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Why economists fail in Africa

A great new book is just out by Morten Jerven called Africa: Why Economists Get it Wrong. It is a follow up to his excellent 2013 book, Poor Numbers: How We Are Misled by African Development Statistics and What to Do about It that I featured several times in this blog.

He argues: “There has been a chronic failure among economists to explain growth in Africa. The methods and analytical angles they have used to explain relative failure in Africa were conceived in the 1990s, but these were unsuitable for explaining growth in the 1960s or growth since the 2000s”.

Jerven does not deny that there has been economic failure in Africa. Zimbabwe is of course a case in point. But this was not generic failure, over the whole ‘post-colonial’ period across a whole continent. Rather there have been variations: growth in fits and starts, cycles of successes and failures, often with success being hidden by the aggregate statistics given the informal nature of much economic activity (certainly the case for Zimbabwe, as I’ve argued many times).

But what he calls this “erroneous stylised fact” of generic failure over a long period has been the basis for an ahistorical, decontextualised analysis of African growth patterns, which attempt to explain the African “shortfall” through cross-country or cross-continental comparison. The assumption is that it was a set of “initial conditions” that created the African predicament. Conditions such as environmental factors, ethnic fragmentation and a lack of social capital have all been suggested to have a direct role in the failure of economic growth. Just being African seems to be a problem according to some of this analysis.

However, Jerven argues “the causality story – initial conditions causing slow growth – is wrong and therefore not useful for policy advice”. Moreover, he argues “policy typologies such as the distinction between “closed” and “open” economies, or the related “bad” and “good” policies, do not correlate coherently with episodes of economic growth in African countries”.

The title of this blog is a reference to the much-lauded book, ‘Why Nations Fail’ , that I have reviewed before on this blog’. Jerven also takes this argument to task as it offers a far too simplistic and functionalist a view of institutions and governance, and, he argues, gets causality back-to-front. Effective institutions and ‘good’ governance emerge from development, and are not so much its precursors, he suggests. As he notes: “several decades were wasted putting a lot of effort into curing symptoms that were thought to be causes”.

So what are the key complaints Jerven has against economics as applied to Africa? It’s of course not all economics and economists that his ire is focused on, but a certain style of aggregated economic reasoning derived from comparative cross-country econometrics. Why has this approach been so problematic, and what can be done about it?

The problems Jerven outlines are multiple. The data that are used is often very shaky and patchy. Models derived from such data are inevitably suspect: garbage in, garbage out, as the adage goes. Aggregation across countries, and comparisons with patterns elsewhere miss out on the particularities of different economies and their histories, and so end up offering false or at least highly simplistic explanations. Africa, of course is not a country, but many and diverse nations, regions and economies with complex histories. But simple narratives prevail and are reinforced by aggregate economic analysis. Jerven identifies a few choice media quotes from The Economist over time that regurgitate the narrative that ‘Africa’ is a disaster, or alternatively today, ‘Africa’ is rising; statements that are almost completely meaningless and not supported by solid data.

The consequences of these faulty analyses – and the media tropes that follow on – are of course very real, as the book points out. Decades of structural adjustment policies were pushed across Africa on false premises, and with disastrous consequences. The arguments for institutional reform and good governance as preconditions for development may fail, as these new institutional forms may have to emerge from developmental processes, and be appropriately adapted to contexts (just as happened in Europe or the US). And, of course, the generic prescriptions for a whole continent fail to pay attention to location and specificity, and of course political economy and history.

So what to do? There are clearly a number of important challenges. One of course is to improve the data that analyses are based on. If we are relying only on very poor numbers, then it’s difficult to expect anything other than the garbage that is currently churned out. With better spatial differentiation, improved time series and so on, we can get to grips with variation and pattern, and offer greater nuance in our analyses. Good numbers really do matter. If growth pathways are so much to do with context – of politics, history, and so on – then cross-country econometric comparisons, especially with massively unlike settings (say comparing Asia or Europe with Africa) are really largely a waste of effort. Instead, Jerven argues, we need to move from cross-country econometrics to understanding particular economies in context, and understanding how African economies actually work. This means a focus on real markets, not the abstractions of models; informal and formal economic activity and the interactions between, not just what is in the formal statistics; and the historical and political factors that frame and shape options for the future.

The profession of economics with its current false scientism and its obsession with quantitative method has, over time, distanced itself from the complexities on the ground. The search for grand, universalising explanations for growth, poverty, inequality or whatever, has lost sight of the particular, contingent, conjectural conditions that create change and transformation. This is a profound methodological point. The book hints at the need for a revolution in development economics that brings back the older traditions of political economy and economic history. Such analyses must be focused not on assumed or inferred economic rules or an obsession with initial conditions driving uniform change, but the particular operations of particular economies – of nations, regions in particular settings.

Zimbabwe has a proud history of this type of economics (alongside some of the other more problematic sort). The Department of Economic History at UZ has long been an important source of insight into economic change over time, rooted in particular locations. The Zimbabwe Institute of Development Studies, sadly no more, was a focus for political economy analysis of labour, land, industrial change and more by many key scholars. Today, work at institutes such as the African Institute for Agrarian Studies, the Centre for Applied Social Sciences or the Labour and Economic Development Research Institute continue this work. Sustaining these intellectual traditions – rooted in place, context and history – will be important, as Zimbabwe seeks an alternative growth path into the future. Such analyses should help resist the more simplistic and often dangerous prescriptions from the flawed economics of the mainstream.

