The Changing State of Africa

This article centers on what I have talked about previously--the changing face of Africa and the development of its economy. However, there are some new and interesting ideas in this article that I would like to point out:

1. It talks about how rising commodity prices "bolster Africa's economy prospects." Sure, in the short-term rising commodity prices will boost Africa's economy, but commodity prices will not continue to rise for ever. If the resource-rich African countries  fail to ground their economies in good governance, leading to a wise fiscal policy and solid social safety-nets, then their economies will continue to be volatile; they will never achieve sustainable economic growth do to the booms and busts of commodity prices.

2. The article continues to discuss the fact that many countries, especially China, are "seeking to cash in on Africa's commodity bonanza." These foreign investments add to Africa's booming economy, but as soon as commodity prices begin their downward decent, foreign investors will turn and run. Thus, if Africa does not reform the structure of its government and economy, its economy will fall hard. The article mentions that according to the African Economic Outlook, "Africa needs a clear engagement strategy" when dealing with these foreign investors.

3. One very interesting point the article makes is the Chinese perspective on development. They believe that "new states need to build buildings and dignity, not simply strive to end poverty." In accordance with this strategy, they are investing in infrastructure, especailly along the coast of Africa. But isn't it better for long-term economic growth if Africa itself invested in its own infrastructure? This would definitely lead to less exploitation by employing African workers and African materials. Groups such as NEPAD, a program of the African Union, believe in this principle. NEPAD encourages African self-reliance by spearheading coordination between African countries to eradicate poverty and increase the standard of living.

4. The article remarks that Africa has a "youth bulge" in that it has the youngest population in the world. Unfortunately, Africa cannot fully take advantage of this valuable resource because it has "jobless economic growth." This phenomenon occurs due to Africa's resource curse and the foreign investors that I discussed in #3. Programs such as Aid for Trade, proposed during the currently-stalled Doha Round, may help create jobs by eliminating problems in the supply-side of Africa's exports.

5. Finally, the article mentions that better education, more government transparency, increased urbanization, a more favorable business climate, less corruption, and increased peace are all necessary for sustainable growth in Africa.

Ghana's 2012 Election

When I was in Ghana, the Ghanaians were quick to remind me that Ghana's election would be shortly after Obama was reelected (they hoped) in America--or as they liked to call it--"Obamaland." And sure enough, their election is set to take place on Dec. 7. Though four candidates are running, the contest is between the current President John Mahama from the National Democratic Congress and Nana Akufo-Addo of the New Patriotic Party. According to an article on VibeGhana.com, The debates have dealt primarily with eliminating corruption in government and managing the country's resources (i.e. oil, cocoa, etc.).

In the debates, Akufo-Addo asserted that he would lead by example in eliminating governmental waste and corruption. In terms of managing the profit from the recently-established oil industry, Akufo-Addo said that he would make secondary school free with these funds. President Mahama pointed out that his administration had already begun work to ensure that oil profits stay with Ghanaians, and he declared that in the future, he would work to pass legislation encouraging foreign extraction companies to buy products from Ghana and employ Ghanaians. On this topic, he said, "It doesn’t pay to have such a God-blessed resource and just have foreigners come and take it away without any benefit to your people."

Concerning corruption, former Ghanaian president John Rawlings, who still exerts a strong influence on public opinion, spoke out against governmental corruption. According to the Economist  he proclaimed, "Corruption permeates all facets of our society and it is because of the deep rooted moral and spiritual impurity that is currently embedded in our society." Interestingly, it is unclear whether Rawlings will support the current president or the opposition party. He initially endorsed his wife's bid for the presidency as a third-party candidate, but her paperwork was rejected so her candidacy has ended. He had met with Akufo-Addo, even though he is still considered to be a member of the NDC. Some argue that his endorsement is of little importance because "Ghanaians like him but there are just as many people who don't like him."

Regardless of political machinations, it is refreshing to hear key African leaders speak out in defense of their country's resources and against governmental corruption. Though the Mo Ibrahim Foundation found no African leader worthy of the five million dollar prize for "achievement in African leadership," Ghana scores relatively high in all four categories that the Foundation considers (Safety & Rule of Law, Participation & Human Rights, Sustainable Economic Opportunity, and Human Development). Initiatives like the ones to eliminate government corruption and promote healthy economic growth will only increase its scores in the future, so maybe the Foundation will deem Ghana's next president worthy of its leadership award.

Education (or lack thereof) in South Africa

This video from The Economist concerning South Africa's failing educational system supplement's my earlier post on the downturn of South Africa. It clearly shows a link between the quality of education of a country and economic growth/decline. Over half of young people in South Africa are unemployed because many do not have the requisite skills for a job. This mismatch between the labor market and the job market is endemic, and only a revamped educational system will solve it. The teacher's union will have to concede that it must not pursue policies that  promote and protect lazy and ignorant teachers. Nelson Mandella's party, the African National Congress, needs to ensure that both blacks and whites have equal access to quality education. (Note the gap between the educational attainment of blacks and whites in this video.) The party should engender a higher level of respect for the teaching profession and ensure that those who enter the teaching profession are compensated according to their competence and ability. If the problems of the educational system are properly addressed, the future of South Africa's economy will look much brighter.

