States of development



November 2005

States of development
Many have argued that the key to development in Africa is more
financial aid and more democracy. But neither played a big role in the
economic take-off of Asian countries like Taiwan and South Korea. What
the Asian success stories have had, and what Africa has lacked, is
properly functioning states

Matthew Lockwood



Matthew Lockwood is the author of "The State They're In: an Agenda for
International Action on Poverty in Africa." He was head of UK advocacy
at Actionaid, 2002-04, and previously head of international policy at
Christian Aid
Once upon a time, in the early 1960s, there were two very poor
countries, in what was then called the developing world. In one-let's
call it country A-income per head was little more than $100 a year.
In another-country B-income per head was slightly higher, but still
under $200 a year. In both countries poverty and illiteracy were
widespread. Both received substantial aid from the US. Country A had
recently emerged from a civil war, and country B was still mired in
one.


In country A, the economy grew rapidly throughout the 1960s and 1970s.
By 1986, it had overtaken Britain as an exporter of manufactured goods
to the US. Today, its companies compete successfully on world markets
for cars and electronic goods with American, Japanese and European
brands. Between 1975 and 1997, real incomes per head more than
quadrupled. It has a large middle class and a mature film industry. It
now ranks above Poland in the UN's human development index and has
joined the OECD.


In country B, 20 years of relentless economic decline was followed by a
long civil war in the 1990s, in which an estimated 3m people died. In
real terms, incomes today are now a third of what they were in the
1970s. Outside of mining, there is little industry, and none that is
competitive in global markets. Country B has no access to international
capital markets and is heavily dependent on foreign aid. It ranks 167th
out of 177 countries on the human development index, well below Haiti
and Bangladesh.


Country A is South Korea, and country B is the Democratic Republic of
Congo (formerly Zaire). The extreme divergence in fortunes from similar
levels of poverty in the 1960s between this Asian and African country
is not unique. In the 1970s, China was as poor as Malawi. But while the
latter remains among the world's poorest countries, struggling with a
terrible Aids burden and the constant threat of drought, China has seen
the largest reduction in human poverty ever in the last 20 years, and
is poised to overtake America as the largest exporter of goods to the
EU. Nigeria was better off than Indonesia in the 1970s but has since
fallen well behind despite Indonesia's recent troubles. Incomes in
Ivory Coast, once on a level with Malaysia, have slumped and civil war
has broken out, while the Malays have built a successful car industry
and seen their incomes soar.


The conventional account of the world since the 1960s is that of the
long road from cold war to globalisation. But the contrast between the
rise of Asia and the decline of Africa, usually considered a subplot in
this larger story, may in fact turn out to be the story.


What is driving this tale of two continents? Can Africa learn from
Asia? These are old questions, given a new urgency in 2005, when
African poverty has been pushed up the international agenda.


One of the most important aspects of the record on Africa and Asia is
the persistence of success and failure. Africa's economic decline and
poverty have persisted for well over a generation. Average income per
head in the sub-Saharan continent has not grown at all in real terms
for 30 years. An already small share of world trade in the 1970s has
shrunk even further, and most of Africa's paltry export earnings still
come from the same narrow range of commodities, prices for which are in
long-term decline. Not only have African countries not shared in the
global boom in trade of high-value manufactures, such as
telecommunications, computers and electronics, they have not even held
their market share in traditional commodities. East African coffee
growers have lost ground to Brazilian and Vietnamese producers, Zambian
copper production to Chile. The move from highly protected economies in
the 1970s to liberalised trade in the 2000s has made little difference.
What foreign investment there is flows to oil and mineral exporters.
Domestic resources, meanwhile, tend to flow the other way. One estimate
of capital flight is that almost $500bn is held abroad by Africans.


By contrast, east and southeast Asian countries have sustained high
economic rates not just for a year or two, but over decades, along with
relatively equal income distribution. The region includes the original
Asian tigers (Taiwan, South Korea, Singapore and Hong Kong), and a
second wave of newly industrialising economies (Malaysia, Indonesia,
and Thailand). For this latter group, average incomes per head grew by
more than 5 per cent per year between 1965 and 1990. Extreme
poverty-the proportion of people living on less than a dollar a
day-has been eradicated.


