AFRICANGLOBE – Although much of the recent news from Africa has focused on deadly viruses, violent terrorists, and kidnapped teenage girls, there is good news that is getting less media coverage: since the late 1990s, the economy of Africa, considered as a whole, has been growing at more than 5 percent a year, and most analysts believe it will grow at that rate or higher in the next few years. Although Africa’s share of world exports of goods and services remains minuscule (about 2 percent), that percentage is about the same as that of India, a card-carrying BRIC with a population 25 percent greater than Africa. President Obama’s much-ballyhooed three-day summit meeting with African leaders in August served as a powerful reminder of the continent’s potential for a bright future.
What accounts for these upbeat trends and assessments? Growth is not easy to explain, especially when one is dealing with fifty-odd countries, but the recent surge in Africa — after the region’s dismal economic performance in the previous quarter century — is due in large part to what has been referred to as “the three Cs”: China, commodities, and communication technology. Chinese foreign direct investment (particularly in transportation infrastructure), the global boom in commodities (resources in which Africa abounds), and the communications breakthroughs occasioned by the widespread use of cell phones (even in remote areas) have been key drivers of growth, allowing many formerly isolated regions to participate vigorously and increasingly profitably in international markets.
Other factors have also played roles in the region’s economic rise. Human capital, as measured by educational attainment and health, is improving. The heavy hand of the state is receding in many areas — indeed, according to the Ibrahim Index of African Governance, African political systems are gradually becoming more open, transparent, and democratic — and the roles of markets and private investment have risen in relative importance vis à vis state dictates and foreign aid. A growing middle class of consumers is both underpinning and reinforcing the above considerations.
Despite these hopeful developments, the region still faces huge hurdles going forward, leading numerous analysts to advise holding the champagne. Critics point to the region’s over-dependence on commodities, its tiny manufacturing sector, its low agricultural productivity, and the fact that the proportion of the population living in poverty remains high (just under 50 percent). Moreover, despite improved governance, the state in some parts of Africa still specializes in predation, functioning mainly to “extract” national wealth on behalf of a narrow groups of elites.
Whither the African economy then? It’s always difficult to make predictions — especially about the future, as Yogi Berra allegedly put it — but, as an economic historian, one thing seems pretty clear. In devising developmental strategies going forward, African policymakers would do well to remember the wisest voices from the past, one figure in particular: The Budapest-born, London-based economist Peter Bauer (1915-2002). Ironically, the qualities that make Bauer so important today — his contrarian, pro-market, libertarian views on development, based on long experience in both West Africa and Southeast Asia — left him out in the developmental wilderness throughout the 1960s and 1970s and well into the 1980s. That period was the heyday of massive top-down developmental schemes, schemes devised by dirigiste dictators, implemented by corrupt apparatchiks, and funded largely by foreign aid. By the end of that period, African development had come to a grinding halt.
Ideas associated with Bauer have been enjoying something of a revival in recent years. The overall approach to development he advocated and various policy initiatives he called for have been instrumental to Africa’s decade and a half of growth. He has been praised by prominent economists ranging from William Easterly to Dambisa Moyo to Amartya Sen — and even by institutions such as the World Bank.
What is so important about Bauer and his ideas? Simply put, long before most other development economists, Bauer, along with a few like-minded heretics — such as Hla Myint, Harry Johnson, and Basil Yamey — believed in the power of individuals and markets in the development process. In so doing, Bauer called for the rollback of government economic interventionism and criticized both protectionism and the excessive (and frequently distortive) role of foreign aid. He championed FDI, international trade (especially in commodities), and macroeconomic prudence, and insisted on the importance of institutions and of protecting and promoting property rights. Many of his contemporaries minimized the importance of such considerations (when not pooh-poohing them altogether) or looked the other way. Yet it is largely actions based upon Bauerian theories that in recent years have helped Africa at long last to begin to prosper.
Other “contrarian” ideas advocated by Bauer years ago have the potential to keep Africa blooming in the years ahead. His positive regard for population growth in Africa — viewed at the time as anathema by others in the development community — has turned out to be far-sighted, for Africa’s coming “demographic dividend” constitutes one of its strongest economic assets going forward. And Bauer’s belief in the power of entrepreneurship, the importance of small and medium-sized enterprises, and, even more presciently, the creative possibilities of the informal sectors of African economies — considerations that are only now coming to be fully appreciated — zeroed in on matters that have proven integral to the economic dynamism experienced south of the Sahara.
None of this is to suggest that Africa is home free, or that a year hence we won’t still be talking mainly about deadly viruses, terrorism, and kidnapped teenage girls. But with regard to the economic future of Africa: If the optimistic view proves correct, it will likely be due in large part to the continued implementation of once discredited ideas associated with a long defunct libertarian economist named Peter Thomas Bauer.
By: Peter A. Coclanis