Is Africa still being looted? World Bank dodges its own research

Oil riches and poverty in the Niger Delta.

By Patrick Bond

August 15, 2010The continent’s own elites, together with the West and now China, are still making Africans progressively poorer, thanks to the extraction of raw materials. Reinvestment is negligible and the prices, royalties and taxes paid are inadequate to compensate the wasting away of Africa’s natural wealth. Anti-extraction campaigns by (un)civil society are the only hope for a reversal of these neocolonial relations.

Though it’s easy to prove, even using the World Bank’s main study of natural resource economics, the looting allegation is controversial. When I made it during a Canadian Broadcasting Corporation (CBC) interview last week, the World Bank’s chief economist for Africa Shanta Devarajan, immediately contradicted me, claiming (twice) that I am not in command of the “facts”.

Here’s how it went:

Patrick Bond: Africa is suffering neocolonialism, and that means the basic trend of exporting raw materials, and cash crops, minerals, petroleum, has gotten worse. And that’s really left Africa poorer per person in much of the continent, than even at independence. The idea that there’s steady growth in Africa is very misleading, and it really represents the abuse of economic concepts by politicians, by economists, who factor out society and the environment. And it’s mainly a myth, because, really, the extraction of non-renewable resources – those resources will never be available for future generations. And there’s very little reinvestment, and very little broadening of the economy into an industrial project or even a services economy.

CBC: Mr Devarajan, how would you respond to that view?

Shanta Devarajan: First, I just want to correct one of the facts, which is that the continent is not poorer per person. GDP per capita is not lower today than it was ten to fifteen years ago. In fact, it is considerably higher.

Here, Devarajan abuses the discussion about African poverty by using the gross domestic product (GDP) measure, even though just seconds earlier I had warned against doing so. African economies suffer extreme distortions caused by the export of irreplaceable minerals, petroleum and hard-wood timber. Were he honest, Devarajan would confess that GDP calculates such exports as a solely positive process (a credit), without a corresponding debit on the books of a country’s natural capital.

Seeking a less-biased wealth accounting – i.e., by factoring in society and the environment so as to calculate a country’s “genuine savings” from year to yearwe find that Africa gets progressively poorer. This was demonstrated in even the World Bank’s own book, Where is the Wealth of Nations?, published four years ago (and still available on the World Bank website).

According to the book’s authors, “Genuine saving provides a much broader indicator of sustainability by valuing changes in natural resources, environmental quality, and human capital, in addition to the traditional measure of changes in produced assets. Negative genuine saving rates imply that total wealth is in decline.”

The researchers are conservative in their assumptions, but once they factor in society and the environment, Africa’s most populous country, Nigeria, fell from a GDP in 2000 of $297 per person to negative $210 in genuine savings, mainly because the value of oil extracted was subtracted its net wealth.

Even the most industrialised African country, South Africa, suffers from resource curse: instead of a per person GDP of $2837 in 2000, the more reasonable way to measure wealth results in genuine savings declining to negative $2 per person that year. From 2001, the problem became even more acute thanks to the delisting of the largest corporations from the Johannesburg Stock Exchange, which added not just the outflow of mineral wealth, but also of profits and dividends that in earlier years would have been retained in South Africa.

(South Africa’s president, the African National Congress’ Jacob Zuma, approved these policies and he is still relaxing exchange controls, thus permitting further wealth outflow. It was the height of United Nations incompetence or irony that Zuma was named as co-chair of Ban Ki-moon’s new panel on global sustainability, “tasked with finding ways to lift people out of poverty while tackling climate change and ensuring that economic development is environmentally friendly”. And after the United Nations climate summit in Cancun fails in December 2010, a year later Zuma will host the crucial Johannesburg follow-up to the Kyoto Protocol, whose targets of 5 per cent emissions reduction expire in 2012. What might we expect? Beholden as he is to mining/smelting capital, with his son and nephew seeking mineral-tycoon status, Zuma signed the inadequate US-backed “Copenhagen Accord” last December. But this mainly confirmed that his climate-vulnerable kin in rural Zululand will suffer so that Melbourne and London shareholders of BHP Billiton and Anglo American can continue receiving the world’s cheapest electricity, from South Africa’s rapidly expanding coal-fired power generators. Just so you are warned.)