The "Asian miracle" has most recently spread to Vietnam, and above all
to China, which has produced double-digit growth in most years since
1990, and halved its poverty rate. China dominates all types of
manufactured exports from developing countries, and its high-tech
exports grew at an astonishing 30 per cent every year between 1985 and
1997. From joint ventures with foreign investors at home, Chinese
corporations are now moving into high-profile acquisitions such as MG
Rover in Britain and the oil company Unocal in the US.


East Asian success cannot, as is sometimes claimed, be explained by
postwar US aid. Both South Korea and Taiwan did receive substantial US
aid in the 1950s and 1960s, but African countries received more. Even
South Korea, which received aid from the US in the region of 15 per
cent of GNP in the early 1960s, was surpassed in relative terms by aid
to countries such as Uganda, Tanzania and Kenya (27-30 per cent in the
early 1990s), or Zambia (36 per cent). In 2002, aid accounted for
around half the economies of Mozambique and Sierra Leone. Overall,
since 1960 sub-Saharan Africa (including South Africa) has received
around $500bn in aid, at today's prices.


Explanations for east Asia's success based on the "ethnic Chinese"
argument are also unconvincing. Certainly, the ethnic Chinese are a
dynamic commercial presence in parts of the region, but they played no
part in Korea's chaebol (large family-run conglomerates). Moreover,
African regions have played host to successful minorities, such as the
Gujaratis in east Africa and the Lebanese in west Africa. The contrast
is not in the presence or absence of such minorities, but rather in how
Asian and African governments have managed and treated them.


The international environment-an expanding, managed world economy
with low levels of financial volatility-was favourable to the early
export efforts of the Asian tigers in the 1960s. But African countries
also benefited from the same international stability until the
mid-1970s. Then southeast Asian "followers" managed to take on a more
difficult international economic environment successfully in the 1980s,
and the most recent entrants, such as Vietnam, started growing rapidly
from the early 1990s.


It is also the case that the US and European trade barriers facing
newly independent African countries were no higher than those facing
the tigers at the start of their export drives. African countries,
after independence, benefited from various preferential access schemes.
In 2001, the poorest African countries were granted virtually duty-free
access to EU markets. Two years later, it was estimated that 97-98 per
cent of Africa's exports to the EU entered at a zero or reduced tariff.


Asian success has been based not on aid, or trade or ethnicity, but on
the state. In MITI and the Japanese Miracle (1982), Chalmers Johnson
laid out the characteristics of what he called the east Asian
"capitalist developmental state." Such states make growth, productivity
and competitiveness their priority. They are committed to market
capitalism and consult with the private sector, but guide the market
with instruments formulated by an elite economic bureaucracy committed
to the national interest. Johnson argued that "state bureaucrats rule,
politicians reign"-with the latter providing the political space for
the former to act, but also requiring bureaucrats to respond to groups
on which the stability of the system rests. Lastly, there is a heavy
and consistent investment in education.


The influence of Japan as a regional leader and former colonial power
has been huge. Following the Japanese model, Korea and Taiwan were
thoroughly dirigiste regimes, committing almost every sin in the
neoliberal book: fixing prices, rationing foreign exchange, imposing
tariffs, quotas and limits on foreign shareholdings. Beyond "picking
winners," they "created winners." A good example is the Posco steel
mill in Korea, a state enterprise set up with Japanese aid in 1968,
designed to provide cheap steel to stimulate the formation of
downstream industries. It quickly emerged as a global producer.


East Asian developmental states were not perfect-South Korea tried
and failed to foster a heavy chemical industry. However, they displayed
a policy pragmatism that responded to changing circumstances. When the
limits of import-substitution industrialisation had been reached, and
US aid was to be withdrawn, both Korea and Taiwan switched to
aggressive export-led growth strategies in the 1960s. Perhaps most
importantly, while government strategies supported capitalist
accumulation, they also "disciplined" it. Highly performing companies
were rewarded; inefficient ones were dropped. No company or industry
was able to capture state resources on any scale.


This history of successful state intervention in east Asia, and later
in southeast Asia, contrasts starkly with the African picture. While
African states intervened just as heavily in the economy as their east
Asian counterparts, the quality of intervention was poor. In 1985,
Africanist Richard Sandbrook observed that: "Most regimes actively
discourage the mobilisation and productive investment of resources."
Agriculture was heavily taxed. Exchange rates were over-valued. In
industrial policy, the interventions of African governments have been
described by another close observer, Sanjaya Lall, as "abysmal."


