African Development: Dead Ends and New Biginnings (By Meles Zenawi)

PRELIMINARY DRAFT
(Not for quotation)

This draft for discussion comprises selected extracts of a monograph under preparation. They include drafts of a couple of chapters in their entirety, the concluding sections of several chapters and in some cases, only the chapter headings.

AFRICAN DEVELOPMENT: DEAD ENDS AND NEW BEGINNINGS
By Meles Zenawi

(The author is the Prime Minister of Ethiopia. The views expressed are personal and do not necessarily reflect the official position of the Government)

Introduction

The political and economic renaissance of Africa is an issue that continues to preoccupy Africans’ and non-Africans alike. Various methods of achieving such a renaissance have been proposed. Most of these proposals are variations of the dominant neo-liberal paradigm of development. My argument is that the neo-liberal paradigm is a dead end, is incapable of bringing about the African renaissance, and that a fundamental shift in paradigm is required to bring about the African renaissance.

The monograph is divided into three parts. Part one provides the theoretical basis of the argument and is divided into seven chapters. Chapter one briefly outlines the fundamentals of the neo-liberal political economy, identifies the flaws in the neo-liberal political economy and outlines the social underpinnings of a market economy. It argues that social development is essential for economic development and that social development cannot be brought about by market mechanisms alone.

Chapter two focuses on technological development which is at the heart of economic development. It shows the massive market failures associated with technological development, argues that technological capability accumulation is at the center of the development efforts of developing countries, and concludes that such development cannot be brought about by market mechanisms alone.

Chapter three deals with other market failures, with a special emphasis on capital markets. It argues that market failures are deep and pervasive in developing countries and that market mechanisms alone cannot bring about accelerated development.

Chapter four addresses the role of agriculture in development. The market failures that agricultural development faces are assessed and the relationship between equity and growth is investigated. Chapter five deals with the role of FDI in development.

Chapter 6 is concerned with the role of the state in accelerating growth and in addressing market failures. It argues that the state has historically played a crucial role in accelerating development and analyzes the nature of the state which can be most effective in addressing market failures and accelerating growth.

Chapter 7 deals with democracy and development. While there has been accelerated development without democracy, democratization has been an essential element of the vision of the African renaissance. It is argued that a developmental state can be a democratic state, and indeed that a democratic developmental state is likely to be more successful in its development efforts than others. The requirements for the emergence and evolution of democracy are also examined.

Part two (chapters 8 to 13) provides the practical experience to show the validity of the analysis in part one. The development experience of Taiwan and Korea is analyzed in some detail. The ways and means that the two governments used to address the various market failures are analyzed. The evolution of developmental states in the two countries is assessed. The internal and external circumstances that contributed to the success of their development effort are outlined. Part two provides specific and practical examples showing that government intervention by a “developmentalist”, if not a full-fledged developmental state, is key to successful development.

Part three analyzes the current circumstances in Africa, argues that the neo-liberal reforms have failed and explains why the neo-liberal paradigm has failed and does so in 8 chapters (chapters 14-21).

Chapter 14 explains the nature and genesis of the predatory African state and how its internal logic and dynamics led Africa to a dead end and crisis by the mid-eighties. It analyzes the political economy of rent-seeking in Africa. Chapter 15 analyzes the successful development experience of Botswana and the political economy of Botswana. It shows how the different political economy of Botswana has been responsible both for the successes and challenges of Botswana.

Chapter 16 presents the neo-liberal analysis of the political and economic problems of Africa and the political and economic reform agenda proposed by it.

Chapter 17 and 18 present the results of the neo-liberal reforms. It is argued that the reforms have failed, that the reform programs have not taken Africa out of the dead end in which it found itself in the mid-eighties and that on the contrary the neo-liberal reforms have taken Africa to another dead end. It is suggested that is so because of the fundamental flaws of the neo-liberal paradigm.

Chapter 19 deals with the reform experience of some African countries. The last chapter argues for the need of a paradigm shift to bring about the African renaissance and assesses the possibilities of bringing about such a paradigm shift. Some of the essential steps that are needed to bring that about are also briefly outlined.

1. The Neo-Liberal Political Economy and Social Capital
(Extract from the chapter)

1.4 Conclusions

The neo-liberal paradigm which suggests a non-activist and non-interventionist state, a night watchman state as conducive to economic growth bases such conclusions on two pillars. One pillar has to do with the assertion that competitive markets are both pervasive and pareto efficient. The second pillar has to do with the neo-liberal political economy based on the theory of socially wasteful rent-seeking activities and the rational choice theory of solely self-interest maximizing individuals.

Government created rent does not necessarily have to be socially wasteful. It becomes wasteful only if solely self-interest maximizing individuals use it to create wealth at the expense of society and only if the state is incapable of improving on the market- i.e. there are no market failures.

The theory of solely self-interest maximizing individuals does not hold water. History, common everyday observation, and theoretical analysis based on the two suggests that an economy based on complex economic interaction such as a market economy requires a blend of self-interested and non-self interested behavior: a blend of social and individual norms that maximize survival potential within an appropriate social context. In the absence of such norms, the state, if it can exist as a coherent corporate entity for any period of time, becomes predatory. A properly behaved night watchman state populated by solely interest maximizing individuals is thus a practical and theoretical impossibility. Only individuals with a blend of self-interested and non-self interested behavior can create a night watchman state, and such people are equally capable of creating a state which intervenes in the economy in the larger interest of society.

Creating the proper blend of norms, values and rules to reduce uncertainty and transaction costs is a critical factor in accelerated growth and development. The creation of such social values and norms is called social development or social capital accumulation. Social development is thus not only an essential element of development but also a critical instrument of accelerated economic growth.

The accumulation of social capital, which plays such a critical role in accelerating economic growth, is a public good which has increasing returns to scale. It is, hence, undersupplied by the market and is subject to vicious and virtuous cycles. It is created by social activity by civic engagement in the context of horizontal and dense networks and inculcated and sustained through modeling, socialization and sanctions. The state plays a critical role in social capital accumulation through undermining patronage networks and promotion of fairness and equity, through the promotion of participation and democracy, and through appropriate sanctions and efforts at socialization.

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