Business, Politics, and the State in Africa

Challenging the Orthodoxies on Growth and Transformation

Doctor Tim Kelsall

• Publisher: Zed Books
• Year: 2013
• ISBN:
  9781780323336
• Edition: 1
• Topic: Economía
• Subtopic: Condiciones económicas

In recent years Africa appears to have turned a corner economically. It is posting increased growth rates and is no longer the world's slowest growing region. Commentators are beginning to ask whether emerging from Africa is a new generation of 'lion' economies to challenge the East Asian 'tigers'? This book goes behind the headlines to examine the conditions necessary not just for growth in Africa but for a wider business and economic transformation. Contrary to neoliberal economics, it argues that governments can play an important role in this through selective interventions to correct market failures, and, controversially, that neo-patrimonial governance need not be an obstacle to improved business and economic conditions. Drawing on a variety of timely case studies - including Rwanda, Ethiopia, Tanzania and Ghana - this provocative book provides a radical new theory of the political and institutional conditions required for pro-poor growth in Africa.

1 | DEVELOPMENTAL PATRIMONIALISM?

We began our investigation into the circumstances in which neo-patrimonialism may be conducive to economic growth and transformation by picking a sample of six East Asian and six African countries.¹ These twelve states evidenced a considerable diversity of economic performance, necessary, we thought, to provide some comparative leverage over the institutions and processes that matter for development. Some were consistently strong performers, others displayed considerable internal diversity, while others were more or less consistently weak. Malaysia, South Korea, and Botswana, for example, all grew strongly and consistently from before the 1960s until the late 1990s, when growth in the former two briefly dipped before recovering again. Indonesia had a disastrous start to independence, but grew strongly from 1967 to 1997, although growth collapsed thereafter, would not recover for several years, and would never again attain the same levels. Kenya and Côte d’Ivoire also grew strongly in the 1960s and early 1970s, but then growth began to falter. Vietnam and Cambodia both went backwards during long post-colonial wars, but rebounded strongly in the context of peace and economic reforms in the mid-1980s and late 1990s respectively. By contrast, Nigeria, Congo-Zaire, and Sierra Leone have all been more or less consistently disappointing performers, never managing to sustain growth in per capita GDP for more than a few years at a time.²

We conducted a review of the literature on politics and development in these countries to get a better understanding of the relationship between types of neo-patrimonialism or clientelism, rent-seeking, and development. Our key finding was that in the successful developers rent management almost always took a centralized form, by which we mean that in each country there was an individual or group at the apex of the state with the ability to control the major rents created and distribute them at will.³ For example, in the case of South Korea, the political leadership was in a dominant position vis-à-vis business actors, and was able to establish a network of top-down patron–client relations, distributing rents on its own terms – that is, in the interests of realizing long-term development goals (Khan 2000b: 95–8). Similarly in Malaysia, the United Malays National Organization (UMNO), the dominant party in the ruling coalition, was able to effect a centralized redistribution of rents from Chinese businessmen to indigenous Malays, thereby securing support for a capitalist development strategy (ibid.: 98–101). In Indonesia after 1967, General Suharto and his family stood at the apex of a network of relations linking army officers with Chinese businessmen and foreign capitalists, many of whom profited from initiatives in import substitution and later export-oriented industrialization (Crouch 1979). After the end of civil war in Cambodia in 1997, Prime Minister Hun Sen was able to establish a greater degree of rent centralization, and turn his attention to creating the conditions for capitalist investment (Un 2005, 2010). Even in squeaky-clean Botswana, there is evidence that the leadership channeled diamond rents through the Botswana Meat Commission, which it used as a vehicle for centralized patronage in its relations with the countryside (Samatar 1999).

By contrast, where rent management was not centralized, economic performance tended to be very poor. In the First Republics in Nigeria and Congo-Zaire, in Sierra Leone between 1961 and 1967, in Indonesia between 1949 and 1966, and in Cambodia between 1991 and 1997, the leadership found it impossible to control rent-seeking (Clapham 1976; Forrest 1993; Hall 1981; Hughes and Conway 2003; Le Billon 2000; MacGaffey 1987; Migdal 1988). Almost every area of economic policy was invaded by unrestrained corruption, leading to economic crisis, lack of political mediation, and the collapse of authority. Most of these countries teetered on the brink of collapse until armed interventions or authoritarian rule restored order and recentralized rent management to some degree.⁴ As we have seen, in Suharto’s Indonesia and Hun Sen’s Cambodia, this initiated a period of prolonged economic growth. However, for reasons to be explained, the improvements in Sierra Leone, Nigeria, and Congo-Zaire were modest and short lived.

