The Asian miracle: Lessons for policy makers. Part II

As pointed out in the earlier article, the failure of African state holds clues to the dismal performance of their economies in comparison to their Asian counterparts where the state was the main agent for development, at least in the early phase of their development, although later on, the private sector took on its agency role to spur development of Asian economies. Thus, Aron, (1997) pointed out that, redefining the institutional framework, including the quality of public and private economic institutions, particularly governance structures (or polity) and the extent of social capital or civic engagement, holds the key to turning round the development of African economies. He in particular emphasizes development of strong institutions which supersede political systems and individual political elite in matters of economic and social management as crucial to the sustainable development of African economies and that, what African economies have been beset with, is a form of uncertain and unsustainable political interest groups (instead of systems) ranging from colonial groups, that mentored post-colonial African political elite of dictators, and despots, and finally to democratically elected leaders who bore the legacy of their despotic fathers and mentors. In short, African economies did not evolve a political economy that could serve the common good as an end in itself, but rather evolved one that served political elite in the name of serving common good. Good news is that, despite a number of pessimistic views advanced by western economists who view Africa as one country (and a hopeless case for that), and in a few cases rightly so; a number of African economies are awakening to the call of political economy unusual, and this is bound to last as long as human capital development taking place in Africa keeps up the pace, thereby demanding their rights and claims to all spheres of political, economic and social endeavors of their economies. More so, the young generation of African leaders who in many ways have not had mentors from old school of political thought, are making their mark on a number of economies. These are leaders who have the zeal and courage to oppose and/or challenge the (Washington Consensus that will in part, not escape the blame for the failure of African economies) to foster sustainable development of their countries. Rwanda, can proudly count it self among such countries. These leaders represent the hope of a developing continent as long as they uphold democratic values so as to avoid “Mugabe syndrome”. Nonetheless, policy failure accounted for the tragic performance of African economies, much as right policy mix accounted for the success of their Asian counterparts so much so that, whereas both regions had the intention of facilitating private sector as engines for growth (at least for the so called capitalist economies of Africa) policy differential explains the difference in policy outcomes. For instance, policies in capital formation and investments pursued by the two regions were quite parallel. The two regions (on average) recorded similar capital formation relative to GDP until late 1970s, after which Asian economies out-performed African economies in the 1980s and thereafter. This also can be said for the different approaches used to induce this capital formation. Asian economies promoted more private savings through budget deficits whereas most African economies’ deficit financing was aimed at financing public sector. This is a fundamental policy choice differential that would later define Asian and African economic paths, as public investments proved to be a total failure to the latter, and private investments a success to the former. Thus such policy choices taken by African countries meant that, a large proportion of public sector investments were financed by domestic savings primarily through budget deficit. In effect, this tended to crowd out the private sector from gaining access to resources for their investment needs. This was compounded by the fact that, such deficit financed consumption at the expense of development expenditure, and more often than not, such funds financed defense which was then seen as the anchor of early African despots and dictators. This gave rise to the highest development opportunity cost, Africa has ever paid that depressed growth rates for decades which are essentially lost decades. The problem is that, a number of African economies have not redressed this problem and still promote public investments with little regard to the promotion of private investments through one of the best known economic tool- i.e, reasonable budget deficit. Furthermore, Asian Tigers which, like African economies started as predominantly agro-based economies, later accelerated their value addition in agro-produce so much so that they pursued an outward oriented policy of export based economy. This saw their exports as a percentage of GDP, on average grow from 47 per cent in 1969 to the highs of 87 per cent in 1980s. On average, African exports as a percentage of GDP grew at 27 per cent and 32 per cent respectively, over similar period. This policy deferential in part explains the different growth outcomes the two regions recorded. Many economists and researchers in particular, argue that, a compelling cause of Asian economic growth is due to dynamic ‘total factor productivity’ (TFP) gains from the outward orientation that led to the growth in exports. This view is collaborated by the World Bank Report (1987:90-91) which points out that, gains from the outward orientation go far beyond those which are revealed by conventional analysis of the costs of production. The scale and persistence of the growth differentials between the strongly outward oriented economies and the others suggests that, more subtle economic factors might also have been at work. However, what is clear with regard to phenomenal growth and thus development of Asian Economies is that, a combination of factors were aligned using appropriate policy mix which holds fundamental clues to the development process of these economies and reverse is true for African economies. As pointed out in the Part I of these series, there is no known universal model of economic development and as such development is contingent on many factors which can not be found in similar proportions in more than one particular country setting. Nonetheless, six fundamental factors explain the growth differentials between the two regions. These include, Social capability and the role human capital accumulation, the role of public policy, savings accumulation, institutional factors, entrepreneurship, and the role of private sector. Social Capability and the Role of Human Capital. One of the fundamental factors crucial to the divergence in the development pattern of development between the two regions is the so called “social capability”, which is measured by the standard of education (human capital). Almost all studies on the development of Asian economies are unanimous with regard to the role played by human capital formation in their economic growth. This is premised on the fact that, the quality of human capital and infrastructure determines long-run growth through their influence on total factor productivity and as a result output per capita. This factor has then determined winners and losers in the development process of a number of countries as it is viewed as the most cardinal factor to growth process. Whereas it is true to assert that, human capital development in terms of education and impartment of skills can impact on other factor inputs and increase the Total Factor Productivity (TFP), nevertheless this argument needs to be qualified to some, BUT not all the extent with regard to African economies when compared to Asian economies. This is true in that, for such transformation to be effective, customs, traditions, and cultural traits as well as social values that are so dear to African way of life (but nonetheless retrogressive to their development) can not be ignored nor underestimated. Cultural values that have perpetuated poverty in many African countries are a result of social accumulation spanning many centuries and may not be changed over night, nor can education or skills fundamentally mitigate these in the short-run. Rather, it may take time and indeed effort to reverse such a trend. Thus for instance, such cultural values as hard work, entrepreneurial traits, as well as savings culture typical of Asian economies may take time to be entrenched in African economies, and yet they are crucial to a development process. In African cultural values, self-interest and self-reliance tend to take back seat to ethnicity and group royalty, values which by and large are associated with lag in African development, and yet are values common to most African economies. The writer is a Senior Presidential Advisor on Economic Affairs E-mail:mnshuti@yahoo.co.uk To be continued...