Between free market orthodoxy and African reality

By Tunde Obadina

Free market apostles tend to present economics as a religion. Economics are standardised, with sets of rigid theoretical constructs that are applied to all societies, irrespective of their culture. There is increasing use of mathematical models to give market economics the semblance of absolute scientific truths. Rather than be a way of thinking about how the world might operate, economics is presented as a set of truths as to how the world does function. The impression is created that we have come to the end of philosophy and ideology, having discovered the real nature of human existence. It is only a matter of persuading everyone to embrace the new order.

Western apostles of the new economic orthodoxy have forced on African nations formulae for building modern economies, presented as fool-proof. These prescriptions are offered as truths, much in the same way as a doctor might prescribe with certainty aspirin to a patient with a headache or an engineer present a plan for the building of a bridge. Many African leaders, who in the early 1980s had run out of ideas on how to save their dying economies, found the certainty of market reforms appealing. They happily swallowed the International Monetary Fund/World Bank medicines, believing they would automatically produce rapid growth as advertised. Structural Adjustment Programmes (SAP) were detailed, with step by step policy actions and neatly formulated projections of likely results. It seemed so easy, follow the recipe, sit back, and wait for economic take-off. No ideological commitment was required from leaders and no need to mobilise the people or tamper with their way of life. The keywords were deregulation and devaluation - western governments subsequently added a third D - democracy. Three principles would underpin Africa's economic revival. Firstly, getting macroeconomic policies right, including keeping budget deficits low and maintaining market-determined foreign exchange and interest rates. Secondly, fostering competition, including trade liberalisation. Thirdly, minimise government involvement in the economy. Once these measures were adhered to, governments could relax and allow the free market train to take their backward nations to modernity.

Clearly, the market panacea has not solved Africa's economic ills. Nearly one and half decades after swallowing the pills, most countries in the continent are still waiting for the promised take-off. They are still struggling to recover to per capita income levels reached in the 1960s or 1970s. Few African economies have in the 1990s attained new peaks of national wealth.

Year after year the IMF and World Bank have said that Africa is on the brink of promised economic breakthrough, and should keep faith with their reforms. But deliverance keeps slipping away. Now Africa is being asked to wait for the new millennium. According to IMF figures real gross domestic product (GDP) growth for Africa only rose marginally from an average 2.5 percent in 1980-89 to 2.8 percent in 1990-99. According to the World Bank growth has began to slow in sub-Saharan Africa, from 4.2 percent in 1996 to 3.5 percent in 1997. Growth is expected to fall again in 1998 to between 2.1 percent and 2.4 percent. But both the IMF and World Bank envisage a positive turnaround in growth for the continent from 1999, with the World Bank projecting a 3.5 percent growth in 1999-2000 and the IMF's baseline scenario for Africa putting growth at an average 5.6 percent in 2000-2003.

Reliance on markets and macroeconomic reforms has clearly not transformed African economies. Let us take the example of the deregulation of foreign exchange rates and devaluation. They are supposed to allocate scarce foreign exchange more efficiently, to boost exports by increasing local prices paid to export producers and raise foreign investment. Since the mid-1980s African nations have undergone massive devaluations, with African currencies losing over half of their dollar value since 1990. Though growth in African exports grew from 0.9 percent in 1980-89 to 4.2 percent in 1990-99, this did not resulted in the diversification of exports in most countries. Nearly a quarter of African countries depend on a single commodity for 50 percent or more of their export income and more than 20 countries rely on two or three commodities for at least half of their export earnings. Nigeria's naira currency has gone from parity with the dollar in mid-1980s to being worth just over one cent today, yet oil still accounts for more than 90 percent of the country's exports revenue, while non-oil exports have not recovered to 1960s levels. Though the flow of foreign investment to Africa has risen since the late 1980s, its current level remains negligible.

In considering the disappointing performance of African economies under free market structural adjustment we ought to avoid adopting the common attitude of condemning the IMF/World Bank as inherently bad or reactionary institutions. Those who blame Africa's current economic troubles on SAP often forget that the programme was introduced to correct gross deformities in post-independence economies. In many respects World Bank criticism of African nations has been at least as progressive as anything produced by official African institutions. Undoubtedly, the bank is correct in criticising African governments for engaging in activities that have no growth potential and no effect on poverty reduction. African public enterprises are definitely wasteful and inefficient. And most existing state subsidies benefit the middle-classes and rich to the cost of the poor.

