TCS Daily

Saving Africa

By Nima Sanandaji - May 25, 2005 12:00 AM

The political left has for decades had a monopoly on defining Africa's problems. The poverty and misery there are blamed on capitalism, multinational companies, lack of foreign aid and an uneven distribution of the world's resources.

Indeed there is a significant difference in living standard between Western countries and Africa. The total economy of the 48 countries in Sub-Saharan Africa is smaller than the combined economy of six American states (California, Florida, Illinois, New York, Pennsylvania, and Texas). However, this difference is not due to an uneven allocation of the world's resources, but because the production of goods and services is so much higher in industrialized countries. A common socialist myth is that the high American living standard would depend on exploitation of Africa. How could this be the case when only 0.4 percent of the US economy is based on trade with all African countries?

"It is not the culture that has prevented Africa from growing but the policies governments have inflicted on their people. With good policies, there is nothing in African culture to prevent these nations from joining in increasing numbers the economically advanced nations of the world."

                - Gary Becker. Human Capital and Poverty, Religion and liberty 1998.

Africa's poverty is not due to exploitation by Nike, McDonalds and Microsoft, but rather because it is the continent where multinational companies are the least active and which is the least capitalist. Above all, the region south of Sahara has since its liberation in the 1960s and 70s been dominated by protectionism, extensive government interference and disregard of market mechanisms. Several countries, such as Somalia, Benin, Ethiopia, Angola and Mozambique, were classical Marxist-Leninist Communist states for many years. Others opted for the so called "African Socialism", the most typical example probably being Tanzania. Almost all states in the region resort to extensive tariffs and other restrictions on imports, which hurts trade with multinational companies as well as intraregional trade.

"By law, all Ethiopian land is owned by the state. Farmers are loath to invest in improving productivity when they have no title to the land they till. Nor can they use land as collateral to raise credit. And they are taxed so heavily that they rarely have any surplus cash to invest."

        -The Economist, "People Aren't Cattle," July 17, 2004.

History has proven that foreign aid is not the solution to Africa's problems. Total overseas development assistance (ODE) that went to sub-Saharan Africa between 1984-2002 accounted for $319 billion. This corresponds to approximately 80 percent of the region's total GDP in 2002. Despite this relatively large development investment, 23 countries in the region experienced negative compound annual growth between 1980 and 2002, while only three achieved growth over 4 percent. During this period, GPD per capita in sub-Saharan Africa fell from $660 to $577 dollars (in constant terms). Foreign aid fosters dependence, corruption, plan economy and government waste.

Africa's real problem is the lack of private investment. According to the OECD, private capital flows to developing countries between 1990-97 exceeded $600 billion. However, only $10 billion of this amount went to sub-Saharan Africa of which $9 billion went to South Africa.

Africa is poor because most countries in the region lack the fundamental elements of a capitalist system: property rights, free markets, free trade and the rule of law. Africans are like everybody else, and ideas that did not work in China, North Korea and the Soviet Union will not work in Africa either. The blame for the present situation in Africa does not lie with capitalists. It lies with corrupt politicians, who have implemented bad economic policies, together with leftist intellectuals who convinced African politicians to implement anti-capitalist economic policies. The west is also responsible, by enforcing trade barriers. It is ironic that anti-globalization movements are frequently opposed to abolishing tariffs and import quotas.

        "All special advisers to underdeveloped countries who have taken the time and trouble 
        to acquaint themselves with the problems, no matter who they are . . . all recommend 
        central planning as a first condition of progress."

        - Swedish socialist Gunnar Myrdal, winner of the Nobel prize in economics 1974.

Libertarian and conservative thinkers must focus more on the debate on Africa's problems and its future. The inhabitants of the world's poorest continent are the ones who most need economic and political freedom. In addition, many followers of the political left base their ideology on the idea that capitalism has impoverished Africa and that socialism is the solution to the continent's problems. If proven wrong they might be willing to reconsider their support for socialism.

Nima Sanandaji is a student of biotechnology at Chalmers University of Technology (located in Gothenburg, Sweden) and has been accepted at Cambridge for graduate studies in biochemistry. Tomas Brandberg is PhD student in biotechnology at Chalmers University of Technology.


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