First we were afraid of the wolf, then we wanted to dance with the wolf now we want to be the wolf’ a Chinese Central bank official used this analogy to describe China’s world trade rivalry with the United States.
Ever since Chinese President Deng Xiaoping declared ‘to get rich is glorious’ and launched China into an era of industrialization and export-driven growth, China has never looked back. Chinese industrialization is unfolding at an unprecedented speed while driving an enormous demand for raw materials and new markets. China has been branded the ‘factory of the world’ for dominating global production of all goods imaginable from safety pins to domestic appliances. The most popular products on American and European supermarkets shelves now carry the ‘Made in China’ label, favored because of their cheaper prices owing, partly, to low labour costs in China.
Pick up a souvenir from any western capital and chances are that beneath it will be the label ‘Made in China’. According to Thomas Friedman author of ‘The world is Flat ’ Wal-Mart , the world’s largest supermarket chain, in one year imported $18 billion worth of goods from its 5,000 Chinese suppliers. (Friedman doesn't do the math, but this would mean that of Wal-Mart's 6,000 suppliers, 80 percent are in one country -- China.)
And it’s not only safety pins that should worry the west. China recently announced that it was going to begin production of commercial jets, long the domain of Boeing of the United States and Airbus of Europe. And it doesn’t stop there. Petro China is now the third largest company in the world having displaced General Motors of the United States. According to Newsweek, China now has three of the world’s biggest five companies by market capitalization. With US$ 1.2 trillion dollars market capitalization, Petro China is now the world’s most valuable company.
The United States has for long battled China because of an unfavorable balance of trade position. China exports much more to the United States that the latter imports from the United States. The Chinese avalanche has not spared Africa as well. Its scramble and partition of Africa all over again, only this time, its China’s turn. It has been widely reported that China now lends three times more money to Africa than the World Bank.
Take a moment and think about that. We are in the midst of a shift in balance of power in Africa with the Chinese coming in as the new kids on the block. Considering that the west has long dominated financial inflows into Africa as well the IMF/World Bank system and therefore called the shots in these parts, China’s new investments and lending to Africa give it unprecedented influence and clout on the continent. Indeed when the west wants a change in Sudan’s Darfur policy, it’s to Beijing they run. China is the leading export destination of Sudanese crude oil. Recently, a billion dollar infrastructure loan to Democratic Republic of Congo was announced by China which has a keen eye on Congo’s rich mineral wealth.
For a country that has known conflict for most of its post- independence history, the prospect of finally having financing to build basic roads and railways is an offer Congo can’t refuse. The African Development Bank says African trade with China rose from 10 billion dollars in 2000 to over 40 billion dollars last year. Reuters estimates this figure to have leapt to US$ 55 billion this year.Already the banking sector has been hit with the news that China’s ICBC bank has bought a 20% stake in South Africa’s Standard Bank, the parent company of Stanbic Bank Uganda, and this was done with a record cash purchase of US$ 5.6 billion dollars, the single biggest foreign investment anywhere in Africa.
There has been market speculation that China Mobile is set to make a bid for MTN, Africa’s largest phone operator with the share price increasing by 6% on the prospect. China Mobile recently bought an 89% stake in Pakistan operator, Pakistel.All this is going down well with African leaders. President Mogae of Botswana has already remarked publicly that the Chinese treat them as partners for a change compared to the Europeans who treat them as subjects.
Locally, the lure for Chinese products has proved too strong to resist for Spear motors, the local Mercedes Benz franchise. Spear Motors now deals in new Chinese vehicles made by the Great Wall Motors of China at some of the cheapest prices available for brand new vehicles in Uganda.
A Ugandan entrepreneur is doing brisk business exporting recycled mineral water bottle material to China at very lucrative rates. Consider that Uganda’s State House was built by a Chinese Contractor and that the biggest conference centre in Dar Es Salaam is to be built and funded by the Chinese.So, what does China’s new scramble for Africa portend for the continent?China doesn’t have the imperial ambitions that came with the earlier players in the scramble and partition of Africa.
However, the fact remains that African nations are largely raw material exporters and markets for Chinese Industry and until that changes, true partnership would be anything but achieved.