The problem with IMF and World Bank influences on Africa is the way their religiously presented remedies has diverted attention from the underlying causes of underdevelopment in Africa. They set the agenda not only for economic policy implementation in Africa but also for economic debate, which invariably focused on the medicine and not the ailment.

Structural adjustment has not worked because it placed too much reliance on the market to galvanise resources for productive activities. The reforms presuppose the existence of institutions and structures with the capacity to respond to changes in macroeconomic variables and take advantage of wealth creation opportunities. For instance, adjustments in foreign exchange rates can only stimulate increased and diversifying export activities if private sector producers are available to take advantage of the resulting increase in domestic commodity prices. In most African countries, however, there exists little elasticity in supply, partly because the private sector is very weak and introverted. Consequently, trade liberalisation has not aided domestic production as much as it has opened economies for imports.

Besides the feebleness of the private sector, other factors have undermined economic reforms or limited their effectiveness including rampant corruption, political instability, and lack of a wealth-creating culture. With some measure of arrogance, western financial institutions have tried, for over a decade, to inject market forces in societies lacking the foundations for rapid economic growth. Policy instruments originating from advanced capitalist systems have been indiscriminately applied to pre-capitalist formations. The false assumption was that adjusting prices, privatising state enterprises and opening the doors of the economy, could in and of themselves generate growth. The market was seen as self-mobilising. Once governments got prices right, resources would flow to where they could be most productively employed.

But there are nations in Africa and elsewhere that have relatively 'sound' market-oriented macroeconomic and trade policies, yet remain mired in economic failure and inefficiency. Since 1995 Nigeria has achieved remarkable progress in macroeconomic stability and trade liberalisation, yet its economic prospects have not improved. Zambia has undergone a extensive privatisation programme yet the country is no further down the road of real economic recovery.

In recent years World Bank officials have acknowledged that markets alone cannot solve the economic ailments of developing countries and now advocate a two-pronged strategy of market-oriented policies and enhancement of public institutions. The bank speaks increasingly about the need for good governance, which includes the rule of the law, transparency and accountability. It seems to have realised that little is to be gained from prescribing finely drafted market policies to nations lacking the institutions and values to make the reforms work. A 1998 World Bank policy research study, 'Assessing Aid', rightly noted that "conditionality is unlikely to bring about lasting reform if there is no strong domestic movement for change."

Unfortunately, the World Bank was partly responsible for fostering the belief that governments should take a passive approach to development. For much of the past two decades Africans officials, policymakers and activists have been more concerned with arriving at 'good' policies than with trying to build the institutions, values and culture conducive to wealth creation and the construction of a new African civilisation. Today there is still a preoccupation with seeking the right mix of micro and macro economic policies to propel poor nations to prosperity and development. Economic management continues to be perceived as little more than annual budget statements and national plans setting out ambitious economic and social targets.

Economic development is not only simply about prices, it is about raising the capacity of society to produce the conditions of its existence. In semi-feudal African nations seeking industrial civilisation, economic development calls for changes in the institutions, values, attitudes and social relations that underpin society. The industrial revolution in Britain was not the outcome of shifts in macroeconomic policies but of all embracing social transformation, forced upon society by a modernising class. "The bourgeoisie, historically, has played a most revolutionary part," wrote nineteenth century philosopher Karl Marx. "The bourgeoisie, wherever it has got the upper hand, has put an end to all feudal, patriarchal, idyllic relations. It has pitilessly torn asunder the motley feudal ties that bound man to his 'natural superiors', and has left remaining no other nexus between man and man than naked self-interest…The bourgeoisie cannot exist without constantly revolutionising the instruments of production, and thereby the relations of production, and with them the whole relations of society."

There can be no economic development in African nations until there emerge modernisers, powerful enough to sweep aside existing patronage structures, patrimonialism, petty tribalism, and other cobwebs from the past that hinder creativity and wealth-creation. In the absence of change, the continent can only hope for moderate growth, dependent on external conditions. No amount of macroeconomic policies, trade liberalisation and privatisation can engender rapid and sustainable internal growth in the absence of an appropriate cultural environment for development. The political and social changes needed are not factors that outside agencies can easily influence. So in the final analysis, Africa's redemption lie with Africans. It's up to us.

Tunde Obadina is director of Africa Business Information Services

4th May 1999




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