Government capacity and economic development in Africa

Growth & Development

That Africa remains underdeveloped economically poses significant challenges to the world going forward. While every stakeholder seemingly has their own pet explanation, for the phenomenon, the vast differences between equally underdeveloped nations hints that the problems may be at the macro level rather than the country level. Certainly, the continent faces some unique challenges, but the role of government in development appears to be a major contributor, since the continent's governments in general face many of the same problems.

Acemoglu (2005) argued that in nations with a lack of economic development, it is the inability of the state to create law and order and provide public goods that is the main contributor. Creating the rule of law is more difficult in Africa than in Asia, for example, because of a wide variety of problems. This in turn compromises the ability of central government to provide public goods.

This paper will support this argument with evidence that African states have struggled in these two capacities, and that those struggles do relate directly to stunted economic growth.

Law and Order

Successful states tend to be those with strong governments that have the capacity to establish law and order in their lands. Without law and order, there is little economic incentive for residents, as they may be subject to expropriation of their outputs by bandits, local warlords or other non-governmental or quasi-governmental groups. An examination of the growth stories in the world today shows that while some of these nations have had pockets of relative lawlessness, those pockets are removed from the economic hubs and the lawlessness has been contained. For example, Turkey's far east had a long period of lawlessness and de facto rule by Kurdish militant groups. Those areas, however, were hundreds of kilometers from Istanbul and Ankara, and have now been pacified.

This has been an important step in Turkey's development, since the instability in the region resulted in slow growth of capital inflows and in a higher cost of capital for firms wishing to do business in Turkey. With the region pacified, the nation's cost of capital has gone down and the growth in capital inflows has increased. A similar situation has occurred in Russia, with its instability trapped in the remote Caucasus region and having been largely contained there by military force.

The Russian and Turkish examples illustrate the challenges faced by ethnic tensions. European nation states rose around a common ethnic identity, in response to the need for strong states to compete for scarce land. Herbst (1990) argues that the development of these strong states was necessary in light of the importance of war in winning resources. These states became galvanized along common ethnic heritage.

The African experience was much different. States were carved out of the continent on the basis of geography rather than ethnology. The nations were not forged by war, but were handed over by colonial powers. As noted by Herbst (1990), the geography of Africa presents challenges with respect to the establishment of law and order that are unique to the continent. This would not be the case had nations been based on ethnicity, where the geography of the land confines ethnic groups to specific areas. African leaders must extend their reach to far-flung regions, past major geographical barriers. To do this is difficult; to do this when those far-flung regions are under the control of different ethnic groups compounds the issue further. African leaders must subjugate by force these other ethnic groups to establish the capital's law and order on the land. This necessity perhaps explains why ex-apartheid South Africa and relatively homogenous Maghreb countries have the best economies on the continent. Either the central government did not need to subjugate far-flung people of different ethnicity, or it did so in brutal fashion. The poor sub-Saharan states show neither of these features.

Economic Growth and Development

Tax rates act as a constraint on an economy. Higher taxes stifle investment, idling labor, sending investment capital overseas and leaving arable land unused (Acemoglu & Robinson, no date). Yet taxes are required for the development of public goods -- the infrastructure that facilitates growth in the private sector. Nations that lack the ability to tax cannot provide infrastructure, so the return on private investment of money and effort is negligible. Nations that overtax remove the incentive for hard work and investment. Thus, in order to stimulate growth nations must find the right balance.

In weak countries, such as many found throughout Africa, the nation is unable to raise taxes because the central government lacks control over portions of the country. Herbst (1990) argues that there are several contributing factors to this problem. Because of geographical barriers and ethnic tensions, there is a high cost to maintaining security. The state systems in many African nations are unable to handle the task -- military governments in particular are unable to share power with the bureaucrats necessary to run large, complex economies (Acemoglu & Robinson, no date). Lastly, Herbst (1990) recognizes that national boundaries are an issue in Africa -- they are simply not designed around appropriate lines such as natural geographical barriers and ethnic groupings.

The weak governance model was founded by the Europeans, who were the predominant developers of cities in Africa. They developed cities not to extend their power into the rural areas as occurred in Europe, but to service their own needs exclusively. This remains the primary function of African cities today. As such, African leaders still are without adequate mechanism to either extend security control into their hinterlands or to raise taxes in these areas. As such, they are relatively unwilling to provide public goods to these areas.

However, public goods are essential not only to the development of private enterprise but to one of the key factors in economic development -- trust. Weak governments and their citizens inherently mistrust one another. Citizens are unwilling to work hard in an environment of low trust and high taxation because they understand that they will not receive public goods in exchange for their efforts. Governments will not provide public goods to those they mistrust, as they will not expect to be able to collect taxes at a later date. In Africa, this again can be related to ethnic tensions -- governments and regions from different ethnic groups may have mutual mistrust that predates the colonial era.

Conclusions

Every nation will develop in its own way. For the most part, however, specific antecedents to development can be identified. Strong government is essential as lack of security will reduce investment -- both domestic and international -- and thus stifle economic growth. Strong government must nonetheless not confuse the rule of law with a mandate to expropriate wealth. The government will need to tax, but must do so only in accordance with the needs of the region for public goods. At some point, trust will need to be developed between the government and the people of the region. This trust fosters an environment that facilitates investment in private enterprise and subsequent investment of taxes by government in public goods. Nations that have struggled to develop typically lack security in all regions, they lack trust between government and the people and they lack responsible government taxation and spending policies.

Works Cited:

Acemoglu, D. 2005. Politics and economics in weak and strong states. Journal of Monetary Economics. Vol. 52 (2005): 1199-1226.

Herbst, J. 1990. War and the state in Africa.

Acemoglu, D. & Robinson. Economic Structure and Democracy.

Aryeetey, E. 2004. Financing Africa's future growth and development: Some innovations. Institute of Statistical, Social and Economic Research. 1-44.