As commodity prices soared from 2002-08, the outflow of wealth was amplified. But dating to the independence of so many countries over the past five decades, the story is the same: Africa looted in a manner that even World Bank environmental staff are openly confessing, even if Devarajan has (consciously or subsconsciously) ignored their research. Hence it is misleading to the point of mischievousness for Devarajan to contradict my assertion that Africans are getting poorer.
The interview then turned to public policies associated with the looting of Africa.

CBC: The World Bank gets a lot of heat for your structural readjustment programme from some quarters. And that is when you offer to countries interest-free loans but they’re contingent on some pretty severe austerity measures that some people say can be counterproductive because they hurt the economies in question more than they help them. And you’ve been criticised, notably, by economists like Patrick Bond and I’d like you to listen one more time to something he’s told us.

Patrick Bond: The World Bank and also the International Monetary Fund, they sort of fooled us, in 2008-2009, because they seemed to shift their ideology away from a very hard-core agenda of promoting markets above everything else. And for a time it seems they were promoting government deficits and a Keynesian strategy: government should step in when the private sector fails. But now it seems like it’s back to business as usual, namely export orientation and austerity. And the World Bank, led by President Robert Zoellick, who had come from the Bush Administrationhe worked for Enron and for Goldman Sachs – this sort of leadership, and the Northern orientation and the banker mentality, means that the only way forward is to get away from these institutions, maybe to default on their debt, to kick them out of the country. And Latin America provides a good model for doing both of those things.

CBC: And in fact some Latin American countries, Argentina, successfully told the institutions like yourself and the IMF to take a hike, and in fact it ended up doing them a lot of good. So how do you respond to someone like Patrick Bond?

Shanta Devarajan: Oh, I think again that we have to look at the facts. There’s no question that the structural adjustment policies of the 1980s and early 1990s received a lot of criticism. But then ask the question, “what changed?” As I was saying, the growth has accelerated since the 1990s. We can’t hide from that fact. And you look at what changed. And it’s that these countries adopted exactly the Washington Consensus policies in the mid-1990s, the African countries. The difference is that they did it out of their own accord, out of domestic political consensus, rather than imposed from Washington or Paris or London. And I think that’s the point that people are not recognising, that the actual policies that are generating the growth, are actually very similar to what was criticised in the structural adjustment era.

Again, African GDP growth may have accelerated as commodity prices rose, but Africa became poorer once we calculate the net wealth effect and genuine savings. Devarajan can’t hide from that fact.

To disguise this by saying that structural adjustment did not work before the mid-1990s because it was "imposed" by Devarajan’s colleagues, but did work after the mid-1990s because it was adopted through a “domestic political consensus”, is the most bizarre claim I’ve ever heard about African macroeconomics. There has never been a political consensus to structurally adjust Africa, aside from the permanent problem of unpatriotic elites who are more closely allied with Washington, Paris, London, Brussels and Beijing string pullers than with their subjects (a problem which in his 1961 book The Wretched of the Earth, Frantz Fanon so eloquently brought to our attention).

The World Bank’s 2006 book mentions one obvious policy conclusion, learning from a country with petroleum resources that did not fall victim to resource curse:

“Norway has used the flow accounts for energy and greenhouse gas emissions to assess a policy that many countries are considering: changing the structure of taxes to increase taxes on emissions and resource use.”

But liberalisation imposed by the World Bank’s lending staff does precisely the opposite. This is the sort of schizophrenia we have come to expect from World Bank researchers who arrive at commonsense “talk-left” conclusions, such as that extracting resources from Africa leaves the continent poorer. But it is not surprising that Devarajan and World Bank operational staff “walk right” when it counts, in interviews with gullible journalists like CBC’s Mike Finnerty (who failed to follow up on either of Devarajan’s whoppers) and when imposing neoliberal policies on wretched African elites.

