Governance and Economic Growth in Africa: Rethinking the Conventional Paradigm

By Célestin Monga

Immediately upon President Obama’s arrival in Senegal on a three-country Africa tour, he voiced his familiar insistence on the importance of democracy and good governance and their contributions to economic development. Célestin Monga is one of a group of economists, seasoned in African affairs, who are not convinced. As the people of the continent contemplate how to sustain and deepen the recent economic advances, Monga’s critique of the dominant paradigm on governance and growth should prompt important reflection and debate.

I recently returned from an excellent conference on “Governance and Economic Growth” in Kinshasa, Democratic Republic of Congo (DRC), where this topic was debated by some of the best minds. Discussions with hundreds of high-level Congolese policymakers and international experts reinforced my thinking that a number of popular beliefs about economic governance in the African context are misguided. After discussing some of the theoretical issues involved, I will suggest what should really be the focus of governance and economic growth in low-income countries.

Many researchers and policymakers who use the notion of “good governance” are often guilty of Pavlovian behavior. They assume to know precisely what this concept means and how it should be measured. They advance a reform agenda and policy recommendations that usually fail to provide clear justifying evidence while ignoring the specificities of place and time. The broad (and often abstract) intuition about the need to improve governance has strong moral and theoretical foundations. It is the right thing to do to sustain growth, ensure shared prosperity, and build social trust and stable societies. However, the conventional wisdom that low-income countries should start their development process with the governance institutions of high-income countries is both a non sequitur and a historical fallacy.

Quantifying a Mystery

A. Premchand, the IMF economist, contends that governance is like obscenity “because it is difficult to define as a legal phrase.” It remains a difficult concept to grasp confidently, assess, measure, and quantify rigorously. Perhaps the most comprehensive and authoritative intellectual resource on the subject are the Worldwide Governance Indicators (WGI) by Daniel Kaufmann, Aart Kraay, and Massimo Mastruzzi. These are released annually and are widely used in policy circles. They define governance as “the traditions and institutions by which authority in a country is exercised. This includes the process by which governments are selected, monitored and replaced; the capacity of the government to effectively formulate and implement sound policies; and the respect of citizens and the state for the institutions that govern economic and social interactions among them.” They identify six dimensions along which governance can be measured: voice and accountability; political stability and absence of violence; government effectiveness; regulatory quality; rule of law; and control of corruption. This conceptual framework is then given empirical life through the use of data from a variety of survey institutes, think tanks, non-governmental organizations, international organizations, and private sector firms. WGI are therefore aggregate indices that combine the views of a large number of enterprises, citizens and expert survey respondents in industrial and developing countries.

This valiant effort to give meaning to the complex notion of governance is certainly useful. However, the philosophical and theoretical underpinnings of the WGI are questionable. First, assessing the quality of the traditions and institutions by which authority in a country is exercised is bound to reflect value judgments and ethnocentric perspectives. There is no reason to assume that such assessments would be performed uniformly in China, Alaska, and Zanzibar. In a world where globalization does not prevent people from asserting their cultural peculiarities – even within old nations once thought to be stable and homogenous entities – there is the risk of falling into the double trap of universalism and relativism. On the one hand, there is the claim that all human societies share the same goals and have adopted global standards and broad principles of good governance, which are now embodied in internationally-agreed covenants. On the other hand, however, some contend that these global standards of good governance are evidence of the westernization of human values under the pretense of “universality.” Of course, those who reject the “good-governance” agenda as a hidden attempt to “westernize” the world are sometimes defenders of authoritarian practices who hid behind the claim of cultural relativism. But that does not invalidate all their arguments.