Friday, May 9, 2008
World Bank-IMF Policies Have Failed Poor Nations
It is now widely acknowledged in economics circles that IMF/World Bank development economics have largely failed the developing world. Why their models for economic growth still influence economic thought and policy in developing countries remains a puzzle.
In his 2001 book, The Exclusive Quest for Growth: Economists Adventures and Misadventures in the Tropics, William Easterly, himself an ex-World Bank economist of long standing, presents a body of evidence that illustrates the failure of the World Bank and IMF prescriptions in the past 50 years. It is shown, for example, that between the second world war and 1995, the West has invested one trillion dollars in developing countries with nothing much to show for it.
The belief by the World Bank and IMF that foreign aid, investment in education and technology, population growth control, loans pegged to reform conditions and debt relief were the panacea for growth is a model that has not delivered results. In some cases countries, which have religiously embraced the Breton Woods economic policies, have actually become poorer. Easterly’s research shows that between 1980 and 1994, 12 countries, including Uganda received 15 or more World Bank and IMF adjustment loans.
The median per capita growth rate for these countries over the loan period was zero!More recently, renowned economist Jeffery Sachs in his 2005 best seller, The End of Poverty: Economic Possibilities of Our Time, recounts his work in Bolivia, Poland, Russia, Zimbabwe and Kenya were he has been directly involved as economic advisor.
He presents evidence from the field, amassed over a twenty year period, that is highly critical of the one-model-fits-all approach the IMF and World Bank proposes to all countries seeking their loans and patronage. He calls for innovative and holistic approaches. He proposes a fascinating approach called ‘clinical economics’.
The basic argument is that economies are complex systems and require a ‘differential diagnosis’ much the same way a physician would probe an entire person’s body to pin point the cause of an illness and therefore the remedy.
As far back as 1982, Margaret Hardiman in her book, The Social Dimensions of Development observed that most economic growth approaches for the developing world are erroneously modelled on Western countries without due regard to the peculiar background and the complexity of developing economies.
You will find that the PhD holders that populate World Bank and IMF offices and dictate economic policy in the third world are mostly from Western universities with limited practical understanding of the developing world terrain. It is deeply surprising and even scandalous that African economic authorities and even academics are still intellectually inclined to the World Bank/IMF growth templates despite evidence that their model has largely failed.
Often it is foreign protesters in Seattle or Davos who call for the abandonment of the strategies preached by the IMF and World Bank altogether when African leaders and economists sit back.
It is common to hear government officials continue to tout IMF/World Bank development economics despite available evidence that these approaches haven’t had many true success stories. Many economists, with the benefit of hindsight, have acknowledged this much with many discrediting IMF/World Bank strategies as flawed.
There is no concrete indication on the part of the world of the need for a pradigm shift or a new prototype. The basic truth is that not all economic problems facing countries are the same and one model cannot be the answer.
The Finance ministry in Uganda should therefore endeavour to think outside the box and call for a debate on the need for new economic approaches. As has been observed, the only thing more dangerous than an economist is an amateur economist.
In his 2001 book, The Exclusive Quest for Growth: Economists Adventures and Misadventures in the Tropics, William Easterly, himself an ex-World Bank economist of long standing, presents a body of evidence that illustrates the failure of the World Bank and IMF prescriptions in the past 50 years. It is shown, for example, that between the second world war and 1995, the West has invested one trillion dollars in developing countries with nothing much to show for it.
The belief by the World Bank and IMF that foreign aid, investment in education and technology, population growth control, loans pegged to reform conditions and debt relief were the panacea for growth is a model that has not delivered results. In some cases countries, which have religiously embraced the Breton Woods economic policies, have actually become poorer. Easterly’s research shows that between 1980 and 1994, 12 countries, including Uganda received 15 or more World Bank and IMF adjustment loans.
The median per capita growth rate for these countries over the loan period was zero!More recently, renowned economist Jeffery Sachs in his 2005 best seller, The End of Poverty: Economic Possibilities of Our Time, recounts his work in Bolivia, Poland, Russia, Zimbabwe and Kenya were he has been directly involved as economic advisor.