It is true that the colonial inheritance was unhelpful, including small
and fragmented local markets, poor infrastructure, a small
entrepreneurial base and a lack of skilled labour. However, rather than
trying to overcome these barriers, governments generally compounded
them. There was a lack of clear industrial policy objectives. Excessive
and prolonged import protection was not offset by export promotion
measures, or any incentives for learning or upgrading of technology.


It is important to remember the depth of economic crisis that resulted.
According to one account, in Tanzania, by 1985 "virtually all basic
household goods including clothing, soap, edible oils, sugar, salt,
batteries, kerosene, corrugated iron sheets, soft drinks, beer and
cigarettes were scarce or non-existent." By the early 1980s, the
Ghanaian economy had deteriorated to such an extent that senior
government officials, who normally benefit from access to imported
goods even in times of shortage, were concerned that they could not
find food for their families.


Thus if east and southeast Asian states have been "developmental," most
African states were profoundly "anti-developmental." In Governing the
Market (1990), Robert Wade draws a vivid distinction between "vampire"
states-that feed off their economies, extracting as much as possible
in the form of taxes and rents-and "ruminant" states. The latter also
extract taxes, but they give something back to the economy and
society-in the form of public services or infrastructure-allowing
for further growth. Africa's vampire states-which in the most extreme
forms have led to collapse and civil war, as in Sierra Leone, Somalia
or Uganda in the 1980s-have been well documented.


Poor governance is, of course, now widely seen as the heart of Africa's
problems. Since the late 1980s, the World Bank and bilateral donors
have been trying to encourage the emergence of more competent states
through governance reforms. But the evidence is that these reforms,
whether aimed at specific services such as tax or customs, or entire
sectors such as health or education, have been carried out only in
those rare cases where there is political commitment at the most senior
levels. Governance, as Alex de Waal has observed, is government minus
politics. The conditions for developmental states emerging in Africa
cannot be created through technical governance interventions. The
nature of African states is determined by the nature of politics on the
continent.


A large and coherent body of research sees African politics as
"neo-patrimonial" or "clientelist." The colonial inheritance of
indirect rule through local chiefs, and the rapidity of the transition
to independence, meant that nationalist leaders had to pull together
broad alliances rapidly to contest the first elections. In the absence
of clear class interests or ideological bases, urban leaders had to
fall back on the network of existing chiefs and "big men" in the
countryside, offering them patronage in the form of jobs, land and cash
in exchange for delivering political support from their own
communities.


The result was a winner-takes-all politics still evident in many
African countries. To win power was to have access to the resources
that helped to keep power, and losing power meant marginalisation. As
elections became more hotly contested, and as the "eating" of state
resources accelerated, political instability increased, with coups and
violent regime change common in the late 1960s and 1970s.


In some cases, leaders moved to bureaucratise and centralise power, and
succeeded in muting clientelist politics. Such cases, which include
Tanzania, Kenya, Zambia, Ivory Coast and Senegal, have proved the more
politically stable African states, but even here economic success has
been patchy.


The neo-patrimonial state has also been a weak state. Initially,
patronage could be dispensed through the allocation of jobs in the
bureaucracy. This overrode meritocracy, and skewed decision-making. But
as export earnings slumped and debt soared, states allowed the real
value of civil service salaries to slide. For example, salaries were
eroded by 90 per cent in Tanzania between 1964 and 1984. In these
circumstances, state jobs became valuable not for the paltry wage, but
rather for the opportunity to use state interventions in the economy to
extract rents in the form of bribes. Corruption, already entrenched in
many countries by the 1960s, was a pervasive fact of life by the early
1980s.


Patronage politics and the resulting neo-patrimonial states have not
been dislodged by the multi-party reforms that swept through Africa in
the early 1990s. For the one-party states that became multi-party
states simply relocated the power of patronage from the bureaucracy or
the army to the political party. An examination of current donor
favourites such as Ghana, Mozambique and Tanzania shows how persistent
these problems are.


