The Group of Eight (G-8) meeting in Japan promises to address the question of African development. If the past is any guide, the G-8 will focus on increasing aid to Africa and reducing its debt, both of which have failed to stimulate African development in the past. What Africa needs, however, is a good dose of economic freedom.
With the fall of the Berlin Wall, much of the former communist bloc embraced tariff reductions, tax cuts and privatisation. Most African countries, unfortunately, remain ambivalent about the merits of economic liberalisation. That will have to change if Africa is to take advantage of globalisation and other opportunities in the 21st century.
The Economic Freedom of the World report, which is co-published annually by the Fraser Institute in Canada and the Cato Institute, measures economic freedom in 141 countries.
What Africa needs, however, is a good dose of economic freedom.
Countries are rated on a scale from zero to 10, with a higher number signifying a greater degree of economic freedom. According to last year’s report, the average economic freedom in the former communist countries of Europe and Central Asia increased by 2,9 points, from 4,9 in 1995 to 7,8 in 2005. In contrast, it grew from 5,1 to 5,6 in sub-Saharan Africa — an increase of only half a point.
The difference in economic performance between the two regions over the past decade is telling. None of the 23 former communist countries in Europe and central Asia, for which the World Bank data is available, experienced an overall decline in per capita income. In contrast, incomes fell in nine out of 44 sub-Saharan African countries. On average, incomes rose 71% in former communist countries. They rose 23% in Africa. When oil exporters are taken into account, the income increase in Europe and central Asia falls to 63%. In Africa, it falls to 14%.
Some African intellectuals reject economic liberalism as a foreign transplant. But economic dirigisme, which much of the African intelligentsia took to like a fish to water, was no more African than market liberalism. Both philosophies were codified by Europeans — Karl Marx and Adam Smith respectively.
Others reject economic liberalism as a philosophy of the European colonialists. Thankfully, the reality is more nuanced. In the case of the British empire, for example, free traders who backed the repeal of the Corn Laws, like the future Liberal prime minister William Gladstone, tended to be opposed to colonialism. Conversely, politicians who supported agricultural protectionism, like the future Conservative prime minister Benjamin Disraeli, tended to support British imperialism as well.
The link between liberal economics and colonialism has always been tenuous. Luxembourg, the world’s richest country, for example, never had colonies. Nor does a colonial past mean present-day destitution. Hong Kong was a colony until 1997. Yet, adjusted for purchasing power parity, Hong Kong was the world’s eighth richest territory in 2006 — right after Switzerland.
In many cases, the income gap between Europe and Africa grew larger after independence. Angus Maddison from the University of Groningen estimates that between 1870, or four years before the British established their Gold Coast colony, and 1957 when the Gold Coast became independent Ghana, Ghanaian income per capita adjusted for inflation increased from $439 to $1241, or 183%.
Between 1957 and 2003, the Ghanaian per capita income barely moved, rising to $1360 or less than 10%. To put those numbers into perspective, a Brit was 6,5 times richer than a Ghanaian in 1957. By 2003, the gap between the two grew to 16.
That opposition to market liberalism remains deep-seated in Africa is all the more unfortunate considering that Africa is home to one of the most successful examples of a liberal approach to economic development in the world. When Botswana became independent in 1966, her income per capita was $473. In SA, it was $3615. By 2003, the inflation adjusted per capita income in Botswana was $4937. An average South African earned 13% less. Today the Batswana are — after the oil-rich Gabonese — the second richest people in Africa.
Between 1970 and 2000, Botswana’s gross domestic product growth rate per capita has averaged more than 7% a year. That rate, the World Bank found, can be attributed to, among others, macroeconomic stability, fiscal discipline, free trade and a relatively free labour market. The bank’s assessment is consistent with the Economic Freedom of the World 2007 report, which found Botswana to be, yet again, the freest economy in Africa — roughly on par with Belgium.
Other African countries should follow Botswana’s example, and adopt policies and institutions conducive to high and sustained rates of growth. There is, as former British prime minister Margaret Thatcher used to say, no alternative.