A few months ago, my excellent Spanish colleague Fernando (hello, Fernando – are you reading this now?) kindly lent me Paul Collier’s new book, The Bottom Billion. Sadly, Fernando has since returned to Spain and taken his copy of the book with him, so this post will be based on my generally non-functional memory and the notes that I took at the time. Fortunately for me, Collier has mostly been spared the ravages of the great International Economist Polemics Ego Wars, so I don’t feel so bad making ‘gotcha’ criticisms of his book.
Collier writes that there are a few reasons why international capital is not flowing to Africa, in spite of its relative scarcity there: (I paraphrase, obviously, but according to my notes, this is on pp.88-90)
Opportunities for capital investment in Africa are starting from such an abysmal place that even rapid improvement hasn’t yet brought them up to the level of profitability
Incorrect international perceptions of risk factors
Lack of information on the part of those holding capital, due to the small size/international irrelevance of the economy
The fragility of political and economic reforms and an inability for African governments to signal to the holders of capital that these reforms represent a true commitment rather than a short term bid for donor money
He goes on to note that an additional reason for the lack of capital in these countries is that wealthy nationals tend to funnel their money out as quickly as they can. This, he says, is both because “People were holding their assets where they would yield a reasonable and safe return” and again, people have false perceptions about the level of risk. Here, Collier seems to me to be providing excellent evidence that only the first of his four explanations for the lack of international capital in-flow is relevant.
Presumably, his assessment that anyone has a “false” perception of risk must be based on some “true” perception of risk to which he has access and others do not. Like, uh, governance surveys showing recent improvements in “political stability” and “rule of law” in African countries? I’m not sure why we would assume that such surveys are more accurate or responsive to changing conditions than the behavior of international capital flows. Without further evidence, this goes against the grain of the top few dogmas of economics.
But suppose we accept that it’s just not worth it to large international businesses to inform themselves accurately about the true state of African investment opportunities. Even if foreign capital is under some sort of false consciousness or information gap regarding Africa, would wealthy, powerful Africans who presumably have proven their ability to make things happen in their home countries (legally or not) also be desperately funneling their money out? Wouldn’t they know much more about business opportunities and the validity of governance reforms in their countries than either foreign capital or the people who compile risk indexes? Were I possessed of billions of dollars of internationally mobile capital, I would certainly not guess that my highest return investments are located in a country whose richest citizens invest abroad.
I’m certainly not saying that we should give up on attempts to measure investment risk in developing countries. I’m just saying that where the people with local information and a profit motive are not behaving in a way that agrees with the consultants’ surveys, I’m betting on the kleptocrats and not the consultants. Fortunately for all of us, my brilliant boyfriend has come up with a way to use profit motives to construct an index of long-term risk. More on that as soon as we’re both unemployed and in the same hemisphere so that we can write a paper together…
There are many reasons behind aid spending, but two are most often cited, particularly by private philanthropies (which tend to be less interested than public funders in providing ‘aid’ to Israel and Egypt):
Development – This money is an investment which is going to contribute to the political or economic development of this country in a continuing way, beyond the direct impacts of the spending.
Human rights – This money will provide direct relief to people who are unable to access some goods or experiences which we consider necessary to the expression of their humanity
One or both of these principles can drive a broad range of aid activities. Health and education provide particularly interesting examples, however, because the same activities are often justified using both principles simultaneously and with relatively equal weight. So, funders will argue that better HIV prevention is necessary to prevent massive human suffering and to rescue the economies of southern Africa. Or, that getting girls into middle school is both a matter of women’s rights and will have all sorts of fabulous indirect effects on politics, health, population growth, and labor force participation.
But this is supposed to be another anti-Nigeria post, you say? When do we get to the part about Nigeria, you say?*
The question next arises: where do we spend all of this lovely money on health and education? Well, the reasoning goes, we should spend it where the need is greatest. (Remember we’re talking about funders who don’t typically include upgrades in airborne bombing technology in their definition of need) If need is the extent to which you currently lack the desired object, Chad and Somalia are doing pretty badly on the health and education front. But then, we’re worried that spending money in those places would be a bad investment, since they also currently lack functioning governments or economies. What we need is a country that is doing really badly, but not sooooo badly that investing in human capital seems pointless. Hmm. Also, it would be good if it were really big and had a lot of poor people in it. If only we could think of a country like that…
Nigeria (okay – AND Kenya, Ethiopia, Tanzania, and Uganda) often serves as a sort of compromise aid target: it is big, poor, and clearly needy, but not such an obvious basket-case that it is difficult to justify the development value of working there. I think is quite plausible, however, that this type of compromise may often serve neither development investment nor human rights purposes.
