Elite Political Stability and Development: The Case of Europe

Alex Lee of Rochester and Avi Acharya of Stanford write:

During the Middle Ages, most European polities operated under a norm that gave only the close male relatives of a deceased monarch a clear place in the line of succession. When no such heirs were available, succession disputes were more likely, with more distant relatives and female(-line) heirs laying competing claims to the throne. These disputes often produced violent conflicts that destroyed existing state institutions and harmed subsequent economic development. Given these facts, we hypothesize that a shortage of male heirs to a European monarchy in the Middle Ages has a deleterious effect on levels of development across contemporary European regions ruled by that monarchy. We confirm this hypothesis by showing that regions that were more likely to have a shortage of such heirs are today poorer than other regions. This finding highlights the importance of the medieval period in European development, and shows how a sequence of small shocks can work in combination with both institutions and norms in shaping long-run development trajectories.

……. Our main empirical finding demonstrates the path dependent effects of the uneven nature of state development in medieval Europe arising due to the availability of male heirs. We show that regions of Europe that were ruled by medieval monarchs who had an abundance of male heirs are today richer than other regions. We are also able to trace our effects over time by showing that urban density in each century between 1300 and 1800 was higher in regions that had an abundance of male heirs. In addition, we show that an abundance of male heirs also decreased the frequency of internal wars and coups during the Late Middle Ages, and we find that contemporary economic development is negatively correlated with the frequency of these medieval wars and coups.

Forget the sweeping comparisons between England and the rest (esp France) that is common in works about economic development in Europe. This paper offers lots of great insights about the mechanics of statebuilding (and institution building) and the impact on economic development.

The linking of medieval European political realities to economics outcomes in 2007-2009 still requires a tighter justification. But the general insights in the paper about elite-level conflict and institution-building are spot on.

The paper is a reminder that our obsession with vertical accountability (mostly elections) as a means for institution-building is patently misguided. Much of the action takes place at the elite-level, hence the need to focus on horizontal accountability (as yours truly does….)

As they say, the paper is self-recommending.

H/T Andy Hall.

Fighting Corruption in Nigeria (Your Uncle is a Crook!)


This approach to fighting corruption goes against the lessons in Peter Ekeh’s delineation between “primordial” and “civic” publics in Nigeria. According to Ekeh one’s uncle may be corrupt in the civic public, but as long as he provides benefits and adequately “shares” in the primordial public he can remain in good standing within his community.

That said, the strategy might work if every Nigerian credibly promises to expose their uncle who’s corrupt but pretends to be an international businessman. The Nigerian government could nudge Nigerians in the right direction by actually prosecuting and jailing the country’s corrupt uncles and aunts.

Stateness and famine: The Case of Ethiopia

The Economist reports:

Ethiopian officials say that this failed harvest is as bad as the catastrophic droughts that befell Ethiopia in 1965-66, 1972-73 and 1984-85, killing more than 1m people in all. But a sophisticated food-security system means that poor Ethiopians these days can cope much better with drought than before.

“Many, many people died in the past. But we now have early-warning systems and programmes to mobilise grain from areas of surplus to areas of scarcity,” says Mohammed Yasin, head of Disaster Prevention and Food Security in North Wollo, a province whose name was once synonymous with famine. “We will avoid this problem without evacuating areas.”

….. The Overseas Development Institute, a British think-tank, puts much of Ethiopia’s ability to deal with drought down to its Productive Safety Net Programme (PSNP), Africa’s largest social-protection scheme. Set up in 2005, it puts around 6m able-bodied men and women to work for five days a month on public works, such as digging waterholes for animals or building terraces for crops. In exchange, their households and those of more than 1m less able citizens receive food or cash amounting to 13kg of cereal and 4kg of pulses a month for the leanest half of the year

More on this here.

Still waiting for the African Green Revolution.

How Kshs. 38.5 billion ($385m) of borrowed money “disappeared” from Kenya’s budget

… the June 2013/14 bond issues were moved to the 2014/15 opening balances carried forward from 2013/14 at that time, while the November bond issues were recorded as 2014/15 revenues. If so, we would have a balance of Ksh38.5 billion in the bank, and the full Ksh75 billion (what we had estimated at Ksh67.5 billion) coming onto the budget in 2014/15.

There are no further changes in these numbers in the final fourth quarter COB report for 2014/15, suggesting that by the end of that year, all but Ksh38.5 billion of the Eurobond had come onto the budget and been spent.

The Ksh38.5 billion balance was not brought onto the budget for 2015/16 at the beginning of the year. The August 31 Statement of Actual Revenues shows no budgeted carryover from 2014/15 and an actual balance carried forward of only Ksh204 million. There is a budgeted revenue of Ksh72 billion in further commercial loans for the year, and nothing collected as of August.

