Africa/Global: Not Pessimism or Optimism but Possibilism

AfricaFocus Bulletin
July 6, 2020 (2020-07-06)
(Reposted from sources cited below)

African Economic Development: Evidence, Theory, Policy

1.1 The Air that Policy Officials Breathe

In this book, we will attempt to introduce some fresh ways of thinking about the complex economic policy problems facing many African countries. However, this does not mean we claim to know the policy answers. Policies have to be designed in detailed ways, addressing the specific needs of individual countries (and parts of countries) at particular times. Furthermore, as we argue in this book, often the most interesting policy design issues emerge during the process of policy implementation, where they either fail or at least do not turn out as was intended— policies can then be adjusted, improvised, and improved in response to these unpredicted problems.

Policy is made within a global and a structural context. In other words, countries are shaped by their histories, and their current options may be constrained by the often hostile characteristics of the international environment. Even so, we strongly argue that the keys to generating sustained economic growth and development lie within African countries, in the form of policy and investment strategy decisions. In this sense, following the economist Albert Hirschman, we argue that policy officials can achieve better results by widening their horizons and adopting an attitude of ‘possibilism.’

Sceptics, while perhaps acknowledging that the arguments and evidence presented in this book may be well founded, will doubtless assert that there is little chance that any policies arising from them can or will be implemented in Africa. Some might argue that there are too many ‘failed states’; too many economies dominated by rent-seeking, patrimonialism, and the ‘politics of the belly’. Others might argue that the weight of the continent’s colonial past is too heavy; that the noose of global economic governance rules is too tight.

Contrary to this, we argue that while the policymaking process is complex, and its trajectory uncertain, there is often unexpected scope for adroit policy reasoning. Policies are designed and implemented through shifting coalitions among political leaders and policy officials, often blending conflicting interests and logics. The evidence—gathered both from our own long experience of working with African governments and from the work of others—is that there are in fact cadres of thoughtful, public-spirited policy officials and even politicians; and furthermore that there is ample demand from wage workers and the intelligentsia for industrial policies rooted in evidence rather than abstruse economic theory. This positive assessment is confirmed by discussions with thousands of policy officials attending more than ten years of residential schools through the African Programme on Rethinking Development Economics (APORDE), as well as those taking part in APORDE’s predecessor at Cambridge and in residential schools in African countries funded by the Mo Ibrahim Foundation/SOAS Governance for Development in Africa (GdiA) programme, not to mention by our more direct experiences of policymaking.

1.2 How This Book Differs from Others on the Economics of Africa

The spirit of possibilism is one of the things differentiating this book from other economics texts on Africa. Many of these are afflicted either by a profound pessimism—that, due to the legacy wrought by the continent’s colonial past and the current strictures of global economic governance imposed by the World Trade Organization (WTO) and the Bretton Woods Institutions, there is little that can be done—or by the overly optimistic idea that if only this or that barrier could be removed then a smooth, sustained, and inclusive path to economic development would naturally unfold. Possibilism, by contrast, is a form of realism: it reflects a ‘bias for hope’ but is rooted in a pragmatic, often somewhat depressing, awareness of the cruel historical record in Africa and globally. A record that is, in fact, the history of capitalist development.

We also draw on historical experiences of capitalist development. This is not, we stress, due to some notion that everything will ultimately work out the same way it has in, say, the UK or South Korea; or that the path of African economies is determined by colonialism or its legacy. The outcomes and trajectories of capitalist expansion vary hugely and unfold through conflict and contingency. The implication of this is that past ‘lessons’ should not be relied upon, and that development trajectories are unlikely to repeat past experiences. Ethiopia will not follow the same pattern of development as Taiwan, nor Ghana that of Malaysia. Nonetheless, we remain convinced that a close study of the historical record of industrialization and uneven technological change is important. One reason is that it at least offers some evidence regarding the complexity of how economic change comes about, and what the implications of this are for employment and welfare. The historical evidence, though, should not be used lightly in order to highlight failure—for example, the alleged ‘failure’ of the Green Revolution in Africa—or as a cast-iron guide to appropriate policy in contemporary economies. There is, however, a hierarchy of plausibility, and evidence from a wide range of countries trumps anachronistic claims based primarily on ideological assumptions.

10.4 Priorities for Strategies of Economic Development

One of the main uses of our book is to offer practical suggestions about how to argue against fashionable policies that are not rooted in evidence or are theoretically incoherent. We also offer a guide to implementing some other and less- discussed economic policies, although we are aware that this guide may only prove useful in particular political conditions.

The evidence and arguments presented here, especially in Chapters 4–9, lead us to propose the following broad, strategic priorities.