The City of the Future

"Can you imagine a world in which your daily existence has no detrimental impact on the environment? If so you might be living in an eco-city." This is a quote from a recent BBC video that features an eco-city--Tianjin--that the Chinese are building from scratch. (The land used to be a wasteland.) It should be finished by 2020. The premise is to try to make the easy choices the right choices. For instance, the city will provide easy access to public transportation--such as hybrid buses. Also, the city planners have ensured that places of work and leisure are situated close together.

Just because it is eco-friendly does not mean it is inefficient. At least 350,000 people are expected to live there, and 600 companies, bringing more than $7 billion U.S. dollars have already signed on. In the video, the BBC journalist interviewed one of the city planners. The city planner remarked that the eco-friendly features of the city are not very expensive if they are planned from the beginning. He said that they are trying to balance the goals of economic efficiency and environmental protection, which are not necessarily mutually exclusive. While they could have idealistically targeted 100% renewable energy, they are aiming for 20% renewable energy because they believe this is a goal that the market can support. This innovated atmosphere makes Tianjin a "hot bed of ideas" because many of companies are using it as a platform to develop "green solutions."

One of the city-dwellers commented that it actually is relatively cheaper to live there than elsewhere even though it is an eco-friendly city. She can walk to work, walk to school, and walk to the shopping center. While the city planner admits that they do not have all the kinks worked out yet, they are well on their way to creating something that other cities can replicate. China, a signer of the Kyoto Protocol, is clearly committed to green innovation. America should also get on board because a city like Tianjin is the city of the future.

Recessions and the Multiplier

In our IPE class, we discussed whether the IMF has been misguided in telling countries to tighten their belts in the face of economic recession. A recent article in the Economist points out that although the IMF did warn that austerity might be painful in 2010, it underestimated the extent of the pain. This miscalculation laid the groundwork for many criticisms of the IMF's policies. But what exactly did/does the IMF use to predict the effect of its policies? The fiscal multiplier.

According to the Economist, a fiscal multiplier "describes the change in GDP that is due to a change in tax-and-spending policy." A fiscal multiplier can work both ways. It can be used to predict the amount of economic growth that will result from a stimulus or the amount of economic decline that will result from austerity. In the latter case, a fiscal multiplier of 1.5 means that for every dollar of spending cuts, there is $1.50 decline in GDP. Therefore, when the IMF advocates fiscal austerity, it is (hopefully) expecting a relatively low fiscal multiplier. While some economists argue that fiscal austerity can actually increase economic growth--even in the short-term--the general consensus is that austerity leads to short-term (but hopefully not long-term) decline.

Here's how the multiplier played out during the 2008 crisis: While many governments initially turned to stimulus to try to get out of the recession, in 2010 the IMF recommended fiscal austerity to try to decrease government deficits. It based this recommendation on the belief that the multiplier would be 0.5. (For every $1 in government spending cuts, there would be $.50 drop in GDP.) However, the actual fiscal multipliers since the recession have been much higher (between 0.9 and 1.7), leading many economists to question whether the IMF's recommendations hindered, rather than helped, countries' progress in overcoming the recession.

African Economies and the Politics of Permanent Crisis 1979-1999

In African Economies and the Politics of Permanent Crisis 1979-1999, Nicolas Van De Walle examines the on-going African economic crisis from a new perspective; like most other analysts, he explores the (mostly failed) economic policies that have contributed to a lag in African economic recovery, but he also broadens the discussion to consider political regimes and how their past decisions impact the current economy. Through his analysis of "neopatrimonial" governmental regimes and the dismal performance of African economies, Van De Walle concludes that postcolonial aid flows to Africa have actually contributed to, rather than prevented, continued economic crisis.

Though leaders first shied away from implementing the reforms required by institutions and countries providing aid, they began to realize that partial implementation not only served to placate donors, but also to derive political benefits. For instance, if they "privatized" certain industries, their personal bank accounts could reap the rewards. In essence, because regimes are first and foremost self-preserving, leaders only implemented reforms that strengthened, or at least did not threaten, their power and control. Leaders who might be perceived as relatively responsible inflicted fiscal austerity on populations by decreasing investment in infrastructure in order to balance out the increases in governmental consumption. In the long run, partial implementation generally resulted in either warlordism--due to an increasing focus on rent-seeking rather than rule of law--or an even greater centralization of power--due to increased governmental consumption. To Van De Walle, toothless statements of conditionality (concerning reform) that are attached to aid have contributed to, rather than solved, Africa's political corruption and economic hardship.

