23 Things They Don't Tell You About Capitalism

1.6 per cent, it was nowhere near the ‘miracle’ growth rate of East Asia (5–6 per cent) or even that of Latin America (around 3 per cent) during the period. However, this is not a growth rate to be sniffed at. It compares favourably with the rates of 1–1.5 per cent achieved by today’s rich countries during their Industrial ‘Revolution’ (roughly 1820–1913).

The fact that Africa grew at a respectable rate before the 1980s suggests that the ‘structural’ factors cannot be the main explanation of the region’s (what in fact is recent) growth failure. If they were, African growth should always have been non-existent. It is not as if the African countries suddenly moved to the tropics or some seismic activity suddenly made some of them landlocked. If the structural factors were so crucial, African economic growth should have accelerated over time, as at least some of those factors would have been weakened or eliminated. For example, poor-quality institutions left behind by the colonists could have been abandoned or improved. Even ethnic diversity could have been reduced through compulsory education, military service and mass media, in the same way in which France managed to turn ‘peasants into Frenchmen’, as the title of a classic 1976 book by the American historian Eugen Weber goes.[3] However, this is not what has happened – African growth suddenly collapsed since the 1980s.

So, if the structural factors have always been there and if their influences would have, if anything, diminished over time, those factors cannot explain why Africa used to grow at a decent rate in the 1960s and 70s and then suddenly failed to grow. The sudden collapse in growth must be explained by something that happened around 1980. The prime suspect is the dramatic change in policy direction around the time.

Since the late 1970s (starting with Senegal in 1979), Sub-Saharan African countries were forced to adopt free-market, free-trade policies through the conditions imposed by the so-called Structural Adjustment Programs (SAPs) of the World Bank and the IMF (and the rich countries that ultimately control them). Contrary to conventional wisdom, these policies are notgood for economic development (see Thing 7). By suddenly exposing immature producers to international competition, these policies led to the collapse of what little industrial sectors these countries had managed to build up during the 1960s and 70s. Thus, having been forced back into relying on exports of primary commodities, such as cocoa, coffee and copper, African countries have continued to suffer from the wild price fluctuations and stagnant production technologies that characterize most such commodities. Furthermore, when the SAPs demanded a rapid increase in exports, African countries, with technological capabilities only in a limited range of activities, ended up trying to export similar things – be they traditional products such as coffee and cocoa or new products such as cut flowers. The result was often a collapse of prices in those commodities due to a large increase in their supplies, which sometimes meant that these countries were exporting more in quantity but earning less in revenue. The pressure on governments to balance their budgets led to cuts in expenditures whose impacts are slow to show, such as infrastructure. Over time, however, the deteriorating quality of infrastructure disadvantaged African producers even more, making their ‘geographical disadvantages’ loom even larger.

The result of the SAPs – and their various later incarnations, including today’s PRSPs (Poverty Reduction Strategy Papers) – was a stagnant economy that has failed to grow (in per capita terms) for three decades. During the 1980s and 90s, per capita income in Sub-Saharan Africa fellat the rate of 0.7 per cent per year. The region finally started to grow in the 2000s, but the contraction of the preceding two decades meant that the average annual growth rate of per capita income in Sub-Saharan Africa between 1980 and 2009 was 0.2 per cent. So, after nearly thirty years of using ‘better’ (that is, free-market) policies, its per capita income is basically at the same level as it was in 1980.

So, the so-called structural factors are really scapegoats wheeled out by free-market economists. Seeing their favoured policies failing to produce good outcomes, they had to find other explanations for Africa’s stagnation (or retrogression, if you don’t count the last few years of growth spike due to commodity boom, which has come to an end). It was unthinkable for them that such ‘correct’ policies could fail. It is no coincidence that structural factors came to be cited as the main explanations of poor African economic performance only aftergrowth evaporated in the early 1980s.

Can Africa change its geography and history?

