Can China offer Africa an alternative path for development?

Jeffrey Sachs criticizes the "extreme free-market ideology of structural adjustment" promoted by the IMF and the World Bank while praising Chinese investment in Africa.  Here's why he is both right and incredibly wrong.

Jeffrey Sachs's editorial at the Guardian's Comment is Free, "China's lessons for the World Bank," touches on recurrent themes of the China-Africa story: the hypocrisy of Western criticism and China as a viable alternative model.

Sachs attended the African Development Bank meeting in Shanghai a few weeks ago, and from his participation in high level meetings observe,s "The advice that the African leaders received from their Chinese counterparts was sound, and much more practical than what they typically get from the World Bank."

For decades, Sachs writes, African governments have gotten  the same tired mantra from the World Bank and the IMF: privatize, privatize, privatize.  Africa's latent growth potential (paradoxically highest in the world because it is the most unrealized) can be unleashed only if Africa is able to get out of its own way.  Government must retreat from the private sector, or so goes the conventional wisdom. 

Sachs, the architect of the UN Millenium Development Goals, is himself a proponent of concrete inputs (read: massive spending), anything ranging from mosquito nets to power grids, over imposed policy prescriptions.  The problem is not that rich nations have been giving Africans handouts, it's that they haven't been giving nearly enough, or in the right places.

He writes that the World Bank, wrapped up in an almost ideological belief in structural adjustment, forgot something fundamental:

"...Unlike the Chinese, the bank has too often forgotten the most basic lessons of development, preferring to lecture the poor and force them to privatise basic infrastructure, rather than to help the poor to invest in infrastructure and other crucial sectors.  

The bank's failures began in the early 1980s, when, under the ideological sway of President Ronald Reagan and prime minister Margaret Thatcher, it tried to get Africa and other poor regions to cut back or close down government investments and services. For 25 years, the bank tried to get governments out of agriculture, leaving impoverished peasants to fend for themselves. The result has been a disaster in Africa, with farm productivity stagnant for decades. The bank also pushed for privatisation of national health systems, water utilities, and road and power networks, and grossly underfinanced these critical sectors.

This extreme free-market ideology, also called "structural adjustment", went against the practical lessons of development successes in China and the rest of Asia. Practical development strategy recognises that public investments - in agriculture, health, education, and infrastructure - are necessary complements to private investments. The World Bank has instead wrongly seen such vital public investments as an enemy of private-sector development."

This is why China's massive investment in roads, schools, power plants and health clinics marks such a radical departure from the status quo. I've written extensively before on this blog and elsewhere on the importance of this kind of investment, and so fundamentally, I agree with Sachs. He is right, but to a point.

The problem is that his criticisms of the World Bank and his praise of China gloss over some absolutely crucial reasons why World Bank/IMF prescriptions have failed and why the "Chinese model" (broadly construed) cannot simply be exported to Africa.

Repeated after me: the idea that economics is separate from politics and politics from economics is an illusion.  The idea that economics is separate from politics and politics from economics is an illusion.

That illusion is especially clear in Africa.  But it is just as much an illusion in China as it is in Tahiti as it is in the United States, where many of the ideas people like Jeffrey Sachs and me like to toss around and pass off as The Truth were originally conceived.

Structural adjustment did not necessarily fail because the policies were wrong

Some of the basic principles underlying structural adjustment should not be controversial, at least in theory. Governments ought not (usually) spend more than they can tax, improving governance and fighting corruption are generally good things, as are removing subsidies and lifting barriers to trade.

The problem is not necessarily that the SAP policies were bad, it was that were supposed to be implemented using the "band-aid tearing off method": complete and total liberalization and privatization as quickly and as brutally as possible.

Experience and basic economic models teach us that changes to economic policy, even when they offer long term rewards, create "losers" in the short run.  These "losers" were the people who originally benefited from the subsidy or the tariff or the price control that had before made their particular industry or trade artificially lucrative or their cost of living, artificially cheap.

The term "loser" is of course one of a laughable euphemism.  Better to call him the urban laborer who suddenly realizes he cannot afford to buy rice (if we're in Africa).  Or the Iowa farmer, his crops now barely worth the price of the fertilizer he used to grow them, who is forced to learn the hard way that farming just isn't profitable in a post-industrial society.