In his discussion of rent-seeking as a process, Mushtaq Khan explains that a government is more likely to be able to use rents for development if its clientelist politics has a top-down structure. It can then set the terms of rent creation, distributing and reallocating rents to favored clients in line with its development goals. By contrast, where clientelist systems are bottom-up, the government is beholden to social groups which set the terms of rent creation and distribution (Khan 2000b: 135). Top-down or centralized rent management doesn’t guarantee developmental rent utilization, but bottom-up or decentralized rent-seeking certainly seems to make it more difficult.⁵ If there are numerous low-level actors all seeking rents for themselves, it is difficult to coordinate their actions so that rent-seeking works to the benefit of the economy overall.

This can be illustrated by taking a closer look at Indonesia. Indonesia is an archipelago of more than six thousand islands and numerous ethnic and religious groups. It gained independence from the Netherlands in 1949 under the flamboyant leadership of President Sukarno. The latter was a committed nationalist with ambitious plans for nationalization and creation of an indigenous business class. Almost immediately, however, the regime confronted ethnic and regional secessionist claims, together with intense ideological conflict, in what Clifford Geertz described as ‘a classic case of integrative failure’ (cited in Berger 1997: 323). In 1957 Sukarno began to rule by decree under the ‘strident anti-Western nationalism and idiosyncratic socialism’ of ‘Guided Democracy’, introducing even more radical plans for industrialization. These were consistently undermined, however, by ‘the President’s preoccupation with balancing rival factions’ (Crouch 1979: 573). The economy entered a period of profound macro-imbalance: budget deficits exceeded total revenues, inflation turned into hyperinflation, and investment in industry ground to a halt. Just as in the worst-performing post-colonial African states: ‘The predictability that Weber believed to be necessary for modern economic development was almost entirely lacking’ (ibid.: 581). With the economy in disarray and political tension mounting daily, the army intervened in 1965 to crush a communist plot to take power. In the process, Sukarno was eased out of office and communist supporters up and down the country massacred.

The man who ultimately replaced Sukarno was army general Suharto. Immediately the latter began to fashion a state based not on Weberian legal-rational bureaucracy, but on personal exchanges of rent-seeking opportunities between himself, the military, and business. Military officers, their wives, brothers and cousins, together with the Suharto family itself, entered private business in conjunction with commercially skilled Indo-Chinese immigrants (ibid.: 577). On the basis of credits from state banks, monopolies in trade, and large infrastructure and supply projects issued by government ministries and state agencies, new politico-business families and Chinese business conglomerates built huge commercial empires (Hadiz and Robison 2005: 224). Banks, including the central bank, were directed to provide subsidies and bailouts to ailing firms, money was skimmed from oil receipts, donor funds were subject to creative accounting processes, and private firms and businessmen were tapped for contributions that might reach hundreds of millions of dollars. All of this provided individuals in the state apparatus, most notably Suharto himself, huge discretionary funds to finance political operations, fund industrial projects, and finance counter-cyclical macroeconomic smoothing (MacIntyre 2000).⁶

Surprisingly, firms prospered in spite of all this rent-seeking, waste, and corruption, and the economy grew. Take, for instance, the Salim Group. Its founder, Liem Sioe Liong, began life as a merchant and trader, moving into cotton spinning, weaving, and flour milling with encouragement from the government’s import substitution industrialization (ISI) policies. During the second phase of ISI he diversified into cement and steel. When the government began to promote export-oriented industrialization in the 1980s, Liong reduced or liquidated investments in cement and steel, and moved instead into exporting sports shoes, toys, garments, leather goods, and agro-exports (Rock 1999: 698). A similar story could be told for William Soeryadjaya, another merchant, whose Astra Group got into auto-assembly during first-phase ISI, then moved into component parts, and then, via partnerships with Japanese multinationals, began exporting batteries, spark plugs, Toyota engines, and forklift frames (ibid.: 698). The paper industry provides another example. It developed rapidly in the 1970s behind high tariffs and subsidized energy costs, operating at this stage inside the global technological frontier. By the mid-1980s, however, large tracts of tropical hardwood were made available to investors, and, with the help of political connections and state subsidies, the large conglomerates then invested in the most technologically advanced machinery, making Indonesia by the mid-1990s one of the largest paper manufacturers in the world (Van Dijk and Szirmai 2006: 2139).

