Africans Covered 98% of the Cost of Administering Colonial French West Africa (AOF)

Elise Huillery writes in the Journal of Economic History:

What share of French expenditure was allocated to West Africa? What share of West Africa’s revenue was provided by France? These two questions are crucial since scholars and politicians who claim colonization had a “positive role” make essentially the two arguments that the colonies benefited from imperial public investments and that mainland taxpayers sacrificed local investments for investments in the colonies.

I find that the costs of AOF’s colonization for the metropolis were low. From 1844 to 1957 France devoted on average 0.29 percent of its public expenditures to AOF’s colonization. Colonization of French West Africa was profitable for France to the extent that the impact on cumulative domestic production exceeded 3.2 billion 1914 francs. The military cost of conquest and pacification accounts for the vast majority (80 percent) of the average annual cost. The cost of central administration in Paris accounts for another 4 percent. So subsidies to AOF account for only 16 percent of the average annual cost, meaning that less than 0.05 percent of annual total metropolis public expenditures were devoted to AOF’s development.

For French West African taxpayers, French contribution was not as beneficial as has been argued. From 1907 to 19578 the metropolis provided about 2 percent of French West Africa’s public revenue. Local taxes thus accounted for nearly all of French West Africa’s revenue. These resources supported the cost of French civil servants whose salaries were disproportionally high compared to the limited financial capacity of the local population. Administrators, teachers, doctors, engineers, lawyers, and so on, were paid French salaries and got an additional allowance for being abroad. Thus, in the colonial public finance system, most revenues were collected on an African basis while being spent on a French basis. To illustrate this point, I show that colonial executives (eight governors and their cabinets) and district administrators (about 120 French civil servants) together accounted for more than 13 percent of local public expenditures.

The rest of this very fascinating paper is here.

Besides the headline finding, also interesting in the paper are: (i) the extent to which Paris subsidized private firms involved in the colonial enterprise; and (ii) the structure of the public finance system that allowed the AOF administration to borrow directly from French banks with the full backing of Paris (which allowed for lower rates). This might explain the persistence of the monetary relationship between former AOF territories and Paris in the form of the CFA and a common central bank (BCEAO).Screen Shot 2015-07-05 at 12.05.23 AM

As I keep saying, Economic History is hot again. And sooner rather than later it’s going to become more apparent to more people that African political and economic history did not begin in 1960, or for that matter in 1884-5. And neither was it just about the unimaginably catastrophic Atlantic experience.

Why should the United States pay attention to Africa?

Howard W. French, associate professor at the Columbia University Graduate School of Journalism says:

In the final analysis, though, the reason to pay attention to Africa is not China. We need to get over the idea that one needs an excuse to pay attention to Africa. That, too, is a holdover from the Clinton era, when they came up with out-migration and the threat of epidemic diseases as an excuse to have a look in on the continent, perhaps as a response to Robert Kaplan. The best reasons to pay attention to Africa are inherent to Africa itself. They go to extraordinary demographics, with an upside at least as full of opportunity as the downside is full of risk. They go to the immense opportunity for both Africans and Americans represented by economic growth on the continent, which needs to be enhanced and broadened. They go to urbanization. And, finally, they go to matters of universal interest related to the environment, in other words, helping ensure that Africa, which is a late-starter in many economic processes, can both maximize its potential and get things right environmentally. As long as we cast our interest in Africa in negative frames, of security, or rivalry with China, we’ll continue to miss this hugely important big picture. Similarly, as long as we continue to play small ball, politically, calling an Africa policy the occasional gathering of “young entrepreneurs,” hosting four or five African leaders together at once for a photo op at the White House, and making a mere one or two visits to the continent at the presidential level per term, we’ll be failing to engage the continent’s potential and simply missing out.

As usual, French is spot on. You can read the whole Q&A with Laura Seay on his latest book here.

Chapter 9 of The Gospel of Aid: The Aid Prayer

In Chapter 9 of the Gospel of Aid, the Nigerian author and satirist Elnathan John writes:

CHAPTER 9: The Aid Prayer

  1. You must pray then this way: Our donors, who art abroad, hallowed be thy purse. Thy aid come in dollars and pounds.
  2. Thy will be done in our countries, as promoted by Bono
  3. Give us this day, our yearly funding
  4. And lead us not into self-reliance
  5. But deliver us from our selves
  6. For thine are dollars, the pounds and the euros, forever and ever. Amen

The rest of the “Gospel” in all its hilarity is here.

