States of Development

By Matthew Lockwood

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.

Credit: ISSUE Journal

Photo: Ahmad Tejan Kabbah, president of Sierra Leone, one of the most corrupt and least developed countries in the world.