Monday, November 24, 2014

East Asia’s Lessons for Africa

NEW YORK – On June 1-3, Japan is hosting the fifth meeting of TICAD, the Tokyo International Cooperation on African Development. The meeting is a reminder that, while the rest of the world obsesses over Europe’s economic travails, America’s political paralysis, and the growth slowdown in China and other emerging markets, there remains a region – Sub-Saharan Africa – where poverty is almost the rule, not the exception.

From 1990 to 2010, the number of people living in poverty ($1.25 per day) across Sub-Saharan Africa rose from less than 300 million to nearly 425 million, while the number living on less than $2 a day grew from about 390 million to almost 600 million. Still, the proportion of those living in poverty declined from 57% to 49% in this period. [See graph below.]

Developed countries have repeatedly broken their promises of aid or trade. Yet Japan, still suffering from two decades of economic malaise, has somehow managed to remain actively engaged – not because of its strategic interests, but in order to meet a genuine moral imperative, namely that those who are better off should help those in need.

Africa today presents a mixed picture. There are some notable successes – from 2007 to 2011, five of the world’s ten fastest-growing countries with a population of more than 10 million were in Africa. And their progress has not been based solely on natural resources.

Among the best-performing countries have been Ethiopia, where GDP grew by roughly 10% annually in the five years ending in 2011, and Rwanda, Tanzania, and Uganda, where annual output has grown by more than 6% for a decade or more. But, while some sources indicate that there are now more middle-class families in Africa (defined as having annual incomes in excess of $20,000) than in India, the continent also contains countries with the world’s highest levels of inequality.

Agriculture, on which so many of the poor depend, has not been doing well. Yields per hectare have been stagnating. Only 4% of arable and permanent cropland is irrigated, compared to 39% in South Asia and 29% in East Asia. Fertilizer use in Africa amounts to just 13 kilograms per hectare, compared to 90 kilograms in South Asia and 190 kilograms in East Asia.

Most disappointing, even countries that have put their macroeconomic house in order and have made progress in governance have found it difficult to attract investment outside of the natural-resource sector.

Japan’s engagement is particularly important not only in terms of money and moral support, but also because Africa may learn something from East Asia’s development experience. This may be particularly relevant today, with China’s rising wages and appreciating exchange rate underscoring rapid change in global comparative and competitive advantage.

Some manufacturing will move out of China, and Africa has a chance of capturing some fraction of it. This is especially significant, given that, over the last 30 years, Sub-Saharan Africa has suffered from de-industrialization. Indeed, by the late 2000’s – owing partly to the structural-adjustment policies pushed by the international financial institutions – manufacturing as a share of GDP in developing African economies was lower than it was in 1980.

But a manufacturing boom will not happen by itself. African governments must undertake industrial policies to help restructure their economies.

Such policies have been controversial. Some argue that government is not good at picking winners. Some argue that it makes no difference whether a country produces potato chips or computer chips.

Both perspectives are misguided. The purpose of such policies is to address well-known limitations in markets – for example, the important learning externalities, as skills relevant to one industry benefit nearby industries.

The goal of industrial policies is to identify these spillovers, and governments have done a very credible job in this respect. In the United States, the government promoted agriculture in the nineteenth century; supported the first telegraph line (between Baltimore and Washington, demonstrated in 1844) and the first transcontinental line, thereby launching the telecommunications revolution; and then nurtured the Internet revolution. Inevitably, government – through its infrastructure, laws and regulations (including taxation), and education system – shapes the economy. For example, American tax and bankruptcy laws, combined with deregulation policies, effectively encouraged the creation of a hypertrophied financial sector.

With resources so scarce, developing countries cannot afford the luxury of such waste. They have to think carefully about the future direction of their economies – about their dynamic comparative advantages.

The world’s most successful developing countries – those in East Asia – did just this, and among the lessons to be shared are those concerning how they conducted industrial policies at a time when their governments lacked the sophistication and depth of talent that they have today.  Weaknesses in governance may affect the instruments of industrial policy, but not its use.

