Saturday, November 21, 2015

African Development Perspective: Need for Development Institutions

I have found interesting points in the writings of  Darron Acemoglu et. al., on "institutions". Something that I think needs to be addressed by African and Caribbean countries/ people.

Every country in problems will always blame its leaders and them lacking "responsible leadership". I have plainly stated that leaders should not be blamed for everything that happens. Even Mandela ruled South Africa under ANC - the same party some are condemning is messing the country. Now, the issue is not a party, and surely not a person all the time (I know in most cases in seem to be). If you take the qualities that fit a person for such a position like being a rational being, making rational decisions for the betterment of all - all which are subjective, and because of that, no one would point them out as being wrong when they fit in their original justification of "rational decision" under the "circumstances". Another word in there that I feel is very subjective  -circumstances. Anyway, lets put these things in order so we move to some politically correct way of putting things; positions, regardless of who occupies them, bring with them certain trends which are so common and expected in most African countries (Caribbean omission is intended to be merged in the context of "African" - personal preference). So no matter who you put there, unless they are willing to change what is there, expect no miracles! Even if they stay there and follow their "right" path which may coincide with most people's expectations or wishes, the person that follows can/ may be his own man. 

You will, in most cases, know how they intend to change the status quo as they speak about it before they are elected into office - including what they will do! What it is they will do, how they are qualified to be placed there and deploy the change, etc! Remember the seat has inherit problems, so if you are the best qualified person to be in that seat, you are defectively perfect to continue with defective outcomes - meaning a no change for the better but maybe for worse. So the person has to understand the problem and present a solution to the identified problem. Unfortunately in most African countries the politician merely plays to the sound of the masses and just needs to link their masses' misery to some needed comfort and he will win their vote. The problem remains unresolved and pending. Decades may past with no solution. 

Acemoglu et al, have put together a clear demonstration of the effect of institutions which led to the 'reverse of fortunes'. Regions/ places which were rich in 1500 are no longer the rich ones, the fortunes have gone to regions/ places which were poor. Effectively, the fortunes have reversed. Can you imagine Australia is richer than India or Egypt - yet in 1500, it did not even have a sizable number of people! As observed, good institutions where created in "settler" colonies (New Zealand, Australia, USA, etc) while bad institutions where in extract colonies (African, Caribbean, etc). With simple intentions: 
  • settler colonies - to ensure the institutions protect the settlers and ensure their will prosper. Provide all possible ways that the settlers can own property and be protected in that ownership; while
  • Extraction colonies - extract resources (minerals, rents, people - slaves, etc)


So this whole colonialism had two outcomes - winners (colonialist countries and their settler colonies) and losers (colonized regions). A simple understanding there is that people who came out losers should actually free themselves and get independently and then create institutions that would make them benefit from their resources. The problem I'm now bringing to the fore is that we got right with the first condition, but have never even attempted at the second!

Independence came for Africa and now all countries can be said to be "independent". No one bothers to add "Political Independence"! It is assumed all forms of independence falls within that circle. Independent it maybe. However, the institutions that were created for extractive nature of colonialism and purposes have not changed. So regardless of the person you put in the driving seat, unless you change the train tracks, the train will be moving in the same direction. The driver can slow down and speed up. The whole situation will remain the same! These are the things people called "neocolonialism" and a call for economic independence for Africa. 

What is interesting about this fight for independence is the way it is being fought. No one in the old days stood up to call for political independence, they just got together and started doing something about it. From that experience, you expect people to do the same for the new need for independence, but people now are calling for "something"? No one would give up what they enjoy or benefit from. So the only way out is to get up and work your way to eradicate the nonsense. 

"economic institutions in various colonies were shaped by Europeans to benefit themselves.... Europeans consciously created different economic institutions, which persisted and continue to shape economic performance" (Acemoglu et al: 2005)

We need to build institutions that will benefit this continent and clean up the residual mess from colonialism that makes the "extractive regions" remain in the extractive position. Can you imagine a country which has been politically independent can not even create a circuit board from copper that is mined in its own country? It can not even sell copper to the factory down the road of the mine. The copper has to be priced as if it came from London having left a few weeks ago?

These are the structures which are building blocks of bad institutions which are residual from colonialism. There should be deliberate policies to eliminate and work on improving the institutions that will make Africa and other extractive colonies regions which are not only worth their raw materials. China did not grow that fast by doing better what the west left in it. It had to eliminate the residuals and build its own comparative advantage and use its greatest resource (people) to become an export of manufactured goods. You may think of them as fake - but the whole world works on these products. Even when hope is low for Africa, imagine if all precious mineral companies and sells are done by African companies around the world? Every gold, diamond, oil, copper, emerald, etc will be sold by an Africa company for African profit and revenue. What can beat that? We can even reach more than China as every marriage with a gold, silver or diamond ring "will be made in Africa" or from "Africa product", every currency's value will dependent on how well rooted it will be to the gold bullion source in Africa (or the currency that Africa country uses). Every electronic component will have to be sourced cheaply from Africa.

The possibilities are endless! But all these can only be attained by the African reality of being a free region from any form of extractive nature or colonialism. It starts with a mindset followed by action. Not the everyday hunt for "responsible leaders", they will never be found as the institution you give them is defective from the start. Lets build the right Africa for us to get the right way!


References 
(just in case you want to follow up on some of the issues and my thinking)

Acemoglu, D., Johnson, S., Robinson, J.A., 2005. Chapter 6 Institutions as a Fundamental Cause of Long-Run Growth, in: Durlauf, P.A. and S.N. (Ed.), Handbook of Economic Growth. Elsevier, pp. 385–472.

Acemoglu, D.  and Robinson, J. (2012). Why Nations Fail: The Origins of Power, Prosperity and Poverty.

Kwacha depreciation???

The kwacha has seen a fairly good beating against major currencies in the past months. Reasons of this beating unfortunately are hard to get a hold of. Therefore it is an interesting field to get in and see what had made this beating.

A look at the trend of related currencies tell a story that need great attention. We see the dollar rising faster than had ever done in the last 40 years. This therefore will obviously mean that the kwacha is expected to perform badly against the dollar. We see the Chinese economy slowing down, China being a major importer of copper will again result in an interesting beating on the Kwacha. But will all these stories add up to produce one of the worst falls of the kwacha in over 8 years?

That is a story worth looking at it. Unfortunately I have not been writing on this blog for sometime now due to a lot of personal issues that have literally killed my blog time. So I would want to look into all the issues that has brought in an interesting kwacha economy and issues that we need to be looking at in future to strengthen our kwacha. So I will let this be and prepare a full analysis in the time that I have. 

Further, to ensure I devote the little time that I have on a single blog, I have decided to merge my Africa perspective into kwacha economics to ensure the material does not make me stay on one blog and lose focus on the other. So you will see topics of African and specifically Zambia development perspective show up here. As usual, the political aspect is a lot more in development perspective than the kwacha economics. To ensure I stick to my direction, only general polity related issues will be embarked on. I hope people would stick to that too!

Lets see how this will work out!