Governments should promote a high investment ratio as an urgent priority. Stimulating a sustained high investment to gross domestic product (GDP) ratio is fundamental to prospects for rapid and lasting growth and structural change. The historical evidence shows this clearly. The state has to lead this investment push by making a commitment to economically productive public spending. This does not have to be financed by deregulation of the financial sector. Indeed, liberalizing the financial sector too much and too rapidly, the evidence shows, undermines such a strategic objective.

Rather than supply-side small-is-beautiful entrepreneurship programmes, policy officials should prioritize the creation and subsidize the success of large national champions and ensure the complementarity of public and private initiatives. These large firms are the ones that can capture the productivity gains from increasing returns to scale, they are more likely to survive than small and medium-sized enterprises (SMEs) (among which there are typically high rates of collapse), they make a disproportionate contribution to exports, and they are more likely to create large numbers of decent and unionized jobs.

Officials should acknowledge the historical evidence that major private sector investing firms have typically developed thanks to state support. This support has taken a wide variety of forms, including: protectionist and ‘infant industry’ policies, the creation of state-owned enterprises, procurement policies, supporting legal cartels, laying the base for private sector firms through public research and development, and other mechanisms of the ‘entrepreneurial state’, as well as effective management of social conflicts and security provision to secure the conditions of capitalist investment and production.

These are not just policies of historical interest. They are what governments around the world do (in advanced Organisation for Economic Co-operation and Development (OECD) economies and in middle and lower-income economies)—with varying degrees of success— to support successful large firms. It is what the Brazilian state has done in supporting second-generation bio-tech firms, through innovative financing mechanisms. Sometimes, major firms emerge from mutual interests in a tangle of calculation among politicians and business—winners picking states just as much as states picking winners. A case in point is Aliko Dangote, founder of the immense Nigerian and now continent-wide cement firm. Dangote had made strenuous efforts to develop very close political ties, including to General Obasanjo, over many years of accumulating rents from a number of ‘crony capitalist’ trading enterprises. ‘Dangote used his close connection to Obasanjo to influence the Nigerian government to adopt and sustain a Backward Integration Policy (BIP) for the cement industry in Nigeria’ [according to a 2018 study by A. Akinyoade and C. Uche]. There is clearly an element of the contingent in these histories, but it certainly helps for officials to be aware of the scope of the possible, rather than to continue wasting resources chasing fantasies of development and structural change through tiny start-ups.

Dangote Cement plant in Obajana, Nigeria. Credit: How We Made It in Africa, 2017.

“It was not too long ago that Nigeria was one of the world’s largest importers of cement – buying 5.1 million tonnes from outside its borders in 2011.
But this year [2017] the Nigerian government announced that it is officially self-sufficient in cement production – and Dangote Cement is a major reason behind this.” ]

A publicly led investment boost will necessarily imply a faster rate of growth of imports. This is only sustainable if there is a rapid rate of increase in exports. Investment booms tend to lead to debt problems. This is natural. What matters is preventing a debt problem becoming a debt crisis. There are all sorts of ways of negotiating and managing external debt, all of them an important part of a shrewd strategy, including: ensuring a sensible spread of debt maturities, limiting non-concessional borrowing, renegotiating repayment structures, preventing unregulated private sector borrowing abroad, and others.

Investment–import booms in Africa can also be financed in part by resort to concessional foreign funds or aid. But just as exposure to commercial debt is risky, so is too great a reliance on too few sources of foreign aid, because individual donors may be unreliable, and because the strings attached to some aid are difficult to reconcile with the strategic objectives of sustained economic growth. The real key to managing a rapid rate of growth of imports is to promote very rapid export expansion. Despite naysayers, this remains possible. While improving the scope for (and reducing costs of) intra-African trade may be a boon to economic activity, it is most unlikely to be an effective substitute for maximizing exports to demanding (in terms of quality and phyto-sanitary or labour or other standards) large higher income markets. Intra-African trade should be a complement to, not a refuge from, a strategy of wider global economic integration.

Ethiopia garment workers at the Hawassa Industrial Park. Credit: NYU Stern Center for Business and Human Rights

Investment, especially public investment in infrastructure and state-owned enter- prises, and government policies designed to encourage private sector productive investment, needs to be targeted—directed towards particular types of activity. There are three particularly important criteria to bear in mind here. First, invest- ment will have a greater economic and social impact if it is concentrated in those activities most likely to create growth of demand for the labour of women with little education. (This should be combined with measures to keep girls in school longer: both to improve their own knowledge and skills and to tighten the labour market.) Such investment may be in high-value agriculture (not just ‘agro-processing’), which should be recognized as industrial, complex, and sophis- ticated production, as well as in urban/peri- urban manufacturing factories. Complementary policies might support both types of investment by reducing the financial and social costs of labour mobility as labour shifts from low to higher-productivity forms of employment (low-cost accommodation, travel, the cost of phone network usage for communicating with family and transferring savings home, or to rural post offices).

