I have been doing some reading on economic development in Africa recently. The continent, if it is even possible to lump its many diverse nations together when discussing development, which is probably unwise, gets some bad press. But as development economist Ha-Joon Chang has said in his bestselling book, ‘Africa is not destined for underdevelopment‘.
That is refreshingly optimistic, and I humbly concur. Having said that, Chang thinks it is all about policies, but for me this is only part of the story. Why do bad policies persist? This is what we need to study. Poor nations whose people want things to improve via economic and social development need pragmatic and effective governments who can implement policies appropriate to their particular national contexts. These will vary from country to country, and over time.
Below I will share some of the ideas I have gathered which mainly draw on the work of political economists who have studied development processes across the African continent. Continue reading →
In this brief video, a journalist gives his view as to why development in Africa has been so difficult. The answer apparently lies in the colonial legacy of (mis)dividing up the continent into states in a way that has failed to give rise to nation-building, both economically and politically. He also points a finger at self-serving elites, who have built great personal wealth but not, in general, the wealth of their own nations.
However, he does ignore the uneven record of growth on the continent since World War Two, which saw varying degrees of economic transformation. It is a tragedy that much good was undone during the ‘lost decades’ of the 1980s and 90s. A number of countries grew more rapidly in the 2000s, mainly due to the expansion of primary commodity exports, but a widespread problem is the failure of governments to diversify their economies into sectors which have more potential for growth in output and productivity, such as manufacturing.
Zimbabwe is in political turmoil. Now that Robert Mugabe has gone, many are wondering what will come next. Given my interest in development economics and my own ignorance of the political economy of this troubled nation, beyond the reporting of the mainstream media, I thought it would be helpful to draw on some of the ‘literature’ to further my understanding and, hopefully, that of the readers of this blog. I can’t pretend to have expertise in this area, but one of the aims here is to share useful knowledge, so here goes.
I have included a brief summary of Zimbabwe’s economic performance since the War and follow that with some quotes from political economists who have studied the country, as well as the historical emergence of capitalism through what Marx called ‘primitive accumulation’. Continue reading →
Success breeds success, and failure breeds failure. This seems to be the trend in the UK’s regional inequalities, as pointed out last week by Andy Haldane, chief economist at the Bank of England. The division in growth rates and income levels between London and the South East, and the North, are particularly stark. Only in the former are income levels now above those before the Great Recession, which began more than eight years ago, while the latter has fallen further behind.
This regional divide is not a new phenomenon. It has been the result of decades of uneven economic development in the regions of the UK. The almost relentless decline in the share of manufacturing output and jobs for the UK as a whole, particularly since the 1980s, hit the North of England and parts of Wales hard. Private sector dynamism has tended to be concentrated in London and the South East, particularly in the service sector, which makes up the majority of GDP and employment.
Successive governments have responded in different ways to regional inequality. Continue reading →
A nice post here by British economist Paul Ormerod which describes how the US is leading the world in the development of Artificial Intelligence (AI). In the last paragraph, he discusses how the development of key technologies that are perceived to be in the national interest there are initially funded and developed by the public sector, with an eye to their subsequent practical application by the private sector.
The idea that the world’s most powerful nation and largest economy owes many of its strengths to public sector-led innovation is an important one. In her eye-opening book, The Entrepreneurial State, Professor Mariana Mazzucato shows as a key example how many of the technologies that make up the smart phone were initially developed by the US government, and only later combined into desirable consumer products by private companies such as Apple and Samsung. From the internet and GPS, to the touchscreen and voice activation, government institutions led the way, mostly to try to maintain the country’s military superiority.
Mazzucato argues that we should acknowledge the key role of the public sector in taking on certain financial risks which the private sector will not bear, and support these kinds of innovation policies. Of course, there will be failures as well as successes, but this should not be a reason for abandoning state intervention. The private sector can fail as much as the public, sometimes on an enormous scale, ‘wasting’ resources in the process. As long as an experimental approach and a willingness to learn are adopted, there is the potential for a greatly positive public-private co-evolution which can help to drive economic progress.
The public-private divide under capitalism should be seen as something of a myth: the two are symbiotic and support each other in successful economies more extensively than is often believed. It is misleading and potentially damaging to call public provision or even public-private partnerships ‘socialist’. The truth is that the development of capitalism from its inception to today’s increasingly complex economy remains dependent on the state as much as the private sector.
A connection between dialectics, in which everything is considered to be in the process of becoming (something else), and Chinese language and Daoist philosophy. This is a helpful way of thinking when analysing economic growth and development, drawing on Marx’s method, which in turn drew on Hegelian thinking.
“In Chinese, properties take a processual or verbal form. One cannot say that the grass is green but must say that the grass is greening…there is no absolute or simple distinction between noun and verb in Chinese. Metaphysically…in their thought one thing is always passing into something else.”
Roy Bhaskar (2016), From East to West, Odyssey of a soul, Second Edition
A number of rents, and the rent-seeking which sustained them, played a critical role in the development of capitalism in the East Asian countries. Not only was the creation of rents critical for primitive accumulation and learning, transfer rents were critical for maintaining political stability even though the economic implications of these transfers varied significantly. The role of rents in economic development is worth stressing in the aftermath of the financial crisis of the late 1990s. The depth of this crisis led many economists to link the immediate economic woes of the regions to the systems of rents and rent-seeking popularly described as ‘crony capitalism’. The implicit counterfactual to ‘crony’ capitalism is a ‘genuine and impartial’ capitalism of free markets, zero rents, fair market-determined returns for everyone, and a minimal state which only maintains a level playing field. However appealing such a mythical capitalism may be, our discussion has been concerned to establish that such a model is not relevant for developing economies, and perhaps not for any economy. The relevant distinction is between rent-seeking systems which are developmental and those which are crippling. The relevant policy question is to understand how one may transform into the other…
…The long-run relationship between rent-seeking and growth is of much greater interest. If growth requires the management of growth-enhancing rents rather than the abolition of all rents, high-growth countries will always have rents and will therefore inevitably have to live with rent-seeking. Globalization and liberalization will not change this fundamental economic problem, nor is globalization or liberalization likely to succeed if policy-makers attempt to proceed on the basis of inappropriate no-rent market models. The no-rent model remains compelling not because the evidence supports it, but because its policy implications are much simpler to understand. Our analysis suggests that identifying the conditions which have in the past been conducive for growth is a much more challenging task. The conditions which allow value-enhancing rents to emerge and which limit rent-seeking costs vary from country to country because countries do not have the same political conditions and do not follow the same technology trajectory. This is where a deeper examination of the historical evidence is important to warn us against falling for seductively simple theories. There is no evidence in Asia, possibly no evidence anywhere, of long-run development taking place on a no-rent basis. Instead, the policy challenge is to construct and reconstruct institutions and politics in developing countries to sustain developmental rents and rent-seeking while attacking value-reducing rents and rent-seeking.
Mushtaq H. Khan (2000), Rent-Seeking as Process, in M.H. Khan and Jomo K.S. (eds) Rents, Rent-Seeking and Economic Development