In this context, the only encouraging signs are the myriad of challenges to extractive industries by activists who often put their bodies on the line in sites of sustained state and corporate violence like the eastern Democratic Republic of Congo, where human rights watchdogs struggle to document the murder of approximately 5 million people, Zimbabwe’s Marange diamond mines, South Africa’s Limpopo and Northwest Province platinum fields and the Eastern Cape’s titanium-rich Xolobeni beaches, the Niger Delta’s oil-soaked creeks and Chad’s oilfields, Firestone’s Liberian rubber plantations, Lesotho’s dams supplying Johannesburg’s hedonistic water consumers, and other dam displacement zones including Gibe in Ethiopia, Mphanda Nkuwa in Mozambique and Bujagali in Uganda, to name just a few.

Because World Bank officials can be counted on to ignore their own research and hence continue promoting non-renewable resource exports; because this arrangement suits multinational corporations and donor agencies; and because African elites will continue taking this advice (often with sweetener bribes as was the case of the African National Congress’ role in the Medupi power plant controversy, funded by the World Bank’s largest-ever project loan, for $3.75 billion, in April 2010), Africa will grow progressively poorer.

The African networks of civil society which promote “publish what you pay” and other gambits for transparency, participation and human rights should finally come to the realisation that this system of looting is not going to be reformed under the prevailing balance of power, and that much more forceful resistance to extraction is required – and is underway.

[Patrick Bond directs the Centre for Civil Society at the University of KwaZulu-Natal and from September will be on sabbatical at the University of California/Berkeley Department of Geography.]

Many thanks for your reply, Shanta. My rebuttals [in non-italics] are interspersed, and they contain a great many details that may detract from the flow of this debate. But they are important, nonetheless, so I risk boring you and any readers with a long argument, a worthy risk because this is a rare chance to compare radical political-economic critique with a bold, unapologetic articulation of the Washington Consensus:

Shanta Devarajan: Patrick. Thanks for bringing the discussion to the blogosphere, where we can communicate directly rather than through a CBC radio interviewer.
On your first point, we need to distinguish between accounting exercises, such as those in the World Bank’s book, Where is the Wealth of Nations, and measures of economic welfare. Measures of genuine savings deduct the amount of a resource that has been depleted from regular savings to account for the reduction in natural capital. This deduction does not by itself indicate whether human welfare, which is what we are all interested in, has gone up or down.

Agreed. But to determine whether utilisation of resource flows contributes to human welfare requires a political-economic analysis of who wins (and who loses). This would take the World Bank places I don't think it really wants to go - and by that I don't mean 'optimal rate of depletion', I mean class analysis (and gender/race/environment analysis, too). To illustrate this dimension of human welfare, there's a very recent case I have in mind, here in South Africa, where World Bank project lending reveals a great deal about why Africa suffers from resource curse (see below).

The reason is that, with any natural resource, there is an optimal rate of depletion that maximizes economic welfare, and that rate is typically not zero. So the relevant question for signaling directions of welfare is whether the current rate of depletion is above or below the optimal rate. To see this starkly, consider two countries with the same endowment of a natural resource, and no other source of production. One country extracts all of its resources in one year, while the other depletes at an optimal rate so that the resource lasts for many years. Clearly welfare is higher in the second than in the first. But the level of genuine savings in both countries is the same (at zero).

But that is not the World Bank methodology deployed in the book Where is the Wealth of Nations? The measure of genuine savings for Country 1 would be dramatically negative in the year under consideration (2000), and for Country 2 it would be much reduced: stretched over time depending upon the rate of resource exploitation. That's why that book is important, it takes a snapshot of a given year (2000), and although we don't have information on rates of exploitation (your point), that doesn't detract from the clarity of the overall picture: Africa's resources are being extracted and exported, and reinvestment in physical and human capital is insignificant. So genuine savings are negative, without those backward/forward linkages and reinvestment. Africa is becoming progressively poorer once we adjust GDP to include the debit on non-renewable resources ripped from the ground without corresponding productive reinvestment. The numbers in question became much greater since 2000, as a result of the rise of commodity prices and hence of natural resources valuations.