Japan has other lessons to teach as well. Key elements of its development strategy – including its stress on education, equality, and land reform – are even more important today in Africa. The world has changed markedly since East Asia began its remarkable developmental transition more than a half-century ago; and differences in history, institutions, and circumstances mean that policies must be adapted to local conditions.

But what is clear is that Japan and other East Asian countries followed a markedly different course from that recommended by the neo-liberal “Washington Consensus.” Their policies worked; all too often, those of the Washington Consensus failed miserably. African countries will benefit from reflecting on these successes and failures, and on what they mean for their own development strategies.

[For a high-resolution version of this graph, click here.]

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    1. CommentedSithembiso Malusi Mahlaba

      I am very much relieved to find that Stiglitz himself, is very much aware that imposed decisions and models of the global agencies are not often the best in other countries. A relevant system is indeed determined by local conditions.

    2. CommentedMoctar Aboubacar

      Lessons from the East Asian development experience (I am surprised to find no mention of Korea and Taiwan here) are certainly precious, but the way in which these lessons have been 'translated' into the present in other countries so far is really a hodgepodge of policy advice.

      This is because there is in many cases little consensus on what the 'East Asian Miracle' really means. I appreciate and happen to agree with Prof. Stiglitz's own interpretation of things. However think about how people like Krueger and others use the Korean experience to advocate for a largely-export-based, export-initiated industrialization.

      East Asian countries (including their civil societies) need to work on drawing out, not the lessons that are subject to any interpretation, but the principles behind which the economic and social shifts occurred.

    3. Commentedarnim holzer

      Money alone nor theory can solve these problems for Africa. To simplify and generalize, the tribalism and succession of poorly elected and governing politicians have left many nations far behind their Asian and even Latin counterparts. One would think that even the UN with a multitude of agricultural and investment advice could have made a greater dent in this situation. The key is that policies or programs can't resolve these issues only people and leadership can. What is needed is a commitment by the great nations to educate a class of leaders and nurture them in a cross disciplinary curriculum of the social sciences, industrial, and educational fields to then allow them to tailor strong reason to their own uniques situations. Empowered people develop nations, not money nor programs.

    4. CommentedProcyon Mukherjee

      Rightly pointed out by Prof. Stiglitz, the natural resource sectors are the only sectors that have attracted investments, but making people better off is another matter, which some people refer as the natural resource curse. On the other hand while productivity per hectare of land has hardly improved, each piece of land has more dependents to feed than before as labor migration in Africa hardly progressed in terms of bringing better economic opportunities to people; from farming to agri- industry diversification, this transition has stopped short.

      Aid in form of subsidy is what has gone around, not investments in human endeavors.

      The best model that serves as a benchmark is the Vietnamese experiment, but that is a far smaller diversity compared to Africa.

    5. CommentedYoshimichi Moriyama

      Economics is not a universal discipline unlike chemistry and physics. It is bound by history or it is not free from curvature of time and space. Economics of the neo-liberal Washington Consensus can be a good art if you want to 'steal great wealth from those who have little and even from those who have nothing by giving debt,' but it can never be an art which African countrie should consult since what they want is development.

      The Project-Syndicate should invite economists from developing countires to write.
      It should also invite economists who are propounding some wisdom in protectionist policy.
      It should also invite experts from disciplines other than economics such as sociology and history because what concerns us is not simply an economic equilibrium between supply and demand but more than that. Because we are concerned about society and quality of our lives.

    6. CommentedFabrice Londeke

      African countries should learn from East Asia tigers by investing in human capital and infrastructure, protecting private property, maintaining political stability and strengthening the rule of law. It does make a difference whether a country produces potato chips or computer chips. Recently, Costa Rica successfully moved from mostly producing perishable goods to computer chips (Intel). They did it by investing in human capital and infrastructure given that they already had a stable well-functioning democracy.

      East Asian tigers also benefitted from Cold War era politics. These countries were nurtured and provided access to the large American market for their exports. In addition, the US turned a blind eye to state led development in East Asia to gain allies. I don't think Washington and the rest of the world will let African countries simply adopt developmentalism without facing any consequences.

    7. CommentedFrank O'Callaghan

      “Washington Consensus” worked fine if what it wanted was to steal great wealth from those who had little. How can you steal from those who have nothing? Just give them debt!