Have a blessed Tuesday.

Today’s Interesting Links

  • Former Ugandan Prime Minister, Amama Mbabazi, is running for president. He hopes to challenge incumbent Gen. Yoweri Museveni in the ruling party’s primary ahead of elections next year. Museveni will win, but Mbabazi’s candidature is probably the most exciting thing that will happen in this well-choreographed electoral cycle. The police are already on his case.
  • Peace and prehistory in Somaliland. You never hear much about Somaliland, the quasi-independent state to the north of the Republic of Somalia. This nice piece by Stanley Stewart documents what Somaliland has to offer as a travel destination.
  • The problem of urbanization without growth. The (developing) world is urbanizing fast, but will this trend result in an unambiguous improvement in human welfare? This post reminds us that throughout history urbanization has not always gone hand in hand with economic growth (See also here).

    correlation between urbanization and growth over time

    correlation between urbanization and growth over time

The Crisis in Greece (Lessons for the EAC and UEMOA)

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An abandoned venue from the 2004 Athens Olympics. Source: Guardian.

Greece is on the brink of a financial disaster. Banks and the stock market are closed. Capital controls have been imposed. The country will hold a referendum on July 6th, which could decide whether Greeks keep the euro or go back to using drachmas.

There’s not been a shortage of analyses of Grexit. From adoration of its game theorist Finance Minister, Yanis Varoufakis; to this odd piece in the Journal that says “Greek Prime Minister Alexis Tsipras began leaning toward a risky referendum after creditors covered his proposed policies in red ink” (incidentally, marking papers in red can “damage students”). Barry Eichengreen blames the current crisis on political incompetence – on the part of both Greece and its eurozone creditors, with more blame on the latter. See here for a concise take on Greek fiscal history over the last four decades.

I hope folks at the EAC and UEMOA, the two entities most likely to realize monetary unions, are following the events in Greece closely. The big question on their minds should be: can there be a stable monetary union on the Continent without a fiscal and political union?

Lastly, regardless of how the next few days and the referendum play out, I hope Tsipras’ move will embolden leaders in the developing world to democratize their relationship with the IMF, the Bank, and other creditors. A reasonable democratic involvement in such matters would not just be an easy way to default and blame it on democracy. It would also incentivize creditors against lending money to governments like Greece’s. Obviously voters should not be allowed to decide whether or not they pay their debts (we know how that’d turn out), but they should be consulted before being saddled with crushing debt.

Making International Development Research and Assistance Work

In the spirit of discussion Tom Pepinsky has a nice pithy response to Chris Blattman’s post on the wastefulness of skills training as development assistance. Both raise interesting questions about development research and practice. Pepinsky writes:

It always strikes me how different the view of (say) the World Bank is from that of the local entrepreneur, laborer, or mother who works at home. My immediate thought when I hear that any individually-targeted development intervention has failed is “well, could it have succeeded?” In other words, does the intervention manipulate a binding constraint for an individual or household? ………….. The people who know how to learn about those everyday constraints are trained in ethnography—and I mean serious ethnography, the kind that involves languages and staying outside of a hotel.

A focus on institutions implies a different direction. Everyone agrees that institutions are important, but the cutting edge in development economics and related parts of political science focuses elsewhere. Why? Because institutions aren’t manipulable, their features bundle lots of treatments, core concepts remain tremendously fuzzy (try defining governance, for example), we don’t seem to have learned a lot from decades of studying them, and the potential for disaster from bad institutional design is just enormous.

I agree with Pepinsky. I would also add that on top of taking local contextual variables and institutions seriously, development practice and research should also take local elites (both economic and political) seriously.

The discourse on development oscillates between “institutions” and “the poor.” Governance reforms try to get institutions right. Pro-poor policies focus on alleviating suffering among the extremely poor via direct interventions at the “grassroots.” Many interventions therefore tend to be designed with a view of either constraining allegedly nefarious and/or clueless local elites via “institutions”; or completely circumventing them and going directly to the people. Needless to say, the attempts to go around local elites often result in failure.