Going from simple examples to the real world, countries like Norway and Botswana also have lower genuine savings than regular savings, but one doesn’t normally think of them as countries where people are suffering.

There are resource curse problems in both, even in Norway where an overvalued kroner has caused Dutch Disease, but yes, Norway at least turns its oil revenues into free university education and highly-productive infrastructure and public/merit goods, unlike most oil-rich countries run by despots. Moreover, Norway's vast oil investment fund means there's extremely strong intergenerational equity, a factor lacking nearly universally in resource-cursed societies. That permits a $5708 genuine savings calculation for Norway in 2000 (according to your colleagues), and hence its genuine savings rate (18.5%) lags only a handful of countries (mostly East Asian). Norway's government has mainly been social democratic over the past century, and currently there is probably no more left-leaning government in the north (which is not to say that Norway's international policies are anywhere near the potential promised in the Soria Moria document's governing mandate, such as the broken promise to move Norwegian multilateral funding out of the World Bank, to the UN).

But of far greater relevance is Botswana where, yes, the 'people are suffering', and not only because long-standing migrant labour relations, patriarchy and rapid urbanisation coincide with one of the world's highest HIV rates. It's also a country whose poorest people, the Basarwa-San ('bushmen'), have been oppressed by the combination of World Bank and DeBeers/Debswana pressure to get them off land so as to facilitate diamond extraction. The Gabarone government has been brutal: denial of water rights is the latest technique, as is well documented (thus contributing to concern that helped pass the UN 'right to water' declaration last month -

As for the rest of the society, Botswana competes with South Africa and Namibia as the most unequal country in the world. In a 2002 UNU/Wider discussion paper, my economist colleague Guy Mhone (1942-2005) and I worked through some of the problems: "unemployment stood at 10 per cent of the labour force in 1981, increased to 17 per cent in 1984, and reached 22 per cent by the late 1990s... 23 per cent of households remain 'very poor'. The poverty data suggest that growth elasticities with respect to the proportion of the poor that can be lifted above the poverty line as a consequence of a given percentage increase in GDP have historically been very low. Botswana remains locked in an extractive economic mode. Relying on Ogive and entropy indices to measure the degree of diversification, the IMF concludes that the Botswana economy has made little headway, and instead suffers from 'concentration of economic activity in the mining sector and the over-reliance on diamond exports' ... FDI has tended to be lumpy and associated with one-off megaprojects (such as the Hyundai motor assembly plant) whose sustainability has been questionable, especially when incentives expire... The problem arises from temporary or permanent booms induced by increases in prices of a major export commodity, which in turn induce major shifts in resource allocation. In underdeveloped economies, such resource flows sometimes prevent balanced, equitable forms of growth and development. They also heighten the vulnerability of the economy to external shocks if commodity prices decline substantially... Decades of rapid GDP growth and export success were insufficient to diversify and develop Botswana's economy. Typically, blame for such an outcome can be traced to the inadequacy of domestic policies, to structural failures in the economy for which orthodox policies may not be sufficient, or to constraints arising from the global economy. These factors have not been adequately considered in the literature on the Botswana economy, in part due to overenthusiasm of analysts intent upon proving Botswana's role as a success story, and in part due to the general dominance of conventional views of economic management and globalization among policy analysts specializing in Africa... Botswana has failed to transform its high saving rates into investment. During the 1990s, the savings rate was around 40 per cent, while gross investment was between 25 per cent and 30 per cent, suggesting a low capacity to absorb savings in site of the backlog in unemployment... Botswana's rural economy is characterized by extremely unequal access to land and livestock, both of which militate against the broadening of the economic base and the development of industry based on domestic demand... [B]eyond its primary product exports, the benefits of globalization for Botswana are not evident. This not only demonstrates the ambivalent implications of international economic integration for a small and vulnerable developing country that remains a price taker, and cannot significantly influence the pattern of foreign direct investment in its favour. It also shows the limits of the anticipated trickle-down effects of growth on the domestic economy." (from G.Mhone and P. Bond, ‘Botswana and Zimbabwe’, in M.Murshed (Ed), Globalization, Marginalization and Development, London, Routledge Press, 2002, pp.233-247)

In short, while Where is the Wealth of Nations is a carefully done piece of analysis, it is incorrect to say that it provides evidence of “looting” or even of the resource curse.