He presents evidence from the field, amassed over a twenty year period, that is highly critical of the one-model-fits-all approach the IMF and World Bank proposes to all countries seeking their loans and patronage. He calls for innovative and holistic approaches. He proposes a fascinating approach called ‘clinical economics’.
The basic argument is that economies are complex systems and require a ‘differential diagnosis’ much the same way a physician would probe an entire person’s body to pin point the cause of an illness and therefore the remedy.
As far back as 1982, Margaret Hardiman in her book, The Social Dimensions of Development observed that most economic growth approaches for the developing world are erroneously modelled on Western countries without due regard to the peculiar background and the complexity of developing economies.
You will find that the PhD holders that populate World Bank and IMF offices and dictate economic policy in the third world are mostly from Western universities with limited practical understanding of the developing world terrain. It is deeply surprising and even scandalous that African economic authorities and even academics are still intellectually inclined to the World Bank/IMF growth templates despite evidence that their model has largely failed.
Often it is foreign protesters in Seattle or Davos who call for the abandonment of the strategies preached by the IMF and World Bank altogether when African leaders and economists sit back.
It is common to hear government officials continue to tout IMF/World Bank development economics despite available evidence that these approaches haven’t had many true success stories. Many economists, with the benefit of hindsight, have acknowledged this much with many discrediting IMF/World Bank strategies as flawed.
There is no concrete indication on the part of the world of the need for a pradigm shift or a new prototype. The basic truth is that not all economic problems facing countries are the same and one model cannot be the answer.
The Finance ministry in Uganda should therefore endeavour to think outside the box and call for a debate on the need for new economic approaches. As has been observed, the only thing more dangerous than an economist is an amateur economist.
Does Africa have a Culture of Poverty?
A couple of weeks ago, Dr Watson, one of the founders of DNA science and a Nobel-prize laureate sparked an uproar in the Ugandan media, and I am sure in the rest of Africa and the Diaspora when he infamously declared that black people are inferior to white people in terms of intelligence.
Well, it appears the controversies don’t end there. According to the author of The Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor, Africans are poorer than Europeans because their culture is inferior to that of the whites.
David Landes, a retired professor at Harvard University, argues that the west is vastly richer than the third world primarily because of superior cultural traits. Landes’ conclusion is drawn from an economic history of the world he undertakes to determine why some countries have prospered and continue to do so while others wallow in worsening poverty.
Why for example is the actual per capita income of the Swiss today 80 times superior to that of the Mozambicans, when this ratio was 1 to 5 in the 16th century? This is the starting point of his reflection and he comes to the conclusion that cultural values, such as hard work, honesty, open-mindedness and a commitment to democracy make the difference. Naturally, some would say Landes’ book is controversial or even offensive but are his arguments entirely without merit?
Economists dislike culture as an explanation for disparities in economic development because it doesn’t play well to models or measurable criteria but agree that culture matters when understanding differences in economic progress between countries. Landes in his book maintains that nations prosper depending on national attitudes, specifically, their ability or inability to exploit science, technology and economic opportunity.
The idea that culture is important is one that argues that certain cultures have characteristics that are more conducive to promoting human progress and prosperity than others. The notion that culture is important in understanding economic development is hardly new and has been around for many years.
Landes is certainly not the only contemporary economist to argue that culture is the key to economic success. Japanese economist Yoshihara Kunio for instance writes, “One reason Japan developed is that it had a culture suitable for it. The Japanese attached importance to material pursuits; hard work; saving for the future; investment in education; and community values.
In Landes’ own words “there are cultures that I would call toxic that handicap the people who cling to them.” So, what are some of the cultural differences between African cultures and western cultures for instance? It is argued that western culture is individualistic whereas Africans are more collective and communal in nature.
In Africa, the individual submits to the clan or community which is said to discourage innovation or the incentive to take risks or make personal investments since property such as land is communally owned such as in some societies in Uganda.
It’s not uncommon to find that virtually every Ugandan you meet who is gainfully employed has a line of relatives for whom he or she is a benefactor. In the west the individual is paramount, protected by aBill of Rights, property rights and patents which drive enterprise. The cultural ideals in the west emphasise self-reliance.
