In Search of Lost Time

He's surely right to emphasize spending on health care, direct poverty relief, and education. For one thing, rates of infection, malnutrition, and enrollment in schools are a lot easier to monitor than over-all economic progress. In Tanzania in 2001, for example, the government more than doubled the education budget and abolished user fees, using aid money to help meet the cost. Since then, the enrollment rate in primary schools has risen from sixty per cent to ninety per cent.

Yet, as the history of development policy suggests, there can be political dangers to overpromising, and Sachs, by placing so much emphasis on geography, underplays other reasons for Africa's stalled development. Most African countries, bequeathed arbitrary borders by their colonial heritages, are ethnically heterogeneous, and that has led to political problems, as groups compete for the spoils of government. Kenya, which contains about forty different ethnic communities, has been plagued by corruption and ethnic conflict, as have many African nations. Congo, Ivory Coast, Sierra Leone, and several other countries have been riven by what the development economist Paul Collier refers to as resource wars, in which rival ethnic groups compete for control of valuable natural resources.

Sachs, as he did in Poland and Russia, refuses to acknowledge that institutional failures could hobble his ambitious plans. "Africa shows absolutely no tendency to be more or less corrupt than any other countries at the same income level," he writes. Then he presents the results of a study that he and some colleagues carried out recently, using various indicators of quality of governance. Countries they judge to have "average" standards of governance include Chad, Republic of Congo, Eritrea, Rwanda, and Sierra Leone—all places that have recently experienced devastating civil conflicts.

Many African scholars, such as the Ghanaian economist George B. N. Ayittey, are far more willing to criticize their kleptocratic governments than Sachs is. Ayittey points out that aid money sometimes helps corrupt and incompetent regimes to remain in power. The World Bank and the I.M.F. extended nine loans to the tyrannical administration of Mobutu Sese Seko, who looted Zaire for decades, at one point taking personal control of an entire gold-mining region. Sweden and other Scandinavian countries supported Julius Nyerere's socialist regime in Tanzania, which almost destroyed the agricultural sector by dragooning scattered bushmen into collective farms.

Sachs also downplays the problem of misappropriated aid. Many African nations are so poor that under the U.N. plan they would probably receive annual aid payments equivalent to fifteen to twenty per cent of their gross domestic product. Without adequate safeguards, one has to wonder how much of this money would end up helping the people it was supposed to reach. Sachs's plan calls for recipient governments to commit to good governance, it's true, but, once the money started flowing, these assurances would need to be supplemented with stringent external supervision.

Here's the Paul Collier article mentioned in the review:

Natural Resources and Conflict in Africa

By Paul Collier
October 2004
[...]

Two contrasting examples help to bring the issues into focus. Thirty years ago Botswana and Sierra Leone had the same level of per capita income. Then they both received enormous diamond income. The government of Botswana succeeded brilliantly in harnessing these revenues for economic growth: for many years Botswana was not just the fastest growing economy in Africa, it was the fastest growing economy in the world. As a landlocked desert, it is easy to imagine Botswana’s fate in the absence of diamonds. Sierra Leone had a dramatically different experience. The diamond revenues fomented violent political contests which destroyed the society. The economy collapsed, and now the country is at the bottom of the Human Development Index. The differential between the two countries in terms of per capita income is now an astonishing ten-to-one. The economic and political governance of natural resource revenues was evidently absolutely vital in producing this massive divergence in outcome. In short, although policies and governance always matter, they matter much more where there are large natural resource rents. Africa needs more Botswanas and fewer Sierra Leones: which of them will Equatorial Guinea, Sao Tome and Principe, Mauritania, and Gambia resemble two decades hence?

If I was a citizen of an African natural resource economy I would want to know how to become Botswana and to avoid the fate of Sierra Leone. I think that the magic ingredient that makes the difference is scrutiny of government by the country’s citizens. Unfortunately, scrutiny is a ‘public good’ – that is, if it is provided, the whole society benefits. The incentives for individual action are thus all wrong – basically, the smart thing to do is to sit back and hope that someone else goes to the trouble of providing public goods such as scrutiny. Societies need ‘collective action’ to overcome the public goods problem and because Africa’s societies are so highly diverse –more ethnically diverse than anywhere else in the world - they find it unusually difficult to supply public goods at the national level.

Of course, people and groups lobby the government, but overwhelmingly this lobbying is not for the national interest but for individual or group advantage. But there are ways around this problem. In an ethnically diverse society it is probably much easier to organize scrutiny at the local or regional level than at the national level – at the local level ethnicity is likely to unite people in collective action, just as at the national level it is likely to divide them and frustrate collective action. If the rents from natural resources could be transparently and fairly distributed to sub-national levels of government there is some hope that such governments would come to face serious citizen scrutiny. The challenge is to get to this stage where rents accruing at the national level are seen to be fairly distributed to the regions.

The Right Agenda for Outsiders

This is where the rest of us come in – those of us who are not African citizens and so have little basis to tell African governments what they should and shouldn’t be doing. What we can legitimately do is to make it easier for African citizens to get to the stage at which they can overcome their collective action problem and scrutinize how resource rents are used at the local level. Specifically, we can help to make natural resource rents transparent at the national level. This has been the agenda of NGOs such as Global Witness – now picked up by the British government’s Extractive Industries Transparency Initiative – and I think that it is the right agenda. At least, it is the right agenda for us. Transparency in reporting revenues is itself only an input into scrutiny – it makes domestic scrutiny easier. It doesn’t make it happen automatically, but without transparency in revenues there can be no scrutiny of how they are used.

Another key area for international action is that banks should be required to cooperate in tracking down misappropriated natural resource rents. For example, the Nigerian government has recently abandoned the attempt to repatriate the vast Abacha wealth from London banks because the process was proving to be an unending legal nightmare. What is the incentive for African societies to scrutinize their leaders if corrupt wealth is so well-defended by Western legal systems?

A further area for international action is the acquisition of natural resource contracts. Too often Western corporations have connived with African political leaders to reach deals that were mutually profitable at the expense of the country. Transparent competitive tendering must become the norm. When North Sea oil concessions were awarded we would not have tolerated an oil company concluding a secret private deal with a minister; we should not tolerate such a practice in Africa.

This, to my mind, is the agenda for corporate social responsibility in Africa: transparency in bidding for resource concessions; transparency in revenue payments to governments; and cooperation by banks in tracking misappropriation of rents. Sadly, it is far from the currently dominant agenda. International resource extraction companies live in terror of two powerful forces – Western consumers who may boycott their products; and the local people living around their installations, who may kidnap employees and damage equipment. They have responded to Western consumer pressure – itself based on a lazy, teenage misdiagnosis of Africa’s ills – by trying to look like good employers and good environmentalists. They have responded to local extortion rackets by providing health and education facilities in the neighborhood of their installations. Frankly, both of these are at best irrelevant. High wages mess up the labour market and so cost jobs; it is governments, not companies, that should be supplying basic social services. What has got lost is the legitimate, indeed essential role that companies can play in helping African societies to scrutinize their governments. Corporate social responsibility in Africa must be radically redefined.