It certainly does. The evidence is overwhelming and cannot be denied using your two-country abstraction based solely on temporality. For the given year under study, 2000, the book provides estimates of consistent negative 'genuine savings' in Africa which confirm our worries about the looting of the continent's resources. I wonder if the Bank would permit further research work in this area: was the Where is the Wealth of Nations? project shut down by President Wolfowitz, who like President Zoellick enjoyed such strong ties to the US petro-military complex (and its erstwhile thinktank, the Project for a New American Century)? The concern, here, is that researchers for the Wealth of Nations team were generating knowledge that would conceivably have helped Bank policy-makers and lenders become more conscious of environmental and social externalities associated with natural resource extraction, but instead, its chief economist for Africa alleges that Africans are getting wealthier, when the evidence of Africa losing natural resources on unfair terms is glaringly obvious.

The latter has much more to do with how governments have used resource revenues. In too many African countries, these revenues have been spent on unproductive public investment projects, which is why growth has been anemic and poverty reduction even slower.

Fine, now we're getting somewhere: a concession that resource extraction isn't intrinsically beneficial to Africa. Yet the claim that the revenues from non-renewable resources merely went to 'unproductive public investment' (meaning what? - grants to the permanently unemployed and other social wage expenditures?) distracts our attention from at least four other financial sources of African underdevelopment: local elite capital flight (extreme in most resource-cursed countries), corruption (which the World Bank has generously supported for decades), outflows of private capital (usually profits and dividends but also illicit transfer pricing), and Odious Debt repayments. These are all wicked problems in resource-cursed economies, and in each case facilitated by the Washington Consensus.

Indeed, Bank WashCon conditionality - such as financial liberalisation and Foreign Direct Investment promotion - amplifies these problems, via undemocratic power relations. Yes, African elites are more readily corrupted than counterparts elsewhere, given the lack of a strong countervailing civil society and patriotic business class, to be sure. But World Bank nurturing of African malgovernance over the decades, including at present, offers a consistent explanation for the 'unproductive public investments' strewn across our landscape. There are myriad examples in Southern Africa with which I'm intimately familiar, including the biggest and latest: your institution's 15th loan to post-apartheid South Africa, for the Medupi power plant. Read on.

This is the problem we are working on, including with initiatives like the Extractive Industries Transparency Initiative and the Natural Resource Charter.

Look, it really is impossible to take this sentence seriously, just a few weeks after World Bank board approval of its largest-ever project loan, $3.75 billion granted to Pretoria (specifically, the parastatal Eskom) to build the world's fourth-largest coal-fired power plant, Medupi. That loan illustrates at least ten scandals, which in turn demonstrate why the Bank's role in African resource extraction is so consistently destructive:

* climate-busting emissions (at a time SA is already about twenty times worse than the US in per capita carbon emissions economic intensity) given that Medupi alone will produce more greenhouse gases than do 115 countries (25-30 megatonnes of CO2equivalents/year);

* local ecological destruction and health burdens (Medupi has no scrubbers due to ‘relative lack of pollution’ nearby, yet ambient SO2 standards are already exceeded; the area is dry yet vast water inflows are required; and 40 new coal mines will open to feed Medupi and the next powerplant, Kusile, although these mining areas suffer severe water degradation and mercury emissions, with demonstrated adverse public health burdens for local residents, as the WB Inspection Panel is now learning);

* virtually no public participation in the WB loan-investigation process last December, and profoundly flawed internal procedures replete with violations of due diligence;

* the cost of the loan will inordinately be borne by poor South Africans, who already pay excessive prices (about US$0.10/kWh) in comparison to multinational corporations (average of less than $0.05/kWh) and face 25% annual price increases (with inflation at 6%) in coming years; leading to