Pointing out that the above-mentioned structural variables were invoked in an attempt to save free-market economics from embarrassment does not mean that they are irrelevant. Many of the theories offered as to how a particular structural variable affects economic outcome do make sense. Poor climate can hamper development. Being surrounded by poor and conflict-ridden countries limits export opportunities and makes cross-border spill-over of conflicts more likely. Ethnic diversity or resource bonanzas can generate perverse political dynamics. However, these outcomes are not inevitable.

To begin with, there are many different ways in which those structural factors can play out. For example, abundant natural resources can create perverse outcomes, but can also promote development. If that weren’t the case, we wouldn’t consider the poor performances of resource-rich countries to be perverse in the first place. Natural resources allow poor countries to earn the foreign exchanges with which they can buy advanced technologies. Saying that those resources are a curse is like saying that all children born into a rich family will fail in life because they will get spoilt by their inherited wealth. Some do so exactly for this reason, but there are many others who take advantage of their inheritance and become even more successful than their parents. The fact that a factor is structural (that is, it is given by nature or history) does not mean that the outcome of its influence is predetermined.

Indeed, the fact that all those structural handicaps are not insurmountable is proven by the fact that most of today’s rich countries have developed despite suffering from similar handicaps.[4]

Let us first take the case of the climate. Tropical climate is supposed to cripple economic growth by creating health burdens due to tropical diseases, especially malaria. This is a terrible problem, but surmountable. Many of today’s rich countries used to have malaria and other tropical diseases, at least during the summer – not just Singapore, which is bang in the middle of the tropics, but also Southern Italy, the Southern US, South Korea and Japan. These diseases do not matter very much any more only because these countries have better sanitation (which has vastly reduced their incidence) and better medical facilities, thanks to economic development. A more serious criticism of the climate argument is that frigid and arctic climates, which affect a number of rich countries, such as Finland, Sweden, Norway, Canada and parts of the US, impose burdens as economically costly as tropical ones – machines seize up, fuel costs skyrocket, and transportation is blocked by snow and ice. There is no a priorireason to believe that cold weather is better than hot weather for economic development. The cold climate does not hold those countries back because they have the money and the technologies to deal with them (the same can be said of Singapore’s tropical climate). So blaming Africa’s underdevelopment on climate is confusing the cause of underdevelopment with its symptoms – poor climate does not cause underdevelopment; a country’s inability to overcome its poor climate is merely a symptom of underdevelopment.

In terms of geography, the landlocked status of many African countries has been much emphasized. But then what about Switzerland and Austria? These are two of the richest economies in the world, and they are landlocked. The reader may respond by saying that these countries could develop because they had good river transport, but many landlocked African countries are potentially in the same position: e.g., Burkina Faso (the Volta), Mali and Niger (the Niger), Zimbabwe (the Limpopo) and Zambia (the Zambezi). So it is the lack of investment in the river transport system, rather than the geography itself, that is the problem. Moreover, due to freezing seas in winter, Scandinavian countries used to be effectively landlocked for half of the year, until they developed the ice- breaking ship in the late nineteenth century. A bad neighbourhood effect may exist, but it need not be binding – look at the recent rapid growth of India, which is located in the poorest region in the world (poorer than Sub-Saharan Africa, as mentioned above), which also has its share of conflicts (the long history of military conflicts between India and Pakistan, the Maoist Naxalite guerrillas in India, the Tamil–Sinhalese civil war in Sri Lanka).

Many people talk of the resource curse, but the development of countries such as the US, Canada and Australia, which are much better endowed with natural resources than all African countries, with the possible exceptions of South Africa and the DRC (Democratic Republic of Congo), show that abundant resources can be a blessing. In fact, most African countries are not that well endowed with natural resources – fewer than a dozen African countries have so far discovered any significant mineral deposits.[5] Most African countries may be abundantly endowed with natural resources in relative terms, but that is only because they have so few man-made resources, such as machines, infrastructure, and skilled labour. Moreover, in