Helena Choi - Princeton University

Helena Choi - Princeton University Session 4 Eyoh, Dickson and Richard Sandbrook (Chapter 8) in Kohli, Moon, and Sorenson, eds. “Pragmatic neo-liberalism and just development in Africa” Helena Choi ________________________________________________________________________ The authors scrutinize in this essay the currently dominant development doctrine in Sub Saharan Africa (SSA) of pragmatic neo-liberalism on its ability to deliver “just development.” They are skeptical of its ability to offer sustained, equitable, and democratic development because it has achieved poor results to date. Pragmatic neo-liberalism only considers domestic reforms in African countries when external factors also deserve attention. The authors argue that globalization itself needs to be reformed, and that just development calls for changes in policies and institutions both at the global and national levels. The pragmatic neo-liberal development model Pragmatic neo-liberalism, developed as a reaction to the limits of the free-market fundamentalism, has a lot in common with the “Third Way.” It urges a more forceful role for the state, directing government attention to improving education, training, and research and development. This approach, now the dominant strategy for the developing world, is endorsed by the World Bank, which has broadened its approach to development from the pure neo-liberalism of the 1980s. The pragmatic neo-liberalism paradigm is holistic, synergistic, complex (see Figure 8.1), is committed to maintaining macroeconomic stability, and endorses deregulation and liberalization, and privatization land and state-owned enterprises. It was believed that these reforms, together with of foreign assistance, would set the stage for economic prosperity. Economic growth would then provide a conducive environment for democratization, which would in turn support a vibrant market economy by promoting state rehabilitation, creating a “virtuous” cycle that would in time result in just development. This model of development has a particular stronghold in SSA, whose countries have become heavily dependent upon foreign aid. This dependence explains why African governments have ceded economic and social policy reforms to external agencies. Origins of the economic crisis, 1960-1980 Africa faced a dual challenge of nation-state building and economic development at independence. African economies were dependent on the production and export of primary resources as colonialism failed to generate indigenous entrepreneurs who might have shaped post-colonial industrialization. Africa at independence was constrained by limited development of human capital and the lack of modern economic sectors of banking, insurance, commerce, and manufacturing. Africans also inherited states without nations. To form territories into political, orderly communities, the elite groups now in power adopted a top-down style. Strong states thus replaced earlier hopes of democratic development. During the 1960s and early 1970s, this state-led top-down model was moderately successful. However, by the mid-1970s, external shocks, including severe droughts (Africa was largely dependent on agriculture), the oil shock, and the global recession that ensued (which resulted in a decline in demand for primary commodities), led to declining growth rates and increased external borrowing. Africa’s GDP per capita declined by up to 1 percent per year during the “lost decade” of the 80s and the negative growth rate continued into the early 1990s. The weaknesses of African states also contributed to the economic decline. State deficiencies were manifested in inefficiency, instability, and corruption, which discouraged investment. Economic and political crises thus reinforced each other. Era of economic and political adjustment, 1981-2000 The Western response to Africa’s crisis took the form of structural adjustment programs, which initially required fiscal and monetary policies to reduce inflation and budget deficits, wide-ranging market-oriented reforms, and an opening of economies to foreign trade and investment. The scope has since broadened to include rehabilitation of infrastructure, privatization of state-owned enterprises, poverty alleviation, enhancing state capacity, restructuring financial institutions, improving governance, etc. These structural adjustment programs have had only limited success, and progress in fiscal adjustment and institutional reforms has particularly been lacking. A foreign investment boom has not yet occurred, despite liberalization of prices and the promise of higher rates of return. Poverty rates also have not improved much, and neither has state capacity. The late 1980s and early 1990s saw many pro-democracy movements across Africa, fostered by economic decline and the subsequent weakening of the neo-patrimonial systems at the domestic level, and a new global order that regards democracy as an integral precursor to development at the international level. Donors have assisted democratization by aiding multi-party elections, strengthening civil society, and stipulating political reform as another condition of aid. However, successive cycles of elections have not altered inequalities of power, confirming the resilience of neo-patrimonial networks. Western governments had demanded