Moving away from culture and onto geography, Landes blames the weather for African poverty claiming that warm climates encourage leisure whereas cold climates encourage hard work. He argues that hot climates are given to extremes of weather such as drought or torrential rainfall which make farming and other endeavors difficult. That tropical climate is conducive for debilitating diseases such as malaria compared to winter which kills many of the organisms that cause disease.
Landes’ book doesn’t offer much in the way of a growth strategy for the rest of the non-European world except that countries that want to industrialise have to embrace European culture.
So, does Africa need a cultural adjustment programme strictly following Landes’ cultural description? Given the transformation of South Korea, Singapore, Malaysia, Hong Kong or even the United Arab Emirates and Qatar, it doesn’t entirely seem to be the case since there seems to be more than one route to economic success. However some cultural traits such as hard work, the rule of law and free market enterprise are common to countries that have had economic transformation.
Landes’ book does however offer a very keen insight into the rise of the west and the influence of culture in that growth. It seems however that today’s emerging economies are re-writing the script and crafting a whole new path to the promised land.
Well, it appears the controversies don’t end there. According to the author of The Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor, Africans are poorer than Europeans because their culture is inferior to that of the whites.
David Landes, a retired professor at Harvard University, argues that the west is vastly richer than the third world primarily because of superior cultural traits. Landes’ conclusion is drawn from an economic history of the world he undertakes to determine why some countries have prospered and continue to do so while others wallow in worsening poverty.
Why for example is the actual per capita income of the Swiss today 80 times superior to that of the Mozambicans, when this ratio was 1 to 5 in the 16th century? This is the starting point of his reflection and he comes to the conclusion that cultural values, such as hard work, honesty, open-mindedness and a commitment to democracy make the difference. Naturally, some would say Landes’ book is controversial or even offensive but are his arguments entirely without merit?
Economists dislike culture as an explanation for disparities in economic development because it doesn’t play well to models or measurable criteria but agree that culture matters when understanding differences in economic progress between countries. Landes in his book maintains that nations prosper depending on national attitudes, specifically, their ability or inability to exploit science, technology and economic opportunity.
The idea that culture is important is one that argues that certain cultures have characteristics that are more conducive to promoting human progress and prosperity than others. The notion that culture is important in understanding economic development is hardly new and has been around for many years.
Landes is certainly not the only contemporary economist to argue that culture is the key to economic success. Japanese economist Yoshihara Kunio for instance writes, “One reason Japan developed is that it had a culture suitable for it. The Japanese attached importance to material pursuits; hard work; saving for the future; investment in education; and community values.
In Landes’ own words “there are cultures that I would call toxic that handicap the people who cling to them.” So, what are some of the cultural differences between African cultures and western cultures for instance? It is argued that western culture is individualistic whereas Africans are more collective and communal in nature.
In Africa, the individual submits to the clan or community which is said to discourage innovation or the incentive to take risks or make personal investments since property such as land is communally owned such as in some societies in Uganda.
It’s not uncommon to find that virtually every Ugandan you meet who is gainfully employed has a line of relatives for whom he or she is a benefactor. In the west the individual is paramount, protected by aBill of Rights, property rights and patents which drive enterprise. The cultural ideals in the west emphasise self-reliance.
Moving away from culture and onto geography, Landes blames the weather for African poverty claiming that warm climates encourage leisure whereas cold climates encourage hard work. He argues that hot climates are given to extremes of weather such as drought or torrential rainfall which make farming and other endeavors difficult. That tropical climate is conducive for debilitating diseases such as malaria compared to winter which kills many of the organisms that cause disease.
Landes’ book doesn’t offer much in the way of a growth strategy for the rest of the non-European world except that countries that want to industrialise have to embrace European culture.
So, does Africa need a cultural adjustment programme strictly following Landes’ cultural description? Given the transformation of South Korea, Singapore, Malaysia, Hong Kong or even the United Arab Emirates and Qatar, it doesn’t entirely seem to be the case since there seems to be more than one route to economic success. However some cultural traits such as hard work, the rule of law and free market enterprise are common to countries that have had economic transformation.
Landes’ book does however offer a very keen insight into the rise of the west and the influence of culture in that growth. It seems however that today’s emerging economies are re-writing the script and crafting a whole new path to the promised land.
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