The political corruption inherent in many African governments is a byproduct of "neopatrimonialism." Van De Walle uses this term to describe hybrid governments that adopt the appearance of a Western rational-legal administration but continue to operate with clientelist tendencies, doling out privileges and offices to family members, friends, and political supporters. These regimes have high levels of autonomy, despite low capacity. Though many analysts equate autonomy with capacity, Van De Walle points out that while African governments were "endowed with little legitimacy" after colonization, (leading to low capacity), they remain highly stable and autonomous because non-state actors (i.e. interest groups) do not have enough resources or organizational structure to challenge the government.

Van De Walle further argues that postcolonial order has been maintained despite a long period of economic downfall and crisis because, and not despite, aid flows. For instance, even if commodity prices dropped sharply, governments did not feel as much pressure to change economic policies because aid flows sheltered them from the shock. Instead of increasing Africa's economic independence, aid flows have actually increased Africa's continued dependence on aid flows. Nevertheless, donors continue to lend because of internal pressure and few accountability mechanisms for failed programs. Van De Walle believes that institutions, such as the IMF, should reform their practices so that they fully consider a country's circumstances before providing aid and devising statements of conditionality and so that they work with a country's governmental regime rather than above it. For instance, by offering much higher salaries, the IMF has recruited many of the top minds in Kenya to work for it instead of the Kenya government. Though these practices hurt Africa in the long run, Van De Walle expresses hope that Africa's economy will soon recover. His optimism is due to decreasing aid flows to the region, which increases the government's need to respond to shocks and reform out-of-date policies. Nevertheless, his optimism is tempered by the fact that many of the African countries that have adopted democratic systems have not changed economic policies because they still have neopatrimonial governance. However, Van De Walle hopes that democratization will eventually increase political participation, which in turn would increase governmental accountability and lead to economic reform.

Van De Walle's exploration of Africa's permanent economic crisis widens the discussion from a purely economic approach to an economic and political approach. Nevertheless, he leaves some questions unanswered. He neglects to fully analyse the perceptions of Africans concerning donors, such as the IMF. Furthermore, he does not mention what effect, if any, educational reform would have on the economy. Should donors focus on improving the quality of education inside the country so that the skills of the work force will meet the demand of the job sector? Finally, I would have liked him to spend more time discussing the role (if any) that African values and culture play in the continuation of economic recession. Are neopatrimonial tendencies, resulting in clientelism, to some degree inherent in African governance due to the African value of kinship and community? Note that this book was published eleven years ago, and the discussion of African economics has since evolved. Nevertheless, Van De Walle's African Economies and the Politics of Permanent Crisis 1979-1999 greatly contributed to the discussion of African economic recovery by introducing additional components, such as political regimes and donor policies.

The Global Election

With the election looming only 3 days away, some economists are beginning to speculate about how the next president's policies will affect not just the domestic economy but the global economy. In Stiglitz's recently-published article, "America's Global Election," he laments the fact that although the next American president will have a huge impact on people from other countries, these people get no say in our election. He further argues that the non-Americans overwhelmingly favor Obama's reelection. Though he does not cite any evidence as to why a majority of foreigners support Obama, he contends that the fundamental differences in policy between Obama and Romney justify Obama's support from abroad.

Stiglitz argues that Romney's election would lead us back to Reagan-esque free-market economic policies, which Stiglitz claims "brought about the worst global recession since the 1930’s." He believes Romney's policies--like Reagan's--would continue to shrink the middle class and lead to greater income inequality. For instance, Stiglitz believes that Romney's "tax cuts for the rich," budget cutbacks, and lack of support for ObamaCare would lead America--and other countries--down the wrong path. However, Stiglitz failes to recognize that many of Romney's policies--especially his commitment to cut the corporate tax rate--would create jobs to grow the economy. (See Michael Boskin's article.)

Stiglitz presents a short (and weak) argument concerning both the candidates' views on globalization. He admits that Obama has not done much in regards to trade, finance, and climate change. However, he believes that Romney's policies concerning globalization, (which Stiglitz fails to present in detail), would take the global economy in the "wrong direction." Stiglitz argues that in the area of foreign policy Romney has failed to distinguish himself from Bush. This is a surprising argument considering that after the third and final presidential debate (about foreign policy) many analysts criticized Romney for not distinguishing himself enough from Obama.

A final point that Stiglitz makes is that Romney's stated stance against China does not leave him much room to maneuver if he is elected. According to Stiglitz, Romney "promises to launch a trade war with China, and to declare it a currency manipulator on Day One." Stiglitz points out that Romney fails to recognize that the renminbi has actually been appreciating for years (see graph), and that the stronger the renminbi gets, the more the U.S. will simply turn to other countries with relatively low-value currencies so that we continue to have an abundant supply of cheap goods. Furthermore, Stiglitz asserts that Romney does not understand or acknowledge that many countries are calling the U.S. a currency manipulator because of the Fed's recent "easing" policies.

I hope that whomever is elected will reach across party lines and do what is best for America--and the global economy--regardless of whether it adheres to his party platform.