Unfortunately, the WGI and other existing indicators of good governance or democratization do not escape the theoretical (universalist-versus-relativist) impasse. Moreover, even if one could devise a list of criteria which satisfies both the universalists and the relativists, the belief that good governance can be captured quantitatively and measured through subjective perception surveys is erroneous. People are often mistaken when asked to identify the true constraints that affect even their most important activities and welfare. Econometric analyses show, for instance, that popular survey results such as the World Bank Doing Business Indicators do not correlate well with the actual constraints to private sector performance. In other words, even the smartest business people around the world generally fail to pinpoint the real obstacles to productivity growth and enterprise development. How confident can we therefore be about perceptions, opinions, self-assessment exercises, or the assessment of the well-being of others?

Fundamental discrepancies between what is perceived as good governance and actual economic performance is found in almost all popular rankings of good political and economic governance. It is puzzling to look at the world map of corruption, the typical and most representative indicator of the quality of governance. Figure 1, from surveys by Transparency International (TI), shows that the world is divided into two categories of countries: the highly corrupt countries (in red) and the least corrupt ones—presumably with good governance—in yellow. It is difficult to look at that map and not give some credit to the argument put forward by some relativists, as it depicts a “good-governance” Western world surrounded by a “bad-governance” non-Western world.

Figure 1: Corruption in the World: A Dichotomy of Good and Evil?
Source: Transparency International 2012

Source: Transparency International 2012

Despite what this global map suggests, media reports, political biographies, and empirical studies regularly show the prevalence of corruption and bad governance in high-income countries. In recent months, former French President Jacques Chirac was given a two-year suspended prison sentence for diverting public funds and abusing public trust. Former German President Christian Wulff resigned after prosecutors called for his immunity to be lifted over allegations of corruption. Even the Vatican was recently shaken by corruption when the press revealed several confidential letters sent to Pope Benedict by its deputy governor, Archbishop Carlo Maria Vigano, documenting corruption at the highest level of its administration.

In the United States, four of the last seven governors of Illinois were convicted and imprisoned. Rod Blagojevitch was convicted of numerous corruption charges in 2011 including allegations that he tried to sell or trade President Barack Obama’s former Senate seat.

Faces of Corruption

In fact, the official number of corruption convictions in American states is quite embarrassing (see Figure 2) One simply has to read Robert Caro’s monumental biography of American President Lyndon B. Johnson, or Jack Abramoff’s book Capitol Punishment: The Hard Truth about Washington, to realize how pervasive corruption can be in an established democracy, and that the dichotomy of good versus evil among countries can be very misleading.

Figure 2: US Federal Public Corruption Convictions

US Corruption

The typical response to the unflattering facts reported in Figure 2 is to argue that, even though corruption exists everywhere and no human society can legislate on morality, high-income countries are “less” corrupt than others, and their institutions are “stronger” as evidenced by the number of prosecutions. Unfortunately, these arguments are hard to validate empirically. First, it is difficult to define rigorously what corruption means everywhere and anytime, and to measure it comparatively across place and time. In fact, it is quite possible that official numbers of corruption convictions in African countries may at times look “better” than those in the United States. Second, much of the open and hidden transactions between lobbyists and policymakers in the United States would be considered acts of corruption in other parts of the world. Third, while aggressive prosecution of corruption is taking place in many low-income countries, such legal actions are paradoxically considered further evidence of terrible governance. A case in point is Cameroon where dozens of civil servants and politicians at the highest level (including a former prime minister, many government ministers, a chief of staff at the Presidency, heads of the largest state-owned enterprises, and ambassadors) have been tried and convicted for embezzling public funds. Yet few analysts would consider Cameroon a “good-governance” country. To the contrary, the more senior government officials are arrested and sent to jail, the more it seems that Cameroon is a very corrupt country.

Is Incompetence Worse than Corruption?

In his fascinating book Corruption in America, Harvard University economist Edward Glaeser documents and analyzes various schemes and patterns of bad governance in the history of the greatest democracy in the world. While the results are disconcerting, they provide an important clue to the problems of corruption and governance. These appear to correspond to the level of economic development. In other words, low-income countries are by definition places where (perceived) corruption is high, and their governance indicators improve with their economic performance. It is unrealistic to expect the Democratic Republic of Congo, a country of less than $200 income per capita, to build governance institution that are perceived as effective as those of Norway where per capita income is $80,000. Figure 3 confirms and illustrates this simple historical truth.

