Are we so different?

The “Explaining African Economic Growth” project was launched in 1999 as a common research project between top world universities under the leadership of the African Economic Research Consortium (AERC). As a result of this project, the book “The Political Economy of Economic Growth in Africa, 1960-2000” (1) is considered as a major common-effort breakthrough towards the explanation of recent Africa´s economic history. Top scholars such as Jean-Paul Azam, Robert Bates, Paul Collier, Anke Heoffler, Agustin Kwasi Fosu, Benno Ndulu and Stephen O’Connell seem to agree than most of Sub-Saharan Africa (SSA) underperformances in economic development can be explained mainly by the so-called four “Anti-Growth Syndromes” (2) of policy environments.

These syndromes are the Regulatory Syndrome, the Redistribution Syndrome, the Inter-Temporal Syndrome and the State Breakdown syndrome. These syndromes are non-cumulative and even if only one suffices to explain the underperformances in development, in general one syndrome causes another and they are largely complementary. The frontier between these categories is blurred and most of the time a single phenomenon can be classified in more than one category. We will quickly describe each of these syndromes.

1. Control or regulatory regimes.

During the decolonization process of SSA after World War II, most newly independent regimes were inspired by socialist or communist doctrines, and installed, although in diverse degrees, control regimes for prices and the production of goods, a rapid expansion of State Enterprises and financial repression. This, according to the authors, is socially costly, because it “tolerates substantial market distortions in an attempt to rapidly alter historical patterns of resource allocation” (2), meaning that over-subvention or taxation inflict major deadweight losses to society, creating over/under provision, and creating dependency in time, so that returning to the market-efficient level would be very costly in the future. On the other hand, controls on the economy often allocate some rent to unproductive sectors, like smugglers and speculators. In several SSA countries the black market premium on dollars was a proof of how the governments intentionally diverted a rent to interest groups. This is inefficient because private sectors are diverted from productive activities to rent-seeking and these allocated rents are not invested in public goods such as roads or hospitals.

2. Adverse redistribution syndrome.

As seen before, the control on prices allocates rents to very specific interest groups. But this, even if harmful for public investment because public resources are diverted to rent-seekers, could be efficient in the context of very polarized conflicts. Indeed, the redistributive syndrome could appear by commission or omission, either because by transferring too much rent to interest groups the public funds are diverted from their function and rent-seekers are unproductive, or because the country could plunge in conflict and instability if some rent was not given to powerful and dangerous groups.

3. Inter-temporal syndrome.

This is considered as a way of “taxing the future” by allocating resources from the future to the present. This happens by unsustainable government spending, contracting debt and undermining investment, both public and private. In extractive economies, this is a common phenomenon during natural resource windfall periods, where general spending and borrowing increase without taking into account probable price falls, and where temporal resources are shyly invested in relation to the countries’ needs and capacities. Future generations are penalized in effective costs, like debt repayment and the opportunity cost of not benefiting from the externalities that past investments could have provided.

4. State Breakdown.

This is probably the worst scenario, where redistribution inefficiencies and rent-seeking drive the country towards intense political instability and even civil war. It generally happens when benefits from looting or the rents captured by getting access to power through violent behavior are greater than the costs of organizing instability or financing civil conflicts. Literature shows that this too is common in natural resource-extracting economies. One of the consequences is that institutions are systematically dismantled and that chaos opens the way for modifying the structure of power and redistributing rents to interest groups.

Sounds familiar? These syndroms explain most of SSA’s poor growth performances and interestingly apply, in different periods and not necessarily all at the same time, to Bolivia’s last 55 years of economic history, except maybe the 1985 – 1996 period during which no important natural resource extracting boom occurred. Even today, control regimes are largely subsidizing interest groups, like petroleum liquid gas (GLP) smugglers, and overtaxing productive sectors, like bakers. Adverse redistribution creates tensions between centralist and autonomist sectors, mostly concerning the redistribution of power. The inter-temporality syndrome – more than the others – is chronic in our country, because investment is largely undermined. Also, even if there is not an unsustainable spending boom, there is large debt contraction towards Venezuela, which implies high levels of uncertainty because we don’t know how much we are borrowing, or what the repayment clauses are, and as in the previous syndrome, we may not necessarily be talking about money. Finally, even if democracy seems more or less to hold, February and October 2003 showed that an important State Breakdown can happen. Recent events in Sucre and the uncertainty concerning the outcome of the Constituent Assembly can let us foresee a very complicated and intense State Breakdown. At the same time, institutions are hindered, as a Constitutional State just doesn’t exist without a Constitutional Court.

Maybe we need just a touch of modesty, and another of realism, to realize that we’re closer to SSA economies’ logics than we think. Our researchers should cooperate with these extraordinary African researchers so we may be able to understand much more about our country and about development. Policy makers, as well, should learn from the African experience, to understand huge mistakes from the past and observe what could really succeed in resource-extractive, violently fractionalized, and poorly developed countries (3).

Instead of proclaiming high and loud that we are going to become like – say – Switzerland, we should start doing things to avoid ending up like Nigeria.

Have you heard of any ways to avoid similar syndromes? Leave a reply below.

(*) Researcher at the Institute for Advanced Development Studies, La Paz, Bolivia. The author happily receives comments at the following e-mail: jsmoralesb@gmail.com.

(1) Ndulu, Benno (Editor, compiler),Several contributors, “The Political Economy of Economic Growth in Africa, 1960-2000 set”, 2007, Cambridge University Press, Cambridge, UK.
(2) Fosu, Agustin Kwasi; O’connell, Stefen; “Explaining African Economic Growth: The role of Anti-Growth Syndromes”, 2005, Presented at the Annual Bank Conference on Development Economics, Dakar, Senegal.
(3) Andrade de Sá, Saraly; Morales, Joaquín; “The Role of the Natural Resource Curse preventing Development in Politically Unstable Countries: Study Cases of Bolivia and Angola”, 2007, Memoire de recherché, Université de Toulouse I.