The point here is not completely disparage pro-poor policies or governance reform programs. Rather, it is a reminder that chances of successful intervention go up when local elites are meaningfully involved. And by “involved” I mean when their interests and ideas are taken seriously. Elite capture is obviously a bad. But elite buy-in is almost always necessary for success. It is local elites that have the wherewithal to own job-generating cement plants. It is local elites who set tax rates. And it is local elites who build roads and power supply lines. Their ideas and interests therefore matter, and should be taken seriously (also just in case they do not necessarily want to, or cannot, transform their societies exactly into Denmark).

I say this because the assumption that local elites do not have much to offer except to steal state/aid resources for private benefit leads to research agendas (and interventions) that over-simplify their role in the whole process. Understanding local political dynamics, as suggested by Pepinsky, is therefore key for success. This means going beyond boilerplate “stylized facts” about ethnicity (or other sectoral interests) and patronage; and taking institutions (for example legislatures) and the coalitions of politicians who constitute them seriously. As students of the political economy of development, we ought to invest more in understanding local elite interests and ideas and how they influence state institutions and welfare outcomes at the grassroots.

Imagine for a second how different IMF or World Bank interventions would be if all their agreements with developing countries (say above a prescribed dollar amount) were subject to ratification by host-country legislatures. The process would be messy, yes (looking at you, Greece*). But I’d argue that finance ministers would get much better deals for their people — in no small part on account of greater levels of intra-elite accountability in the management of aid resources.

The irony of development research and practice is that we talk a lot about the importance of institutions, but then turn around and come up with ideas to circumvent them (and their elite membership) at every opportunity.

*Greece is a member of the OECD.

Review: Why Economists Miss the Point on Economic Growth in Africa

Africa continues to be a fertile ground for economic research. A significant number of economists in the development economics subfield have made careers explaining the “Africa” dummy variable in cross-national growth regressions — that is, explaining Africa’s “growth tragedy.”

In his latest book, Africa: Why Economists Get it WrongMorten Jerven argues that this is a misguided approach. Instead of explaining African exceptionalism (why is Africa poorer than the rest of the world?), Jerven argues that scholarly inquiry ought to focus on explaining fluctuations in African growth, and intra-Africa variation in general economic performance. Jerven persuasively argues that explaining African poverty and trying to find ways to fix it have distracted researchers and policymakers alike from the more useful endeavor of understanding how economic growth (and decline) happens in Africa. The former approach accepts as a stylized fact the lack of meaningful growth in Africa’s economic history; while the latter more realistic approach acknowledges that African economic history has been characterized by periods of both growth and decline.

Screen Shot 2015-06-24 at 4.52.42 PMJerven is an economic historian, and it shows (see also here). He begins by reminding readers that African economic history did not begin in 1960, the time around which aggregate national economic data became available for a large number of African countries. Jerven then shows that economic growth in Africa has been cyclical, characterized by periods of both growth and decline. At the same time, periods of growth in Africa have not necessarily coincided with the implementation of “good” policies as the literature suggests. The “lost decades” of the late 70s and much of the 80s (due to oil and commodity shocks and associated debt problems) were a period of decline that also coincided with the “good” policies implemented under structural adjustment programs (SAPs). Without getting into the details of the specific policies in question, Jerven makes the point that African states’ experiences in the 70s and 80s are not representative of the full history of economic growth and development in the region.

Yet, according to Jerven, it is the growth record from these two decades that has become accepted as the “stylized fact” of Africa’s growth experience. The idea of an African growth tragedy has been so sticky that most economists (with a few exceptions) did not notice the uptick in growth in the region over the last decade and a half. A quick survey of syllabuses on African political economy will reveal this fact.

Why is Africa poor?” is a question common on course descriptions in many American political science and economics departments, giving the impression that the region has always had a growth deficit to be explained.

Second, Jerven takes on the quality of data that have historically been used to study African economies (remember Poor Numbers?). In this part of the book he pokes holes through major papers in the economic growth literature. The data he looks at range from widely used stats on African economies from sources like the Bank, the IMF, country statistical departments, and other academic sources. He also questions the validity of outcome variables (such as institutional quality, property rights protection, et cetera) that are often found on the left hand side in cross-national growth regressions. Jerven does not seek to provide a review of the development economics literature. Instead, his focus is on the substantive implications of statistical models widely employed by economists to explain relative growth between different regions of the world. In doing so he challenges social scientists to think more careful about issues of measurement and the substantive meanings of regional dummies.

