simple: the McDonald's corporation would not sell a franchise to anyone in a country with a per capita GDP of less than $nn,nnn. People in countries with moderate to high GDPs are unlikely to want wars, even if their leaders are so inclined, and since most moderate to high GDPs are democracies the "will of the people" counts for a lot. It's still a good rule of thumb: higher income ≈ greater inclination to peace.

Our, Canada's, foreign aid programme should be recast to invest ~ which means expecting a return on investment ~ in poor countries, on a sound, business-like basis, without much regard for the politics or policies of the governments there and, especially, without providing government-to-government aid. We should, also, perhaps first, drop all trade distorting tariffs on the things the "underachievers" make, like textiles.

 

[a_majoor]

I broadly agree with you on every point except that economic freedom is not equal to political freedom.

Historical examples abound going back as far as Ancient Athens, where polities with relatively greater political freedoms were able to use their resources more effectively than polities with lower levels of political freedom. Sometimes the mismatches were quite immense; Athens continued fighting the Peloponnesian war for a decade after they had lost most of their Delian League allies and the flower of their army and fleet, despite being challenged by Sparta and her Allies, and having the enemy funded by the vastly larger and resource rich Persian Empire.

We see similar examples in the 1500's; Elizabethan England vs Hapsberg Spain; the United Provinces (the Netherlands) vs Hapsberg Spain and the Serenìsima Repùblica Vèneta vs the Ottoman Empire.

In every case, the smaller polities were (for their era) more politically liberal and free compared to their opponents, and the mismatch in resources and manpower was quite considerable. England, for example, started out bankrupt while the Spanish could count on a river of silver coming from the New World to finance their activities. The Serenìsima Repùblica Vèneta had only a small fraction of the territory and manpower of the Ottomans, yet remained quite competitive until the early 1600's (when they turned their attention away from the sea and towards Terra Firma. This is a good example of why maritime powers should avoid land wars).

The same effect can be seen today; compare the "Tiger" economies to China, or for that matter compare the before and after pictures of China and India in the 1970's (pre reform era) and the 1990's (post reform in China; the end of the "Permit Raj" in India). Liberalization has had a great deal to do with this; individuals can harness and use their own resources rather than have them sucked away by a vast and impersonal bureaucracy.

Liberalization in other parts of the world may not look like our liberal democratic model (fully agree there), but political liberalization must exist in order to release the energy and creativity of the people.

 

[Edward Campbell]

Thucydides: you are confusing the "state" with the "nation" in at least two of your three 16th century examples: while the British and Dutch governments were, indeed, bankrupt, the countries, themselves, were rich ~ in both cases richer than Spain even with the huge influxes of silver (which did little more than create runaway inflation, anyway).

I will agree that a poor, weak government is advantageous to enterprise and industry (albeit not to the military) but it is not essential ~ America continued to grow at a good rate even after the US government became bloated and corrupt and China grows despite a corrupt, fat bureaucracy. Even further I will agree with you and Bill Easterly in saying that, broadly, greater liberty ≈ greater economic growth but high rates of growth are hard (impossible?) to sustain in established economies. Even if we liberated America and China (and Canada) from their bureaucratic bloat, mindlessly restrictive regulation and stilted, often corrupt politics we would be unlikely to see Mongolia's level of growth: the "floor" is already too high.

Where I continue to stand my ground is to say that full, liberal political freedom (including, say, freedom of assembly, for example) is not a condition of democracy, at least not the sort of democracy that is required to establish and maintain a sound, stable, prosperous nation-state. In my view the preconditions for the sound, stable, prosperous nation-state are:

1. Respect, by ALL - governors and governed alike, for the fundamental freedoms: life, liberty (of the person) and property;

2. Respect, by ALL - governors and governed alike, for the rule of law - especially for equality for all at and under the law; and

3. Government with the (informed) consent of the governed.

Number 3 is tricky; almost everyone, including me, says that regular free and fair elections, where "opinion:" is informed by a free press, is the only or, at least, the best way to gain the "consent" of the people. But I am not so conceited as to say that some other way - don't ask me what it is, perhaps some sort of regular polling on issues - might not be possible. The questions are: how "free" does "free speech" have to be? how broadly must "freedom of assembly" be interpreted? similarly, how broadly must our "right to privacy" be interpreted? It may be interesting to note that Japan's economic "miracle" happened when it was, still, a very conservative society with an equally conservative form of democracy; as Japan and its democratic system became more liberal (after the 1960s and 70s) its economy began to stagnate, then decline and, now, contract. (See Doh Chull Shin, Confucianism and Democracy in East Asia)

 

[a_majoor]

I suspect we are in violent agreement here. Defining liberalization and liberty is difficult (anyone from this era would probably not find being thrust back into Periclean Athens, Elizabethan England or even today's China to be a very "liberal" society).

The first points you bring up in your list (liberty, property rights and the Rule of Law) are essentially the three founding principles of classical liberalism. While point three is probably essential to ensure that a society can function on classical liberal principles I'm not entirely sure how something like that can be instituted over the long term. Looking at the present state of education and the media is a pretty depressing experience when you believe that "high information" people are needed to engage and provide informed consent.

I think there might also be disagreement on how deeply embedded these principles need to be in a society. Niall Ferguson claims that all you need to do is adopt the "killer apps" of Western Society, and on the surface it appears to be true, but my own belief is there needs to be a much deeper cultural linkage or we end up with fractured societies like we are seeing in the Middle East (where the overlay of Western technology and consumerism has not meshed well with the underlying cultures). How this works with your formulation of Liberal/Illiberal and Conservative cultures is something that will need a lot of thought.