Generic health and education efforts are justified by both development and human rights aims. But different types of activities within the generalization of ‘health’ or ‘education’ may serve those purposes differently, and furthermore, even the same activity may achieve different things in different contexts. It seems very possible to me that we ought split our pot of health/education money in two, and spend some in the countries where development returns are maximized, and some of it in the countries where human rights impact is maximized. Nigeria may be a compromise based on the bizarre assumption that we have to find countries that have the least-bad combination for both goals.
Why don’t we support technical colleges in Botswana, and women’s literacy groups in refugee camps in Chad? How about full infant vaccination and HIV prevention in South Africa, and clean birthing kits in the Congo and water purification tools in Myanmar? We tend to discount the best off because they don’t need help, and the worst off because they won’t make good use of it.
You may notice that I have used wussy-waffly words like ‘possible’ and ‘may’ in this post more than usual. This is because there is a long list of possible reasons why Nigeria is actually an optimal compromise (shocking!), and I am open to being convinced of their validity.
We can’t work in Chad, not just because it wouldn’t reap the development benefits of human capital investment, but because the country is so dysfunctional that our money would actually disappear and not serve human rights purposes either. (Paul Collier cites a study in Chad showing that less than 1% of public money destined for rural health clinics actually made there.) For Nigeria to be the next best thing, of course, we would have to assume that money spent there doesn’t disappear…
Investing in middle income countries might maximize development in some sense, but because they are already doing sort of okay on their own, we would rather get less growth in countries with a lower starting point.
Investing in low income countries actually does maximize development, because there are large diminishing marginal returns to health and education improvements. The difference in the economic benefits of taking Nigerian kids from 4th to 5th grade versus taking South African kids from 10th to 11th grade overwhelms any other advantages of working in a more functional country.
Investing in low income countries actually does maximize development, because middle income countries are no longer at a point where outside interventions can help – if South Africa’s schools suck, it’s because of something wrong in the system, not because the department of education lacks funding or needs technical assistance.
Funder organizations have limited human and financial capacity and can’t split their attentions effectively between a bunch of countries. Since they have to show their donors that they are achieving both development and human rights outcomes, they have to pick a compromise target. Actually, I’m not real sympathetic to this one, but I thought I’d throw it in for the sake of completeness.
More in a future post on why development attention should focus more on lower-middle and upper-low income countries. We’ll call it the lifting-Africa-up-by-its-southern-bootstraps approach…
*For any future employers who may someday for some unknown reason find themselves reading this: I love Nigeria. Really. Nigeria is great. We should spend money there, as long as it’s on the right things. I’m totally straw-manning the country to serve my devious literary purposes.
I’ve been thinking a lot about revolution and moral authority and Hannah Arendt and Nelson Mandela and how those things are connected. For the last few nights, I’ve been sitting around trying to write about it while drinking bad beer, listening to Merle Haggard, and hoping that my internet will work. So far it hasn’t worked very well, but tonight I’m giving it another go. This may take me a few posts to sort out.
By revolution, I mean a rapid shift to a new political, cultural, or economic system; violent or otherwise. There are several inherent problems in hoping for good results from a revolution, of any sort:
When an old system is overthrown, whoever had a vested interest in that system loses out. You are stuck with some group of people who are accustomed to the exercise of power and are very angry at you. They probably still have non-negligible resources at their command. Like, all the money. Or all the guns. Or both.
Given that you were powerful enough to overcome the vested interests and rules of the old system, it is unlikely that there is anyone or anything powerful enough to hold you to any rules, old or new. You make the rules as long as you’re in charge, and you know it.
Whoever was running the system is probably not running the new one. At best, you are expecting your system to be implemented by people who have no specific experience with that system in your country. At worst, you are asking the bus-boy to learn to cook enough for an entire country on a recipe no one has ever tried, after you’ve blown up the kitchen.
People are sticks in the mud, and do not trust/understand/respect new systems, no matter how much they didn’t trust/understand/respect the old one either. They may like the sound of the words you say, but when a situation arises in which abstract principles compete with their wallets or loyalties to their grandmothers’ values, you can’t count on support.
This means that one or more of the following is wont to befall even principled, broad-based, puppies and kittens and butterflies type revolutions:
The other guys come back and shoots your guy in the head.
Your new system of rules degenerates, either because absolute power corrupts blah blah blah, or simply because everyone is well-intentionedly idiotic sometimes and there’s no one around to slap sense into you when that happens.
Your people all starve because you shot, exiled, or fired everyone who had ever run a farm/army/central bank. Or else, they are about to starve and instead come and shoot your guy in the head and start over.
You either relinquish your new institutions and rules to the realm of theory and paper, or you achieve compliance through force.
The South African anti-apartheid movement took a unique approach to avoiding these pitfalls, and almost succeeded in running the gauntlet. They may yet squeak through, although things aren’t looking great at the moment. The movement lucked into one of the greatest moral authorities of the century, and through luck or quality of character chose to use him for good and not evil.