Second, investment is needed to underpin rapid export growth. If possible, the selected activities absorbing unskilled female labour migrants from rural areas should therefore also make a rapid net contribution to foreign exchange earnings. That involves a range of policies including the competitive undervaluation of the exchange rate.

Third, and complementary to investment in export capacity, we have shown that it is extremely important to allocate investment resources to increase the supply of food and other basic wage goods, which in turn underpins dynamics of investment. Investments are required to monitor real wages and to intervene rapidly in food markets to smooth price spikes. In the longer term, investments to accelerate agricultural production of wage goods and exports requires R&D expenditures and targeted infrastructure provision focused on particular crops (e.g. coffee and avocados for exports and cassava or yams—rather than dairy and poultry—for the poorest consumers); and it requires betting on the strong, that is, on farms with a proven track record either in expanding exports or in producing large marketed surpluses of basic foods for domestic consumers. Clearly, it would be desirable to combine several strategic objectives, selecting national and ‘export’ champions that also employ large numbers of, especially, women from poor rural backgrounds, or selecting the most dynamic and efficient producers of wage goods for a low-income domestic mass market that also employ large numbers of unskilled wage workers (see Chapter 3).

Designing incentives for well-targeted investment promotion is not difficult. But it is bordering on pointless to introduce incentives to firms if there is no parallel development of capacity to monitor performance and to discipline firms (including by withdrawing access to exemptions or subsidies, etc.). This quid pro quo—the reciprocal control mechanism to ensure that firms meet targets for exports, investment, employment, and productivity–is a sine qua non of effective policy.

If labour productivity is to improve and if absolute poverty is to be reduced, there is one aspect of the performance of capitalist firms that it is particularly important to monitor. In return for state support, firms need to be set targets not only to increase exports, but also to encourage the organization and effective voice of the workers they employ. We are well aware that firms can and do evade modest levels of employment protection legislation in Africa (and elsewhere). But minimum wage, health and safety rules, child protection, gender rights, and other legislation to enforce decent working conditions may nevertheless be expected to have positive effects, encouraging the growth of trade unions and strengthening their negotiating capacity. Even when states appear unable to impose strict discipline on capitalists—ensuring that all subsidized enterprises comply with agreed rules—employment protection legislation can provide a rallying cry and a reference point for struggles to organize workers. Workers’ organizations and professional associations, together with relatively efficient compliant firms, may also put pressure on state institutions to monitor and discipline those firms continuing to compete on the basis of illegal working conditions and low labour productivity.

There are many good reasons for policymakers to make a serious effort to create the institutions and mechanisms to monitor (preferably on a monthly basis) the real wages of all wage workers, especially the lowest-paid female workers. Publishing trends in these wages would improve the quality of public debate about poverty reduction and support Objective 6. It would also help to rapidly identify failing investment projects and to legitimate strict disciplinary action by govern- ments against errant subsidized capitalists. Most importantly, it would provide emerging workers’ organizations with the information necessary to target their limited resources towards particular sectors and employers.

Objective 6: Protecting Welfare, Profitability, and Political Stability through Grain Market Management

A key feature of the analysis in this book (chiefly in Chapters 4 and 7) has been to highlight the importance of a non-inflationary supply of basic wage (especially food) goods. This protects the ability of firms employing workers to ensure that profitability is not eroded by wage hikes necessary to allow workers to meet rising costs of basic living; and it protects politicians from the political conse- quences of wages not rising sufficiently in such circumstances. Part of the strategy, (Objective 4) involves promoting investment in the supply of basic food goods (especially those cereals purchased by the poorest wage workers). But the evidence from elsewhere (especially in Asia) is that part of the strategy also has to involve direct intervention in food grain markets to prevent price spikes. If export revenues are increasing and the long-run real international market prices of certain foods are declining, a successful accumulation strategy in Africa (as elsewhere) will involve increases in the volume of food imports (and the manipulation of tariffs on food imports to smooth domestic price fluctuations).