This post was written by Ian Scoones and first appeared on Zimbabweland

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Why nations fail: perspectives on Zimbabwe

Why Nations Fail: The Origins of Power, Prosperity and Poverty is a provocative new book by MIT and Harvard economists, Daron Acemogu and James Robinson. It is getting a lot of commentary from, among others, Thomas Friedman in the NYT, Paul Collier in the Guardian,  Martin Wolf in the FT and the Economist. It even is linked to a blog. It seems like a big deal which is why I bought it and read it.

Why is the book of interest to those concerned about the future of Zimbabwe? Lumped together with North Korea and Sierra Leone, Zimbabwe is used as an example to illustrate the basic argument that nations fail – and poverty results – because of poor institutions. A basic contrast is made between what they term inclusive and extractive political and economic institutions. Inclusive institutions result in prosperity, and are based on secure property rights, an unbiased legal system and the provision of public services that offer a level playing field for all to be able to participate in economic activity. They result in conditions where people innovate and invest with a sense of security.  By contrast, extractive institutions are dominated by elites, and create privileges and patronage, reducing incentives for entrepreneurship and development.

The nearly 500 pages of the book make the case through a series of intriguing historical examples – from the Ottoman empire to the industrial revolution in England to post-independent Botswana. The array of cases is extraordinary, and it’s a fascinating and absorbing read. Applied to so many contexts and historical periods, the definitions of inclusive and extractive institutions become at times a bit flexible. Arguments for progressive, inclusive approaches are drawn from settings where slavery exists, or where political participation is minimal, for example. And the celebration of the US and Europe are sometimes a bit rich, given growing inequalities, deep poverty within nations and the severe limits of our own political institutions. Also, while the authors acknowledge that extractive institutional settings can result in growth and development – and clearly China is the contemporary example used – they argue that such conditions are fragile and will not persist, although the evidence for China’s decline seems currently limited.

Overall, it is a brave, big-picture argument. It emphasises history, path-dependency, contingency and uncertainty. And it makes politics and power central to the economic analysis. This is all very welcome. But it is of course not novel. Political economy analysis has long argued that politics matter, and power and class configurations, and patterns of inequality, are crucial to the assessment of economic fortunes.  Karl Marx only gets two index entries, and Marxist thought no real discussion, which seems bizarre given this important heritage in economics.

So why is this particular book getting so much air time? The commendations from the great-and-the-good of development economics are certainly impressive, with a slew of Nobel Prize winners offering their endorsements. I guess it’s because the book is written by some well-known and respected academic economists. Once in a while mainstream economics ‘discovers’ things outside its narrow disciplinary confines. Remember the hullabaloo about ‘trust’ or ‘social capital’? Of course classical economics always addressed politics, and it is only in the relatively recent past that this was jettisoned in favour of a narrow focus.  But if this is now mainstream, I am not going to complain. We spend so much time knocking at the door of the citadel of economics, that when the door is opened to debates well known outside, we should probably celebrate (even if a bit cynically).

But what does such a book imply for development? It has some harsh implications. Much of the ‘policy advice’ based on technocratic assumptions will, it suggests, simply not work. As William Easterly comments in his review in the Wall Street Journal, the basic conditions for development are not ones amenable to aid projects or technical advice, but require political and institutional transformation. This may take long periods, requiring the capturing of particular moments – ‘critical junctures’ – and often almost a revolutionary overturning of existing power structures and economic relations to provide the space for inclusive institutions to emerge. Because history matters, and is so difficult to escape, some transitions – for example from colonialism to independence – may not be enough to remove the shackles of extractive institutions. A more radical change may be required.

This is fighting talk, but what does this mean for somewhere like Zimbabwe? The usual stereotypes about Zimbabwe are trotted out in the book, and the sources used for the assessment of contemporary politics seem to be solely journalistic reports, but the basic prognosis is probably sound enough. Zimbabwe inherited a highly extractive political and institutional set up at independence. This was based on a highly unequal, racialised distribution of land and economic power. This was not challenged by the new leaders, and indeed became the basis of their own power, allowing a small group to emerge as a new black elite. Extractive institutions suited their ambitions, and they made full use of them. It is, of course, a well known, depressing tale.

The book does not dwell on Zimbabwe’s land reform, but comments on other reforms where elite privilege was overturned (a particularly evocative example is presented from the Roman empire). Such redistributive reforms allowed new institutions to emerge that spread the gains more widely. However, they only work if security is provided and inclusive political institutions co-evolve with new economic opportunities. The book hails ‘property rights’ as the solution, but this is presented in a rather uncritical and simplistic fashion, often echoing, although not referring to, the problematic analysis of Hernando de Soto. But actually it is security over property and the gains of economic activity and innovation that is critical, rather than any particular form of private property – and so is reliant on the wider political and institutional conditions prevailing.

So, following that other well-know political economist Vladimir Lenin, what is to be done? In Zimbabwe a ‘critical juncture’ was clearly the post 2000 land reform. While there was certainly elite capture, it has opened up potential economic opportunities for many, overturning long-standing historical inequalities. But there have as yet been no moves to establish inclusive political and economic institutions to support this. The GNU has failed, and western powers and others remain at arms’ length. The opportunity of this moment may have been lost, as the extractive tendencies of a powerful elite in trouble hold sway. Was land reform in Zimbabwe one of those historical moments that the book covers which did not result in the necessary institutional revolution: a tragically missed opportunity? Or is there still a chance?

This book, for all its flaws and simplifications, offers some interesting pointers to the way forward, and the urgent need in places like Zimbabwe to focus not on ‘development’ in the normal technocratic mould, but on some radical political and institutional transformations which will allow the land reform to realise its potential for economic change for the better. It’s a long shot, and it may be too late, but progressives across the divides should take heed.

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