 

[Edward Campbell]

It needs to be borne in mind that while Fareed Zakaria's liberal <> illiberal construct is fairly widely accepted, my liberal and conservative are two side of the same coin and illiberal is the opposite of both formulation has not been tested academically, it's just one idea out there. Of course I go even farther by suggesting, in my model, that conservative ≈ Confucian, because the only successful conservative democracies I can find (Korea, Singapore and Taiwan) are all, more or less, Confucian. I may be guilty of situating the appreciation.

 

[Edward Campbell]

Every so often even political scientists and public intellectuals must get it right, and Thomas Homer Dixon does in this opinion piece which is reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail:

http://www.theglobeandmail.com/globe-debate/whats-behind-these-fractures-stalled-economies/article17925027/#dashboard/follows/

What’s behind these fracturing countries? Stalled economies

THOMAS HOMER-DIXON
Special to The Globe and Mail

Published Friday, Apr. 11 2014

Thailand, Turkey, Ukraine and Venezuela. At first glance, it would seem hard to find four more different countries. But if you’ve followed international events over the last year, you’ve probably noticed that these countries share a striking similarity. Each has seen a surge of civil protest, including violent mass demonstrations against the national government.

The events in these four countries are the latest developments in a trend going back to the popular protests across the Middle East and North Africa in late 2010 and 2011. Extended unrest in this region eventually produced a fragmented polity in Libya, a civil war in Syria and resurgent military rule in Egypt. Elsewhere, Russia was shaken by protests from 2011 through 2013, while demonstrations of hundreds of thousands of people swept Brazil in 2013.

The trend is striking partly because it contradicts conventional wisdom. According to scholars such as Harvard’s Steven Pinker, the world is becoming more peaceful. Steady improvements in living standards, the continuing spread of justice and human-rights norms, and broadening commitments to democracy and the role of reason in public affairs have allowed people, groups and countries to fight less.

Recently, however, that narrative has become less clear. According to the 2013 Global Peace Index (a standard reference compiled by the Sydney-based Institute for Economics and Peace), 70 per cent of countries surveyed became less peaceful between 2008 and 2013. Of the GPI’s 22 indicators of peacefulness, 17 worsened when averaged across all countries. The incidence of violent demonstration showed an especially large increase.

This unrest could be just a blip in a longer-term trend toward greater peace. Prof. Pinker’s analysis, for example, extends over centuries. But several things suggest that the new political instability is more than a blip.

Each case of recent unrest is different in the details. Yet if we look closely, we see they have features in common. In each, many early participants were relatively young (in their 20s and 30s), urban, relatively educated and wealthy. They were angry about economic stagnation, official corruption, government’s arbitrary use of power, their lack of representation in decision-making institutions and the accumulation of wealth by powerful cronies. Importantly, they were also adept at using information technology and social media to share information and co-ordinate their actions, which boosted their confidence and their feeling of power in numbers.

In most cases, these early participants seemed to demand something akin to liberal democracy and the rule of law, which encouraged support for the uprisings from established democracies. But a democratic impulse didn’t motivate all protests; in Thailand, the latest round actually attacked the country’s democratic institutions. Also, in many cases, liberal protesters were joined by long-established groups of religious or nationalist hard-liners; sometimes, the liberals even allied themselves strategically with these groups.

The hard-liners were generally better organized and more ruthless; they also had more resources and clearer goals. So they moved quickly to the protests’ front lines and were more inclined to respond to the government’s violence with violence of their own. Indeed, their presence in the protesters’ ranks helped legitimize violence by government forces, and the clashes that followed marginalized the more liberal elements. In Egypt, the new military regime’s crackdown appears to have succeeded. In Ukraine, the regime ultimately fell, but the protesters’ ideological differences have created deep divisions within the new government.

The fundamental cause of all this unrest – in such a variety of societies – is likely slower global economic growth. The Institute for Economics and Peace notes that countries experiencing recession “have decreased in peace at a greater rate than the rest of the world.” The unrest is a downstream consequence of the recession of 2008 and 2009, which flipped the global economy into a persistent low-growth state, as countries, firms, and households around the world hunkered down and focused on paying off debt. Consistently high prices for oil and food have reinforced this stagnation.

The political effects have been most dramatic in middle-income societies with corrupt authoritarian regimes, rapacious elites, wide economic inequality and small and economically insecure middle classes. In these fractured societies, stalled economies have dashed economic opportunity and deepened grievances – especially among cohorts of young people who have relatively good education but very few good jobs.

Some scholars argue that low growth is the global economy’s new normal. If so, much more political instability is in the cards. And we should watch developments closely in China, which exhibits many of the key precursors to unrest: endemic corruption and economic cronyism, rising middle-class grievances, virtually no avenues for expression of those grievances, rapidly falling economic growth.

One needs to dig into Hernando de Soto's theory of dead capital* to get closer to the real problem. Basically we argue that the driver of economies is the individual and family (small business) and the most (most often only) source of capital for the individual is his home. If (s)he has clear title to his/her home and land in a fair and stable political regime then (s)he has access to real capital and a 'better,' secure future. But clear title is uncommon, even rare, in many, many countries in the third world and thus there is no capital available for exploitation, it is "dead," and so is hope.


_____
* See The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else (2000)