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The United Nations Conference on Trade and
Development (UNCTAD) made a surprising turn of
face last week advocating African nations follow a
developmental state model to accelerate economic
growth. While the Conference made some valid points
in disputing the 'one size fits all' approach that
some international organisations fall victim to in
their policy recommendations, the report failed to
account for some basic prerequisites necessary to
achieve success under the state interventionist
approach elaborated.
The report delivered at the Economic Commission for
Africa (ECA) on Wednesday, September 26, 2007, stood
in stark contrast to those of the previous four
years that focused on external factors - trade,
debt, foreign direct investment (FDI) and aid in
chronological order. Although it is promising that
the UNCTAD report gives specific policy
recommendations and focuses on points that are
within the control of the various governments of the
African continent, it is disappointing that it
devotes only brief mention to the character of
governance that must exist for such a centralised
economic mindset to yield benefit.
Janvier Nkurunzia, economic affairs officer with
UNCTAD in Geneva, rightly pointed out some of the
failures of African countries' economic regimes and
the prescriptions provided by the Conference and
other multilateral institutions as only five of the
50-plus nations included in the Millennium
Development Goals (MDGs) are on track to halve
poverty by 2015. In underdeveloped countries with
fledgling private sectors simply letting the elusive
'invisible hand' take its course is a recipe for
creating vast inequalities and giving rise to
irreparable problems of uncoordinated resource
extraction. This is especially true in
post-communist states with huge structural
challenges to overcome and in states with
disappointingly low levels of institutional capacity
to institute the rules of the game necessary to
promote sustainable and equitable growth. The
example of the massive capital flight (or looting)
that occurred after Russia strictly and rapidly
followed Washington Consensus policies after the
Soviet Union dissolved is testament to the
disastrous effects of the absence of the state.
The enlarged role for the state advocated by the
report is in tune with the philosophies advocated by
the Revolutionary Democrats led by Prime Minister
Meles Zenawi, a party that must be glowing after
receiving the boost to its authority in policy
choices from a respected institution; this is in
stark contrasts to the ideological challenges
emanating from the International Monetary Fund (IMF)
earlier in the year.
The report is correct in asserting that the
advisable balance between protectionism and openness
depends on "timing and circumstance". Where it falls
short is in the critical elaboration of the meaning
behind the vague statement of calling not for more
state intervention but for a better state.
The free market is in many ways predictable as
economic agents pursue profit maximisation motives
and thus, while not always just, outcomes will at
the least loosely adhere to certain patterns. The
intervention of the state, while often productive to
give the necessary jump start to infant industries,
is not as reliable, especially if not bounded by a
strong structure of checks and balances that ensures
the integrity of the rulers. Herein lies the flaw,
or at least insufficiency of the recent UNCTAD
report.
Unless the systems of governance are commanded by
strict adherence to the rule of law that create
outcomes based on accountability and transparency,
state intervention in the economy is a recipe for
disaster. The developmental state is posited on a
notion that an economy is in transition from an
underdeveloped state and thus needs certain
imperfect mechanisms to correct imperfect markets to
reach the future developed state where these
constraints can eventually be removed. The
developmental state is a means to an end where the
government can be removed from the picture.
However, before effective intervention can begin,
the institutional framework to ensure the eventual
or gradual phasing out of protectionism should be in
place. It is a shame that this is lacking from many
of the African countries, including Ethiopia that
continually receive low ratings from international
institutions on the quality and accountability of
governance. In this scenario vested interests become
locked into the structure of the economy and thus
impede the privatisation efforts that are meant to
supersede the initial industrial make-up. The
Ethiopian Telecommunications Corporation (ETC) that
delivers a very low level of service by any
standards in Ethiopia is one such example of a
disappointingly prolonged existence.
If taken from a more positive angle, the policy
prescriptions inherent in the developmental state
model are a call for international institutions and
national governments to speed up the process of
reform such that interventionism may be conducted in
a more responsible manner than the oligarchic
nepotism that prevails across much of the continent.
In this respect, the Western model of tying aid and
investment to positive governmental reforms as
elucidated in the bill on human rights and democracy
that passed through the House Foreign Affairs
Committee last week in the United States (US) is a
more desirable approach to create these conditions
for quality governance than China's resource hungry
quests in the continent.
The UNCTAD report's advocating following policies
characteristic of those followed by the East Asian
Tigers is nothing new, though it lost favour after
the financial crisis. No doubt enhancing tax
collection, gradually bringing the vast informal
into line with the economy guided by law, enhancing
remittances, and reducing capital flight are
admirable goals. The capacity for these lofty ideals
to reach fruition is sadly lacking in many of the
countries covered by the 116-page publication.
Hopefully, this report will lead to more calls to
create the quality of governance essential to make
interventionism work. If not, giving authority to
some of the undemocratic governments in Africa to
continue their overly protectionist regimes will not
help change the course of the past two decades. |