* an upsurge of electricity disconnections, social strife and state oppression, which already contribute to South Africa's rating at the top of the world scale of per capita protests;

* the benefits of the Bank loan go overwhelmingly to two multinational corporations, which receive ultra-cheap power (at about US$0.015/kWh) based on 40-year, corrupt, apartheid-era "Special Pricing Agreements" kept secret until whistleblowers exposed them in early 2010 (even though the Bank was considering making this loan in 2009, and failed to reveal this travesty - so much for EITI);

* the outflows of profits/dividends to those same MNCs (BHP Billiton and Anglo American Corporation) and other resource-extraction firms are having a severe impact on SA's current account deficit, which is amongst the highest of any emerging market, and which in turn led The Economist to rate South Africa as the world's riskiest emerging market last year;

* with the additional $3.75 billion in foreign debt, South Africa is entering a debt trap (largely to cover the soaring current account deficit since 2001, when SA firms were allowed to list offshore) - at the end of apartheid it was less than $25 billion but is now nearly $85 billion today - and we will soon reach the same levels in relation to GDP as in 1985 when SA had one of world's worst foreign debt crises, and the apartheid regime was compelled to default on loan repayments;

* partial privatisation of SA energy generation is one of the features of the loan that the Bank highlights positively, even though the record of utility privatisation in South Africa (telecommunications, roads, electricity and water) has been nothing short of disastrous;

* corruption of SA's ruling party via Bank funding is shocking, and on these grounds our main business newspaper (Business Day) and most opposition parties formally rejecting the Medupi loan, since a huge cost overrun for Medupi's boilers results in Hitachi (partially owned by the African National Congress) receiving massive profits which will, in turn, help keep this corruption-riddled ruling party in power for decades to come;

* this loan simply continues the Bank's apartheid-era history, in which $100 million in loans were made to Eskom from 1951 (three years after formal apartheid began) to 1967, during which time zero black households received electricity, although huge companies and wealthy whites did, while the entire society (black taxpayers too) had to repay those loans - quite a deja vu in relation to Medupi, isn't it?

Shanta, there are about 550 pages of press clips about this Bank loan, from January-May 2010, explaining these scandals in more detail - - and while I notice that you recently had a debate with Oxfam's Barbara Stallings about whether it is appropriate to blame the victims (underpaid African civil servants in health and education) for 'quiet corruption', it is curious how quiet you have been about this rather revealing loan.

This is just the latest and largest example of how the World Bank contributes to the African resource curse and corrupt regime-maintenance. I hope to be proven wrong, but I doubt there are rebuttals to the ten points above. Even more shocking is that the climate mitigation system that the Bank helped set up through its Prototype Carbon Fund, the Clean Development Mechanism, is now considering giving Eskom even more Medupi financing, demonstrating yet again the destructive role of carbon trading in Africa, under Bank tutelage. (The Bank prototype for South African carbon trading is methane-electricity conversion at the continent's largest landfill - it's where my rubbish goes to rot because we don't have a zero-waste system in Durban - and you will struggle to find a more extreme case of environmental racism than Bisasar Road.) While the WB Inspection Panel is currently investigating the adverse effects of this loan on some of the communities (albeit with no power to recall the loan), it's obvious to all who look at this project that Bank involvement in EITI and the Natural Resource Charter is, in this context, merely farcical greenwashing.

On your second point, I would first note that not all the growth in Africa over the past fifteen years has been from resource extraction. Twenty-two non-oil-exporting countries (home to a third of the African population) experienced higher-than-four-percent average annual growth between 1998 and 2008.

The 2002-08 commodity boom extended beyond oil, to minerals and cash crops, of course. And again to remind, only a handful of tiny African countries actually 'grew' when we take into account genuine savings, as shown in the Bank's Where is the Wealth of Nations? Moreover, the crucial dummy variable missing is civil conflict. Once that is accounted for, the 29 non-oil-exporting African countries which did not suffer and then recover from severe conflict did no better in the 2000s than the decade earlier, recent Unctad research suggests.