The African National Congress, which has been in power in South Africa since the end of apartheid, is often criticized for selling out the darling of morally righteous, left-wing, democratic movements to cover up what was essentially a transfer of conventional political power between two groups of elites. The evidence usually cited shows that in many ways things haven’t changed nearly as much as you’d expect, given that a bunch of black communist trade-unionists have had essentially unlimited electoral support at their disposal for the last 15 years. Income inequality has increased. Most schools and neighborhoods are still essentially segregated in fact, if not by law. Unemployment has stalled at absurdly high levels. White people still own the productive land and natural resources, to a vastly disproportionate extent. Economic growth has failed to lift the majority of blacks out of poverty.
Fair enough. I would nonetheless posit that the ‘elite transition’ in South Africa was a stroke of brilliance unmatched in the many revolutionary movements of the century. If the follow-through had been half so brilliant, they might even have pulled it off.
During the early 1990’s, from the time when the ANC leadership sat down to negotiate with the apartheid-era leadership to the time when it took the helm of a transitional government, several things became clear:
There was serious danger that the country would fall apart along ethnic lines, which correlated uncomfortably with economic ones. Whites controlled the entire economic, political, and military apparatus, and would probably simply leave. Zulus, uncomfortable with the preponderance of Xhosas in the ANC leadership and tied economically to free-market interests, might actually fight. Even the allegiance of Indian and colored groups was tenuous, especially if their relatively middle class status was threatened.
For all that the rest of the world enjoyed a good symbolic boycott of the apartheid regime, international business interests were terrified that the Soviet-trained and South African Communist Party-affiliated ANC would nationalize natural resources and private capital, and were prepared to pull out of the country all together.
Because all black South Africans has been systematically denied access to higher learning and the experience of power, there were too few black professionals and managers to effectively fill the vacuum that would be left by a white exodus.
Although the ANC coalition was held together by opposition to the core racial injustice of the apartheid system and some vague left-wing ideas about economic equality, the leadership was far more radical than the country as a whole (and also more interested in Western ideas about government), and knew it.
Knowing all this, the ANC leadership demanded the one thing that would truly revolutionize the country and enable future reforms to evolve over time: racial equality under the law. And it traded that one demand for a reprieve to the status quo on just about everything else. If they could have only one wish, racial equality was the perfect one. It was the idea at the center of a 50 year long movement. It was uncontroversial among 90% of the population, who truly and deeply believed and trusted in it. It didn’t require much in the way of expertise or management to implement. The rest of the world couldn’t object, and would probably feel compelled to support it (in contrast to economic reforms). The apartheid regime knew they were going to have to give it up sooner or later anyway, so it might as well be sooner as long as they got something for it in return.
Most importantly, it gave the ANC the one tool it needed to do everything else it wanted – eventually. Without uprooting the country, destroying the economy, and probably provoking civil war. Once the black majority could vote, the ANC could accomplish most of its goals within the new system. More than that: it could actually accomplish them better by allowing them to evolve and grow roots. The really radical new political and economic institutions the ANC hoped for needed time to grow strong and earn the trust of the population, both blacks and whites. They needed to grow fast and strong enough to be a check on the power of the revolutionary movement that created them; this may be where the ANC fell short on follow-through.
The key problem facing the ANC leadership was how to get everyone to buy into a deal that seemed to give no-one everything they wanted. How could they prevent the huge black electoral majority from immediately voting in the redistributionist and Africanist reforms they were trying to delay? The ANC membership, for instance, was strongly in favor of immediate land redistribution, of the sort that has worked so well in Zimbabwe. And how could they get whites to buy into an arrangement that obviously simply delayed the demise of their economic and political privilege? Enter Nelson Mandela, complete with halleluiah chorus.
Many, many people probably worked harder for the new South Africa than Mandela. Even men who have turned out to be extremely flawed leaders played crucial roles. Zuma the rapist and corrupt populist likely prevented a civil war between Zulus and the rest of the country. Mbeki the AIDS-denialist was the most effective negotiator with the apartheid regime. Mandela, to some extent, was consciously chosen to be a figure-head. Nonetheless, I would argue that the existence of South Africa as we know it 15 years down the road from apartheid is essentially an act of will on the part of Nelson Mandela.
Mandela’s moral authority led people to buy into an open-ended national project with huge uncertainty and potential threats to their interests. I’ll elaborate on what I mean by moral authority in a later post, but I think that South Africa is one of the most compelling real world examples of what it means. A bunch of people, terrified for their livelihoods, their country, and sometimes their lives, all said “I don’t know what’s going to happen, but it doesn’t look like it’s going to be good for me. I don’t even know what the questions will be. But I trust you to make the right choice about whatever it is, when the time comes.” It was this leap of faith in Mandela that gave the ANC the breathing room to grow a new South Africa, rather than decreeing it. Whether or not they took advantage of that opportunity is another story.