10.5 Conclusion: Impossible is Nothing

In conclusion, we emphasize two features of the analysis and argument in this book. First, we have argued that variation matters. Descriptively, identifying variation in policies and in performance is crucial to analysis and is often smothered in averages. Closer attention to variation reveals, for example, that there is usually more variation within sub-Saharan African countries—in under- nutrition, in wealth, in access to education, and so on—than there is between African countries, while, nonetheless, the variation between countries is itself more significant than often acknowledged. But we have also argued that it matters to ask: variation in what?

Much poverty analysis, for example, focuses on categories—simple geographical distinctions like rural/urban or categories such as ‘female-headed households’—that can be misleading. These analyses, we have argued, obscure ‘intra-category’ variation, for example, inequality within areas classified as rural or huge diversity of living standards among ‘smallholders’ or ‘female-headed households’. And we have suggested some examples of what we argue are more useful categorical distinctions. The same is the case for distinctions between broad economic ‘sectors’, which we have argued have become even less useful analytically than they may have been in the past. The blurring of boundaries captured in the idea of ‘servicification’ and of ‘the industrialization of freshness’ is a prompt to recalibrate the assessment of which kinds of activity are most relevant for the objectives of economic policy, which then leads to the identification of new kinds of variation.

Variation can then become a source of policy possibilism. That it has been possible to achieve very steep declines in fertility rates in Rwanda compared to Burundi, despite many similarities of ‘structure’, history, and endowments, or in Kenya compared to Uganda, or Ghana compared to Nigeria (Chapter 2) suggests a clear role for policy. And the policy history of these countries confirms a clear commitment to meeting women’s contraceptive needs—sustained over a lengthy period—in those countries with sharp fertility declines. Again, the variation in the incidence of insecticide- treated bed nets or in the equity of their distribution cannot simply be ‘read off’ from indices of endowments but reflects purposive policy design and implementation.

Similarly, the fact that some farms have managed to generate far higher agricultural yields than others within the same agro- ecological zones suggests a clear role for officials to identify why and to pursue policies that can clearly secure higher yields on a much larger area. And differences between African countries in the rate of adoption of high-yield variety (HYV) seeds reflect variation in an important policy choice: public spending on agricultural research (Chapter 9). It is also extremely important to emphasize, as in Chapter 4, that some African countries have adopted policies to achieve much higher and more sustained levels of public sector investment than others.

Second, we have not only shown that mainstream economic analysis and policy advice is empirically unfounded, has deep theoretical weaknesses, and has not produced the results insistently claimed, but we have also provided a coherent (and possibilist) alternative. But criticizing the mainstream is relatively easy and also commonplace. Subjecting alternatives to a non-mainstream critique is more uncommon and, we argue, necessary. Because these alternatives have so readily and uncritically been accepted by non- economists in Africa and by heterodox economists, it has been all too easy for orthodox economists and advisers to deploy dodgy quantitative evidence to brush these alternative policy proposals aside.

We have therefore, at the risk of alienating those we have worked with and often agreed with, also tried to offer an alternative to the most widespread forms of critique of the mainstream: these oscillate between stifling impossibilism and fanciful expectations of capitalism with a human face, of South–South solidarity, of homogeneous and mutually supportive rural societies, of the triumph of small-scale capitalism (based on millions of very small farmers and entrepreneurs).

Above all, we have sought to contribute analysis and evidence that make it easier for policy officials to pursue some variant of what Meles Zenawi called the ‘Sinatra model’ of policymaking—assessing what has been effective in a range of contexts and adapting to specific African contexts, and then doing it ‘my way’.

AfricaFocus Bulletin is an independent electronic publication providing reposted commentary and analysis on African issues, with a particular focus on U.S. and international policies. AfricaFocus Bulletin is edited by William Minter.

AfricaFocus Bulletin can be reached at africafocus@igc.org. Please write to this address to suggest material for inclusion. For more information about reposted material, please contact directly the original source mentioned. see http://www.africafocus.org

Visit the AfricaFocus
Country Pages

Africa/Global: Not Pessimism or Optimism but Possibilism

Editor's Note

Historic Election in Malawi

African Economic Development: Evidence, Theory, Policy

1.1 The Air that Policy Officials Breathe

1.2 How This Book Differs from Others on the Economics of Africa

10.4 Priorities for Strategies of Economic Development

10.5 Conclusion: Impossible is Nothing

Visit the AfricaFocus Country Pages

Africa/Global: Not Pessimism or Optimism but Possibilism

Editor's Note

Historic Election in Malawi

African Economic Development: Evidence, Theory, Policy

1.1 The Air that Policy Officials Breathe

1.2 How This Book Differs from Others on the Economics of Africa

10.4 Priorities for Strategies of Economic Development

10.5 Conclusion: Impossible is Nothing

Visit the AfricaFocus
Country Pages