Figure 3: Governance Performance and GDP Per Capita: The Algebra of a Mystery

Scattergram

What does this graph suggest? If poor governance (as measured by perception indicators) is a low-income affliction, the obvious way to achieve good governance is to focus on development strategies and policies that quickly lead to economic growth while minimizing the opportunities for state capture and rent-seeking. The New Structural Economics agenda that Justin Lin and I have designed in recent years aims at doing just that.[i]

Often, when I give a talk on governance in Africa, I ask the audience to guess the percentage of their country’s national budget that is embezzled each year by dishonest political leaders and businessmen. Of course, no one knows the real numbers. But it is interesting that when asked to base their guesses on the actual total budget adopted by national parliaments, people tend to suggest that 10 to 30 percent of the total amount (hundreds of millions if not billions of dollars) are stolen by the rich and the powerful. I then point out that the remaining 70 to 90 percent of their national budget may still be wasted and not yield expected development outcomes. In other words, bad governance in the form of public policy mistakes such as the poor selection, design, and management of development programs and projects may be even more costly to poor countries than deliberate corruption. This observation does not invalidate or underestimate the economic, social and moral costs of corruption. It simply points to the need for researchers to focus, with equal tenacity, on the fight against incompetence in policymaking.

Many developing countries that have achieved excellent economic performance in recent decades still score poorly on international economic governance indicators. Brazil is only ranked 69th on the 2012 corruption index of Transparency International. It is strange that a country could lift some 40 million people out of poverty and still rank so low. How can that be? China’s ranking is even more perplexing (80th), where over 600 million people have been lifted out of poverty in recent decades (“an achievement unparalleled in human history,” according to President Barack Obama in his 2009 speech at Fudan university). Should Namibia be proud of its 58th ranking, ahead of China and Brazil, despite its less stellar economic performance? A similar paradox is observed regarding the World Bank Doing Business Indicators, perhaps the most popular international index of economic governance. In 2013, China ranks 91st, Vietnam 99th, and Brazil 130th, while Tunisia is perceived as performing not too poorly at 50th in the world. These rankings force us to ask: What exactly is being measured? What are we missing? Which governance and performance indicators are truly significant?

These questions also suggest that we sharpen the analysis of African economic governance to policies that actually matter, and shift the intellectual agenda to the building of context-specific institutions that boost inclusive growth and create employment. Most Africans would probably trade China’s 30-year spectacular growth performance or Brazil’s (still insufficient but remarkable) social progress with their unsatisfactory (perceived) governance rankings. Most will conjecture that if China and Brazil can manage to maintain high growth rates for the next decade or two, their governance indicators should improve substantially—regardless of what these indices actually measure. The recent widespread demonstrations across Brazil, despite its significant economic and social achievements under President Lula Da Silva and Dilma Rousseff, confirm the complexities of governance and the subjectivity of its perceptions—and remind researchers that context-specific analyses of welfare should always be given priority.

Implications for the Obama Administration

There may be useful messages in this discussion for the United States as President Obama completes his three-country Africa trip. The last time he visited the continent in 2009, he devoted the bulk of his only speech in Accra to the topic of improving governance, fighting corruption, and building institutions that can serve the people and hold leaders accountable. These are noble goals for Africa, except that Figure 3 tells us that they may be impossible to reach precisely because these countries are poor. In fact, former Botswana President Festus Mogae shared the disappointment of many African leaders and intellectuals when he observed that Mr. Obama chose to lecture them arrogantly about corruption – a word he never utters while visiting France, Germany, or Japan – countries where corruption still does ravage at the highest levels of government.