In the case of the Iowa farmer, we can also call him a peeved voter.  We can bet he'll vote for the other guy in the next election.  Other guy will probably win by a landslide and other guy will restore Iowa farmer's soy subsidy.

In the case of the urban laborer, we'll call him a protester.  And if the government, under pressure from the IMF, doesn't do the smart thing and give him back his price-controlled rice, we'll call him a rioter. If the government persists, then we'll call him the man that helped give the military its coup d'etat.

This example is, of course, an oversimplification but it illustrates an important point: many economic reforms, even when they are ultimately in the service of a country's long-term interests, are simply politically unfeasible. 

International financial institutions may think they are doing the right thing by attaching harsh conditions to their aid packages (spare the rod, spoil the child)--the so-called "strings attached" model of foreign aid--but these institutions, completely removed from the political interests and pressures that constrain the "patient's" realm of choice, often offer unrealistic prescriptions.

Caught between a rock and a hard place, many governments simply chose not to comply with their SAP plan.

Thus, the failure of structural adjustment is not solely an economic failure or a case of bad policy, it's a political failure, a failure of implementation. 

We shouldn't rejoice if African governments, because of Chinese investment, choose not to implement the tough reforms that, if carried out sequentially, strategically, gradually, and according to local political and economic realties, are ultimately in the country's best interest.

Embrace Sachs's evangelism about the importance of primary investment, but don't throw the baby out with the bathwater. One incomplete ideology should not be replaced by another.  Both are necessary.

China and Africa are fundamentally different political economies

While the leaders of most African countries were learning that to wholeheartedly implement structural adjustment was to court political instability, the Chinese were "crossing the river by groping for stones."

Let me emphasize here that the Chinese did follow a program of liberalization and privatization; but it was an ongoing and gradual process that began 30 years ago and happened very much on their own terms and timetable. Moreover, it was implemented alongside aggressive protectionist policies for certain "strategic" industries and massive investment in infrastructure. 

Can Africa do the same?  Maybe.

China's economic success, like the success of South Korea (oft-touted counterexample to Ghana's stagnation), is based on a strong and effective government that also happens to have the will, the capacity--and the People's Liberation Army--to be brutal

It was a success that depended not only on independence from international pressure, but also on maintaining effective internal social control.  To smooth out the bumps in the road, the Chinese had a highly effective government willing to resort to force to silence opposition or simply move people out of the way if, for example, their homes were inconveniently sitting where a dam should be. 

Similarly, China's methods of population control (i.e., the one child policy), migration control (the hukou system which creates massive disincentives for permanent rural-urban migration, although it is happening), and control of the media have helped to minimize certain social pressures, cordon off others, and in general create a relative "harmony" amid a level of growth and change that would in other societies be highly explosive. 

African governments can be violent and oppressive, but that is not the same as possessing the capacity to orchestrate such a well-controlled grand experiment.

Thus whether we are talking about the failure of African governments to implement SAPs, divert money to infrastructure development (say, instead of creating new civil service jobs), or the Chinese political system's capacity to cope with the social pressures of economic restructuring, the question is not so much one of too little government or not enough, but one of effective government.

This is not to say that African countries cannot follow a Chinese-like path of public investment and targeted, gradual reform.  Chinese involvement, by easing some of that international pressure and contributing to public investment, may help. 

But those celebrating China's phenomenal economic success would do well to remember its repressive underbelly and ask if African governments should be in the business of mimicking it, or if they even have the capacity to do so.

Thanks to Danwei for this tip.

Comments

[Black River Eagle]

I got a tip over at "Jewels" about this piece by Dr. Jeffry Sachs from an anonymous reader/commenter albeit the source article was not the U.K. Guardian. Lot's here to digest so I'll have to come back, read it carefully, compare it to what Jeffry Sachs is saying, then write something stupid.

What gets me is that Sachs has chosen to overlook some serious, serious issues in regards to China's support of dubious African regimes and governments AND he is pointing to Wolfowitz as an incompetent leader of the World Bank. Sounds as if on one hand he has been bought-off and on the other he is twisting the blade into someone he doesn't like (Paul Wolfowitz). That would be very disappointing if either were true. If one has read the World Bank reports and newsletters about Chinese economic investment in Africa over the past few years one sees that "the Bank" has been a strong supporter of China's investments in African countries and has critiqued Chinese policies toward Africa at a bare minimum. These World Bank policies were of course carried out under the leadership of Paul (El Lobo) Wolfowitz.