The Indonesian economic model was far from ideal: it was wasteful, politically repressive, and environmentally destructive, but its growth potential was extraordinary. Between 1967 and 1997, Indonesia was one of the fastest-growing economies in the world. In the 1970s mining, agriculture, oil and timber all boomed. Between 1967 and 1975, the manufacturing sector provided over eight million jobs, growing at more than 16 percent per year (Berger 1997: 342, 350). Between 1965 and 1990, the country achieved self-sufficiency in rice, there were dramatic advances in basic education and literacy, and income per capita grew at 4.5 percent per year (Rock 1999: 691). Poverty (using a $1-a-day indicator) declined from 64.3 percent in 1975 to 11.4 percent in 1995 (Dowling and Chin-Fang 2008: 474). Agriculture’s share in total production declined from 51 percent to 22 percent and the share of manufactures in GDP more than doubled; manufactured exports were worth $21 billion in 1993 (Rock 1999: 691). Indonesia thus appears to confirm the idea that ‘In the early stages, a patrimonial political structure need not be an obstacle to capitalist economic development’ (Crouch 1979: 579).

According to Peter Lewis, the Suharto state succeeded because it provided ‘credible commitments’ to investors and producers (Lewis 2007: 4). At its core was a team known as the ‘Berkeley mafia’, a group of US-educated technocrats responsible for the implementation of orthodox macroeconomic policies. They kept the economy in balance despite the massive influx of oil revenues, and the subsequent decline in revenues when world prices fell. Investor confidence was buttressed by liberalization of the capital account, which allowed businessmen to transfer assets out of the country in the event of anything economically untoward. As far as secure property rights went, Suharto came to personal arrangements with key producers, while Cukongism, the practice of linking Indonesian elites with Chinese capitalists through informal networks, supplied the coordination needed for rapid growth (Berger 1997; Dowling and Chin-Fang 2008; Hadiz and Robison 2005: 67; Lewis 2007).⁷

But this is not the whole story. We still need to understand how it was that bribery, corruption, and personalized distribution of favors didn’t degenerate into the kind of downwardly spiraling free-for-all that characterized several African regimes, or indeed Indonesia under Sukarno. There are several reasons, important among which is the way that rent-seeking and corruption were organized. Andrew MacIntyre suggests that we think of regulatory agencies and relevant state sections under Suharto as a unified or centrally coordinated monopoly for bribe-collecting. Monitoring and enforcement from the top was sufficiently strong that the center was able to prevent regulatory agencies from acting independently, ensuring that a healthy share of bribes flowed upwards, with the remainder distributed proportionately at the coalface. Officials were unable to operate independently to maximize their own take. Thus, a firm seeking permits to open a factory, for example, could acquire secure property rights to the package of ‘regulatory goods’ it purchased, as soon as it had paid the requisite bribe (see also the discussion in Khan 2000a: 118–39; MacIntyre 2000: 265).

Compare this to a more decentralized situation where there are lots of competing agents, each trying to extract the maximum revenue possible. In this context political control is weaker and less centralized. There is a multitude of actors selling complementary regulatory goods. Because the political leadership is unable to exercise effective control, officials look to maximize their own take without regard for the effect on the economy overall. In this situation ‘the firm purchasing all these government goods can never be sure it has secure property rights as any agency might subsequently seek to extract further bribes. The weaker the political leadership’s control, the greater the scope for independent and un-coordinated extraction by officials pursuing their own individual interests’ (MacIntyre 2000: 265). MacIntyre concludes that this framework not only helps explain differences between the Sukarno and Suharto periods, but might also explain the economic successes of other centralized, corrupt, but high-growth regimes.

A highly centralized political framework is an ‘enabling set of conditions, creating incentives for a political leader to promote a pattern of rent-seeking which is not too costly to national economic efficiency’ (ibid.: 270). It does not guarantee effective rent management, however. Rather, for the economy to be successful, rent management must also be oriented to the long term.⁸ This is for reasons similar to the ones that make countries that forgo consumption in the...