Furthermore, if you look at the economic policies these countries followed, they included fiscal and monetary stabilization—median inflation in 2005 was half what it was in 1995—more open trade regimes, and relaxation of some of the most prohibitive regulations in the economy. While other factors, including increased external resources (aid, debt relief, remittances, and private capital flows) and a buoyant global economy played a role, it is hard to escape the conclusion that the economic policies pursued by these African governments contributed significantly to their economic performance during the last fifteen years.

I agree that the WashCon was imposed in Africa. But let's turn to a different source to understand the basis for the economic 'growth'. Here's Prof John Weeks of the Univ of London's School of Oriental and African Studies, reporting in a background paper - "Employment, productivity and growth in Africa south of the Sahara" - for a forthcoming Unctad report (brought to my attention by Prof Jayati Ghosh of Nehru Univ in Delhi):

"from 1990-2009... policymaking was heavily influenced by IMF and World Bank programmes, yet the long delayed recovery of the region was primarily the result of external factors rather than so-called policy reforms. The economic recovery of the second half of the 2000s came to an end with the global financial crisis of 2008... The so-called Washington consensus type policies that characterised the structural adjustment programmes of the 1980s and persisted into the 2000s were associated with lower growth. The possibility that they addressed and overcame obstacles to growth, thus laying the basis for a subsequent recovery, is considered below and rejected as not empirically substantiated... more than twenty years of so-called policy reform had limited impact on strengthening the potential for rapid and sustainable growth in the sub-Saharan region. The drivers of the brief recovery during the second half of the 2000s appear to have been a commodity price boom, debt relief and a decline in domestic conflicts. A major factor that had previously constrained growth, growth of import demand, remained operative... With regard to policy, the lack of diversification in national production results in a low capacity to tax. For countries that are overwhelmingly agricultural, the capacity to tax is severely limited by government’s inability to estimate farm income or production. Reliance on taxation of companies extracting natural resources results in instability of public revenues due to fluctuations in commodity prices. As a practical matter, increasing the capacity to tax requires diversification into manufacturing. The stress by Washington Consensus policies on so-called comparative advantage has been a prescription for non-development in the sub-Saharan region. If in any other region the pattern of trade is determined by a comparative advantage based on the relative prices of primary factors, such is not the case in the sub-Saharan region. Among these countries, the export structure reflects natural resource endowments not so-called factor endowments. This basis for trade results in volatile exchange rates that respond to the volatile commodity prices."

To be sure, the policies were not the same across countries, and they varied in their timing and sequencing. But this corroborates my point that the policies, while consistent with the Washington consensus, were tailored to countries’ circumstances because they emerged from a domestic political consensus.

This notion of a 'domestic political consensus' is quite a stretch. In South Africa, the wealthiest African economy (celebrated for loyally following WashCon prescriptions from 1996-2008), this alleged policy 'consensus' - the World Bank-designed Growth, Employment and Redistribution strategy and its successors - was imposed without consultation and had some telling results: failure to meet nearly all targets set in the Bank econometric model, increasing inequality (higher than apartheid!), sustained levels of extreme unemployment, more currency crashes than any other comparable economy, extreme distortions in production/consumption, excessive consumer credit vulnerability, an unprecedented property bubble (six times worse than the US's), and severe capital flight - all of which contributed to the putsch of the pro-WashCon president, Thabo Mbeki, in 2008, at the very height of the (false) economic boom. Thousands of community protests (recorded by police) each year and the ongoing levels of organised labour mobilisation (a national civil service strike this week, for example) reflect not consensus but rising class conflict. This is the result of the way the World Bank, IMF and donors - allied with corrupt local elites - have engineered 'growth' in one of the most prosperous corners of Africa. Elsewhere on the continent, the misery and eco-destruction created by free-market dogma and uncompensated resource extraction have been far worse.

Thanks, anyhow, for taking the trouble to reply.


Submitted by John Richmond (not verified) on Sun, 08/22/2010 - 08:15