Another point is that this is the same Dr. Jeffry Sachs of the (Whole) Earth Institute that underwent so much ridicule from many Africans in the blogosphere and in the press before and after the G8 Summit at Gleneagles, Scotland in 2005. It will be interesting to see what their reaction will be to this latest article by Sachs since his views seem to be so "pro-China" vs. the recommendations and suggestions of the "West". It will also be interesting to read what the pundits and experts have to say about Germany's Chancellor Merkel's initiatives for Africa during the upcoming G8 Summit in Heiligendamm next month. She doesn't have widespread support for these aggressive initiatives for increased PSD investments and further debt relief in the German voting public or in the Bundestag (Parliament) so any negative backlash could cause the whole effort to fail. That would not be helpful for sub-Saharan Africa irregardless of what China is promising to do in regards to African development aid.

Lastly, I fail to see or understand what is so radical and enlightening about the recommendations coming out of Beijing for the economic development of sub-Saharan Africa. What they are saying is absolutely not new as it has been recommended by leading economists and financial experts before... this is NOT rocket science you know.

[Jennifer Brea]

Hey Bill. Thanks for your post...I read Jeff Sach's article, then had a bunch of ideas, then came to write this and was feeling frustratingly inarticulate. The best thing about a blog is that it's an ongoing discussion, a chance to refine one's ideas in conversation with others, so this is definitely not my last word on the subject :-)

On your last point, the concept of investing in basic infrastructure to increase GDP is nothing new. It's one of the most classic ideas out there. The point is not that the Chinese model is revolutionary, it's that they are actually implementing it, actually building roads and dams and hospitals. The Chinese offer results you can literally reach out and touch, while the West offers abstract models and concepts that come in acronyms. Which is more persuasive?

What I want to know is how road-building and power development are being distributed. The old colonial model was to build these great roads and rail lines leading directly from the forest/quarry/oil field out to the sea. They were basically arteries built for resource extraction, and not for the interests of, say, local rural agricultural markets. So are the spillover effects really going to be as significant as some say (and I hope)? How are these projects being managed and implemented? What benefit are they actually having on local communities? There's no good research on this yet and so all we can do is speculate.

[Black River Eagle]

I believe that there is quite a bit of research and history on how infrastructure projects faired in sub-Saharan Africa over the past 100 years or so. As far as I know recent road projects in SSA built by the PRC are primarily connecting mining and timber extraction projects to major ports and/or surface transfer points for export to Asia. That is not to say that the PRC won't throw in a few urban highways and roads and schools and hospitals for the general public's use. I've also read that more than 50% of public works projects are being awarded to Chinese firms in some sub-Saharn African countries, which is alarming when you consider the high potential for kickbacks to local and national politicians and "contractors" and such in what can be described as an opaque business climate at best.

Re: Dr. Jeffry Sachs little op-ed over at the Guardian's Comment is Free blog

Some of the CiF commenters with an understanding of good economic principles and practices have really laid into the poor guy. I didn't know that his work with the Millenium Development Goals project for Kofi Annan at the UN was such a disaster, did you? I also didn't know that China's Great Leap Forward economic plan of 1958-1960 cost somewhere between 20-43 million lives in the PRC due to famine. Damn, no wonder they are not worried about charges of aiding and abetting a genocide of a few million blacks in western Sudan.

Word on the street is that the PRC has increased oil imports from Sudan by six-fold for the month of April 2007, right before the PRC's Vice-Premier Madame Wu Yi got read the Riot Act during her Washington D.C. visit this month and before Bush dropped the hammer on the Khartoum regime today with new sanctions and threats (U.S. Navy back in the neighborhood with carriers and AEGIS warships... make anybody nervous).

Keep an eye on Angie & the Germans over in Heiligendamm for the G8 Summit 2007. Africa is at the top of her G8 TODO List and she is also not very pleased with Beijing's freewheeling Win-Win loans to certain African leaders... I mean African countries. Sorry.

[Black River Eagle]

BTW: Here is a link to a May 2007 report on China's ExIm Bank financing of infrastructure projects in Africa. Very detailed report with some revealing numbers not generally reported by the international media, East or West. Read China's Role in Financing African Infrastructure by Peter Bosshard, IRN May 2007:
http://www.irn.org/pdf/china/ChinaEximBankAfrica.pdf

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