What are the hopes for the emergence of more developmental states in
Africa? Can vampire regimes become ruminants? Many of the Asian success
stories were, at least initially, authoritarian regimes with poor human
rights records. Must Africa also take this path? The truth is that
post-independence Africa has already taken this path-it has been
littered with dictators and military rulers who also failed to deliver
development. African political thinkers in the last few years have thus
been talking about the possibility of democratic developmental states.
In fact, given the political reforms of the early 1990s, and continuing
pressure from the international community, it is likely that most
states in Africa will continue to be democratic in form. Even Uganda's
Yoweri Museveni is likely to accede to a form of political competition.


However, the democratic route does face two problems. The first is
whether African developmental states can be genuinely democratic. In
many cases, rule is still de facto one-party rule. Even where power
does change hands in elections, much of politics is still determined by
the dynamics of patronage. The question of whether this can change
depends in part on the strength of African civil society, and on
whether "horizontal" identities and organisations, such as business
associations or farmers' unions, develop sufficient political voice to
articulate interest group demands on the state, cutting across
"vertical" relationships of patronage. Only if this begins to happen
will a conventional interest-group democracy emerge.


The other question is whether democracy can deliver the rapid economic
development that Africa needs. There is virtually no statistical
correlation between democracy and human welfare in developing
countries. Robert Wade argues that developmentalism is tied up with
corporatism-in which states exercise strong control over the ways
interest groups express their demands-as opposed to a pluralist
arrangement, where states are much more open to lobby groups, and
therefore also to "capture." In a corporatist arrangement, competition
for state support is controlled by the state, and the state can extract
performance in return for support, allowing a degree of long-term
planning and insulation from short-term political pressures.


Thus it is not at all clear in the African context that if patronage
politics could be eroded by the development of a pluralist democracy,
rapid economic development would result. Authoritarian rule seems to
produce developmental outcomes that are either very good or very bad;
democratic rule tends to languish in the middle.


A key relationship here is that between states and the private sector.
It is as yet unclear whether the (largely corrupt) privatisation
process across Africa will create a new commercial class from parts of
the political elite. In the past, African elites have often had a
punitive approach to the domestic private sector-not so much
disciplining companies as tormenting them. In the post-privatisation
phase, this may change, although it is far from certain. Even if a new
commercial elite does emerge, it is unclear whether it will be
committed to investment and accumulation, or whether it will milk the
acquired businesses for resources to spend in political careers.


The prospects for democratic developmental states in Africa are thus
not that good. In the countries where patronage is strong and civil
society and the private sector are weak, the best chance to transform
the nature of politics and the state may still come from authoritarian
leaders with a strong developmental project (like Museveni in the early
1990s). De facto one-party states offer the best chance to contain
patronage and reform the state. This is the arrangement that allowed
Seretse Khama in Botswana to establish the closest thing Africa has to
a developmental state. It is also the arrangement in Tanzania, which
shows signs of developmentalism.


A final question about the divergent Asian and African experiences
concerns the role of the international community. Many Asian states
were heavily influenced by Japan, both as a colonising power that
established an industrial base in its colonies (far more than did the
British and French in Africa), and as an aid donor that focused on
building up industrial capacity in Korea and Taiwan in the early 1960s.
By contrast, African countries since the 1980s have fallen under the
Anglo-American sphere of policy influence, and have been under pressure
to adopt a more liberal approach to economic management.


In the context of the neo-patrimonial state, there was a logic to this
pressure, since it sought to remove the opportunities for rent-seeking.
But trying to use policy reforms to address problems that are basically
about political power has not worked. Furthermore, the east Asian
experience shows that constraining African states that are nascently
developmental from experimenting with a variety of policies, and from
intervening competently in the economy, is highly damaging. Economist
Dani Rodrik has argued that an essential element of development is
learning about policy through experimentation.


Development NGOs complain about the policy constraints created by the
aid conditionalities of the World Bank and the IMF, and the agreements
of the WTO. They probably overstate the case somewhat-there is often
more room for manoeuvre than is recognised. However, one of the most
useful things that the international community could do for Africa is
to stop trying to micro-manage policymaking and simply support
anti-patronage politicians who have a clear developmental agenda.


The tale of Asia and Africa is both a triumph and a tragedy. It shows
how essential effective states are to the development process, but also
how difficult it is for such states to emerge. Ultimately, the
solutions lie with African politicians and political movements. For
those outsiders who want to help, such as the British government, the
best thing they can do is to recognise the primacy of politics over
policies.

.