Jerven’s critique of what he calls the “Wikipedia With Regressions” style of academic research is welcome, and hopefully will inspire more students of economics and politics (not just in Africa) to invest in acquiring useful knowledge on the specific countries they study. The basic point here is that the cocksure certainty of findings in scholarly studies on the determinants of growth is unwarranted, given the shaky (data) foundations on which many of them stand. Jerven drives the point home by citing Durlauf, Johnson, and Temple who in their review of the growth literature found 145 different regressors that were found to be statistically significant determinants of economic growth.

Lastly, Jerven takes head on the claim that institutions and good governance cause economic growth. His core argument in this section is that “good” institutions are typically the result of, rather than the cause of economic growth. He gives examples of countries that have experienced sustained economic growth without having the typical bundle of institutions that scholars attribute to be the fundamental cause of long-run growth. I am partially persuaded by this argument, especially after having read Working With the Grain (see review here).

This latter section is the least strong part of the book, and may be the result of trying to do too much in one short text. As a student of institutions I am keenly aware of the importance of elite political stability and institutions that lock in intra-elite commitments for sustainable economic growth. It is not enough to claim that the view that institutions cause growth is misguided because some economies elsewhere have achieved growth without the hypothesized good institutions. I would argue, for instance, that a key difference between the “Asian Tigers” and their African counterparts (some of which we are often reminded were relatively richer in 1960) was the level of stateness (i.e. institutionalization of centralized rule) on account of a much longer experience with statehood. Jerven would have helped his argument by providing alternative explanations for Africa’s economic collapse in the late 1970s and much of the 1980s.

What kinds of institutions matter in “late” economic development? Why did African states almost uniformly fail to contain the oil and commodity shocks and the resultant debt problems that visited them during this period? Has there been institutional variation within Africa over time, and can it explain intra-Africa variation in growth?

Overall, Africa: Why Economists Get it Wrong is a fantastic quick read for anyone (whether in the academy or not) interested in understanding economic growth in Africa. Besides being a brilliant economic historian, Jerven is also an engaging writer with an ability to make even the most technical arguments accessible to the reader. I did not have the book on my original summer reading list but couldn’t stop once I started reading it.

In my view this book is the economics companion to Thandika Mkandawire’s excellent critique of scholarship on African politics. It also raises several very interesting questions that will inspire or reinforce a few dissertations in the field of development economics.

On Child Mortality

Max Roser has some interesting graphs on child mortality here.

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He also makes an interesting observation on the fluctuations in mortality rates in the 19th century:

A second interesting characteristic that is immediately noticeable is that the series are very ‘spikey’ in the 19th century and are then much smoother in the 20th century. This is partly because the data quality is improving over time but it also shows how frequent crises were in pre-modern times. The decline of crises is an important aspect of improving ‘living standards’. In the ‘Our World in Data’ entry on food price volatility you find a long-run series of food price volatility in Pisa by Cormac O Grada that shows how frequent food crises were.

This is an important observation. One of the key differences between wealthy and relatively poorer countries is the variance in their growth rates. Most advanced economies grow (and have historically grown) at a steady rate (Tyler Cowen for example notes that Denmark never had a “growth miracle”). Developing countries on the other hand experience relatively greater levels of both longitudinal and cross-sectional variation in growth rates. The boom-burst cycles often make it hard for meaningful accumulation of wealth and steady growth of per capita income.

Asia is now richer than Europe

The Economist reports:

For the first time in modern history, Asia is now richer than Europe. And it is catching up with North America too; by 2019 the region’s wealth is expected to reach $75 trillion compared to $63 trillion in North America. And although America is still the country with by far the most millionaires in the world, of the 2m new millionaire households created last year 62% are from Asia-Pacific. China is the main driver here; it will account for 70% of Asia’s growth between now and 2019, predicts BCG, and by 2021 it will overtake America as the world’s wealthiest nation.

…… But although Asia is now richer than Europe, individual Asians are not. Once wealth (including life and pension assets) is broken down per household a different picture emerges: whereas European households now have $220,000 in wealth and America’s $370,000, China still has a long way to go with its $72,000 (as does Asia-Pacific as a whole with $54,000). Convergence is certainly conditional.