So… what happened to the Ksh38.5 billion balance? If it was not spent, it is hard to see why the government wouldn’t be using it now to smooth liquidity during an apparent cash crunch. If it was spent, when did it come onto the budget, for what purpose and why isn’t it visible in public reports? Cabinet Secretary for the Treasury Henry Rotich recently claimed that all of the Eurobond money was spent, but I have not found any official documents showing when the final balance came on budget.

Why should basic facts about billions of shillings require us to sift through vague reports and still come up short?

Lakin’s excellent accounting narrative of budget figures from FY2013/14-FY2015/16 is available here. 

So where did the money really go? Only Treasury Secretary Henry Rotich can tell us what happened, with certainty. In the meantime Kenyans can only speculate. Which is why it is very odd that CS Rotich so far has barely bothered to explain himself.

How tragic would it be if it emerged that someone (or a group of people) stole Kshs. 38.5b ($385m) of borrowed money?

The confusion over the Eurobond cash has elevated public uproar over corruption in the public sector to new levels. The only problem is that blame has been spread thin, with everyone in government being blamed (and no single officer really feeling the pressure, with the possible exception of CS Waiguru).

In my view the two people that should be forced to explain themselves (regardless of whether they are individually corrupt or not) are CS Henry Rotich at Treasury; and the Chairman of the Parliamentary Budget Committee, Hon. Mutava Musyimi. These two men should shoulder any blame arising from any emergent violations of the Public Finance Management Act.

A focus on specific officers and their specific failures will perhaps give the president political cover to get rid of offending public officials. The fundamental challenge of the anti-corruption drive in Kenya at the moment is that it continues to be blind and deaf to political realities. The president is a politician, with an eye on reelection in 2017. The challenge for reformers is therefore to come up with incentive-compatible means (for the president) of dealing with corruption and incompetence in the public sector before then. (The president himself admitted on record that a significant number of public officials are corrupt). Mere calls for public officials, including the president, to act nice will not work. That is the tragedy of politics.

European Tariffs as a Barrier to Development in Africa

Harvard professor Calestous Juma writes:

Take the example of coffee. In 2014 Africa —the home of coffee— earned nearly $2.4 billion from the crop. Germany, a leading processor, earned about $3.8 billion from coffee re-exports.

The concern is not that Germany benefits from processing coffee. It is that Africa is punished by EU tariff barriers for doing so. Non-decaffeinated green coffee is exempt from the charges. However, a 7.5 per cent charge is imposed on roasted coffee. As a result, the bulk of Africa’s export to the EU is unroasted green coffee.

The charge on cocoa is even more debilitating. It is reported that the “EU charges (a tariff) of 30 per cent for processed cocoa products like chocolate bars or cocoa powder, and 60 per cent for some other refined products containing cocoa.”

The impact of such charges goes well beyond lost export opportunities. They suppress technological innovation and industrial development among African countries. The practice denies the continent the ability to acquire, adopt and diffuse technologies used in food processing. It explains to some extent the low level of investment in Africa’s food processing enterprises.

Something for an audience member to raise the next time an EU ambassador gives one of those tired and colorless lectures on “good governance.”

More here.

The crazy world of finance in Kenya

Kenya’s Business Daily reports:

Florence, a publishing executive, has also received an email from Standard Chartered Bank informing her of changes in her interest rates from 17.5 per cent to 27 per cent effective November 19.

….. Last week, a Nairobi-based Chinese developer had his overdraft facility of $10 million reduced by half, and his $30 million loan negotiations on a new project put on hold after the bank informed him of its intention to use a new interest rate of 28 per cent instead of the earlier 19 per cent for the housing project.

28% on a $30m loan. Think about the returns that make such an investment remotely imaginable.

Basically what is happening in Kenya is that government borrowing, coupled with an inflation-wary central bank, has dried up the credit market. It is unfortunate that misperceptions of risk continue to limit entry of global firms into the finance space in many emerging economies like Kenya’s. The Kenyan government is now paying more than 20% on short-term domestic debt. Think about that for a second.

The vanishingly small African middle class

The Economist reports:

Screen Shot 2015-10-23 at 12.50.11 PMGood data on the exact size of the middle class are hard to come by, but it remains small across most parts of the continent. The Pew Research Centre, an American outfit, reckons that just 6% of Africans qualify as middle class, which it defines as those earning $10-$20 a day. On this measure the number of middle-income earners in Africa barely changed in the decade to 2011.

…… Unlike Asia, Africa has failed to develop industries that generate lots of employment and pay good wages. Only a few countries manufacture very much, largely because national markets are small and barriers to trading within Africa are huge. Most people who leave the countryside move into labour-intensive but not very productive jobs such as trading in markets. John Page, also of Brookings, reckons that such jobs are on average only about twice as productive as the ones that many left behind.