By contrast, the Chinese president and vice presidents who have visited 30 African countries in recent years, make sure that they sit at the same table as their hosts in front of television cameras, and discuss economic partnerships and specific programs and projects. They understand the importance of appearance and the benefits of humility. They do not raise their voices in public speeches to lecture or threaten anyone. They also seem to suggest that incompetence in economic management and wealth and employment creation is a worse symptom than bad governance and corruption. The big strategic issue facing the Obama Administration in Africa today is to find the right balance between the building of new drone bases to fight terrorism and the strengthening of business relations that sustain mutually-beneficial economic and social development. While the militaristic emphasis of his government’s engagement with the continent may be understandable, the truth of the matter is that American foreign policy in Africa should shift significantly towards support for trade, finance, and cultural cooperation. This would not necessarily require more official development assistance (ODA) to Africa. After all, the current yearly amount of $125 billion in total ODA to all developing countries is barely sufficient to cover Africa’s infrastructure needs.

Of course, the low-hanging fruits of good governance (transparency and accountability) should be pursued. But a more effective blueprint for improving economic governance in Africa would require that the American president use the magnifying convening power of the American government and its many agencies (including the US Exim Bank) to foster South-South learning activities and mutually profitable North-South business ventures. Specifically, this would require that the United States:

  • Promotes realistic macroeconomic policies (flexible exchange rates regimes to ensure external competitiveness and less rigid fiscal policies);
  • Advocates strategic selectivity so that low-income countries can devote their meager human, administrative, and financial resources to industries in which they have a comparative advantage;
  • Supports the targeting of reforms to the removal of the most binding constraints to economic growth, instead of the dominant laundry-list approach to economic development;
  • Plays a facilitating role in infrastructure financing;
  • Encourages foreign direct investment beyond the mining sector and into labor-intensive light manufacturing and agro-processing industries where Africa’s large pool of unskilled labor could be used effectively;
  • Stresses the crucial importance of export-promotion tools and institutions; and
  • Supports exchange and learning programs between Africa and other developing regions. By partnering with new players (China, Japan, India, Brazil, and other successful middle-income countries), and working more effectively with international financial institutions, development banks, sovereign wealth funds, and the private sector, the United States could foster new growth opportunities in Africa—hence help improve governance there while creating business opportunities for American firms.

Even in Africa’s poor governance and business environment, a new strategy that emphasizes prioritization, focuses more on targeted reforms, and uses new instruments (most notably industrial clusters in competitive industries) would yield mutual benefits. The total cost of the fiscal stimulus in the United States has been estimated at nearly $2 trillion. Yet the results are still the subject of debate. There would not be much debate about its pertinence and benefits to the American economy if only 25 percent of that amount were used to leverage additional financing for profitable investments in Africa (ports, airports, roads, etc.). Indeed, $500 billion – from the United States and other industrialized countries – would go a long way to help remove constraints to economic growth in Africa while creating wealth and employment in the United States where much of the capital equipment would be purchased. President Obama made many promises during his Africa tour for greater American engagement in many of the sectors discussed above. That engagement would benefit from what has been argued here, namely, finding pathways to better governance through stronger economic growth is more likely than seeking to remove governance constraints based on a faulty and ahistorical paradigm.

Monga

Célestin Monga, a Cameroonian national, is Senior Advisor at the World Bank. He is also the Director of the forthcoming Oxford University Press Handbook of Africa and Economics. His books, which cover various dimensions of economic and political development, are widely used as teaching tools by academic institutions around the world. He holds degrees from MIT, Harvard, and the universities of Paris 1 Panthéon-Sorbonne, Bordeaux and Pau. The statements, findings, interpretations and conclusions expressed in this essay are those of the author and do not necessarily reflect the view of, or are endorsements from the Board of Executive Directors of the World Bank, or the governments they represent.

Africa Demos Forum is inspired by the Africa Demos quarterly published by Emory University and the Carter Center, 1990-1995: http://books.northwestern.edu/viewer.html?id=inu:inu-mntb-0006443104-bk

Copyright © 2013 AfricaPlus


[i] See Justin Yifu Lin, New Structural Economics: A Framework for Rethinking Development and Policy (The World Bank, 2012).

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s