economic and political reform in exchange for billions of aid, and the political elites have used the aid to refurbish patronage networks. Foreign aid thus serves to reinforce the historical lack of accountability of African governments. Civil society has failed to offer alternative visions of the future. Furthermore, the resurgence of ethno-regional conflict threatens national cohesion and the prospects for democratic development. The consolidation of democratic and effective states are necessary for 1) forging of multi-ethnic approach to nation-building and 2) balancing expression of local communities’ political values and traditions with universal political and civil rights. Rather than focusing only on national political and economic reform, it may make sense to look at the adjustments needed to globalization itself to create a propitious external environment for just development. Adjusting globalization Globalization is both the irreversible outcome of technological progress and an impetus to improved economic performance according to pragmatic neo-liberals. The proposition that globalization, or opening up of economies, will augment growth is doubtful for Africa after one or two decades of progressive trade, investment, and capital account liberalization and little growth. Proponents for globalization also argue that openness offers benefits only when governments adopt a set of institutional reforms, which are needed because openness brings along destabilizing side-effects such as increased social inequality. Thus, Africa will benefit from neo-liberal globalization only if they possess what most of them lack -- sound institutions. Allowing global markets to determine the allocation of resources will not solve Africa’s problems. Market forces should be adjusted via globally negotiated rules to limit the negative side effects of unregulated global markets, in a project labeled “socially-democratic” globalization. Africa has accrued few benefits from global integration, and these few benefits have come largely in the form of aid and the promise of debt relief. However, aid has declined sharply after peaking at $17.3 billion in 1995, and Western governments are unlikely to restore earlier aid levels. Debt relief is a necessary condition for economic recovery in Africa, but it has been slow to materialize. Foreign trade must be the engine of growth for Africa in light of its continuing debt burden and declining aid, but prospect for export-led growth is bleak. SSA’s share of world trade has declined steadily over the past 40 years. Africa’s main export is in the agricultural sector, and non-oil commodity prices are projected to fall by an average of 2 percent per year between 1995-2005. Global trade rules, such as barring of protection of infant industries and the high tariffs on textiles and agricultural imports, have also created further impediments to African development. SSA has not benefited from foreign investment despite adopting reforms to attract investment. In the post-East Asian and Russian financial crises era, new investments have flowed largely into the mining and petroleum sectors, and portfolio investments are likely to be volatile and disruptive. All factors considered, neo-liberal globalization is unlikely to generate sustained growth in SSA. The authors believe that the global economy has been constructed from societal choices and negotiated intergovernmental agreements, and therefore can be reconstructed to suit human needs better. The choice is not between a neat dichotomy of globalization or protectionism, but between neo-liberal globalization or a more regulated form of global integration -- social-democratic globalization. The latter involves minimizing the destructive side-effects of unregulated markets, reducing international and intra-national inequalities, taming turbulence and insecurity created by capital, protecting basic labor standards, etc. This movement has gathered momentum since the early 1990s and is likely to continue in the context of global economic “bust “ or an environmental calamity. Conclusions The rhetoric of pragmatic neo-liberalism is kinder, gentler, and more complex, but it retains its neo-classical core principles of the Washington Consensus. Pragmatic neo-liberalism is not as people-friendly as it appears, since its policies and institutional reforms aim to engineer a capitalist transformation in developing countries, the early stages of which typically involve exploitation, inequality, and oppression. Although pragmatic neo-liberalism intends to ease these negative side effects through market exigencies, it is unclear whether this strategy has the means to accomplish this goal. The harsh and inegalitarian phase of capitalist development can be mitigated by a proactive state, such as in the Taiwan or South Korea example. However, recent experience of SSA suggests that the model of a development state is not likely to emerge in Africa in the next decade or two. Therefore, we are left with the conclusion that we must not simply discard the neo-liberal model. Much of market-oriented adjustment and macroeconomic stability makes sense as a long term program. But as the current pattern of globalization is proving unfavorable to African economies, just development will entail a reform of the existing pattern of neo-liberal globalization.