Top five books I read in 2018

This is the not-for-work list. It’s also mostly based on my subjective sense of how much I learned from the books.

Iran: A Modern History by Abbas Amanat — This is a long book that covers several centuries of Iranian history (beginning in 1501). It is definitely worth your time. At the end I learned a lot more about the brief Pahlavi dynasty than I knew and got a peak into the dynamics of the Iranian nation-state before, during, and after the revolution. The bits on the Qajars were my favorite (while I was reading the book my wife and I watched a number of Iranian movies and documentaries. I highly recommend this strategy).

The End of Alchemy: Money, Banking, and the Future of the Global Economy by Mervyn King (former governor of the Bank of England). A great chaser to this is Paul Volcker’s excellent bio.

The Rise and Fall of American Growth: The U.S. Standard of Living Since the Civil War by Robert J. Gordon — this is a great development book.

Money Changes Everything: How Finance Made Civilization Possible by  William N. Goetzmann 

The Wizard and the Prophet: Two Remarkable Scientists and Their Dueling Visions to Shape Tomorrow’s World by Charles C. Mann — This book surprised me. I thought it would be yet another uncritical celebration of scientific progress. But Mann is nuanced and makes a strong case for belief in science’s potential to keep the human project going despite the many current structural challenges — not least of which is climate change. Those into development will particularly enjoy the bits on the Green Revolution. 

I am still struggling to read fiction. In 2019 I will try harder.

 

On the Worldwide Bureaucracy Indicators Database

Pamela Jakiela over at CGD has a great post on the quality and composition of bureaucracies across the world. Like Jakiela, I was struck by this finding:

Across all countries in the WWBI data set, there is a huge amount of variation in the share of public employment concentrated in rural areas. However, rural public employment is very highly correlated with rural private employment—almost all the date points in the figure above are centered around the 45-degree line. One interpretation is that governments’ apparent urban biases may just reflect the concentration of economic activity in urban centers—and not any inherent desire to target government benefits toward urbanites. Or perhaps urban bias is a thing of the past. In any case, it is conspicuously absent from the WWBI data.Screen Shot 2018-12-06 at 10.18.31 AM

Makes you wonder whether urban bias has always been a Zambian Copperbelt thing with little traction elsewhere.

More broadly, I am happy that the Bank appears to be caring more about government and not just governance.

Bureaucratic capacity is a critical component of government and stateness. Based on my experience so far studying the political economy of development, if I had to pick a factor that is absolutely fundamental for the realization of long-run economic development it would be stateness.

If you think about it, a lot of the low-hanging fruits in development that could get many countries to lower middle income status and beyond — for example, agricultural productivity, petty manufacturing, rationalized construction sectors, healthcare, education, and water and sanitation — require a modicum of political stability, security, and mere copying and pasting of policy ideas from elsewhere (with sensitivity to local conditions and with some scope for experimentation).

Strong states can do this. Weak states cannot.

Does Tilly travel to the Congo?

As pointed out in numerous studies, juridical sovereignty is a serious impediment to stateness and political development in the DRC. Consider this from Christoph Vogel and Jason Stearns and African Affairs:

The most important belligerent in the Congo is the government itself: a large part of the FARDC’s roughly 130,000 troops are deployed in the Kivus, controlling key mining areas, towns and roads. Yet, it does not behave like a Hobbesian Leviathan, squashing competitors to impose control over territory. Instead, the relationship between the army and armed groups often resembles symbiosis: many armed groups, even those fighting the FARDC, retain close ties with army officers and politicians, who are intent on bolstering their own power bases and protection rackets. Much as during the late Mobutu period, instead of being a liability, ‘weak sovereignty has become a kind of resource, which continues to reproduce the state as a lame but living Leviathan’. This duality also applies to the security services as ‘involuted mechanisms, mainly preoccupied with their own reproduction’, even as they erode their own legitimacy. Such a conceptualization alters rationalist assumptions of civil war, as well as those of most foreign donors, insofar as they imagine a state that wants to defeat its opponents.DQcW0xcUMAATCsmThe Congolese government, however, has shown little interest in ending peripheral wars that do not threaten its survival. This does not make it less rational: it has privileged maintaining patronage networks—some of which incorporate its opponents—over the security of its citizens, and elite survival over institutional reform. Overall, these logics have emerged incrementally as various peace deals and integration efforts created deeply factionalized security services. Kinshasa then decided to use that as a means to distribute patronage and reward loyalty, instead of instilling discipline and monopolizing violence through reform, which could create a backlash within the senior officer corps.

The paper also has some great background details on the international dimension of the conflicts in eastern DRC.

Here’s the explainer for the title of this post.

The state of visa openness in Africa

This is from the African Development Bank:

Findings in the 3rd edition of the Africa Visa Openness Index Report 2018, published by the African Development Bank and the Africa Union Commission, show that on average African countries are becoming more open to each other. The top 10 and the top 20 most visa-open countries continue to improve their average score, reflecting countries’ more liberal visa policies. In addition, 43 countries improved or maintained their score.Screen Shot 2018-11-29 at 1.08.44 AM.png

See the whole thing here.

The Economics of Weddings in Nigeria

This piece highlights some interesting facts about the wedding industry in Nigeria.

How much do weddings cost?

When an upper-class Nigerian couple throws a wedding, at least 1,000 guests are invited. This equates to about ₦20 – ₦100 million [$55k-$275k], indicating that our celebration culture is nothing short of extravagant.

For perspective:

In India, with 3-5 days set aside to mark the union of two people, a single wedding can earn the economy about as much as $300,000.

Here’s more:

There is evidence that Nigerians’ desire to “flex” has provided a boost to the economy. For example, during the country’s last recession, the entertainment industry continued to expand even as other sectors shrunk. This similar pattern is observed with big-budget weddings. The cost of living has risen, but it hasn’t deterred the big wedding spenders.

And this has had a rippling effect on the rest of the economy.

Today, weddings are major employers of catering services, makeup artists, photographers and so on, directly supporting key growth drivers for any economy- small businesses. For example, a mobile toilets startup estimates that marriage celebrations account for 40% of its revenue. Trickle down economists might have a point. Our booming wedding culture is now supporting so many businesses today that would have struggled to survive in the past.

… Even though Nigerians are still famous for being net importers of many products, the wedding industry appears to be directing more spending within the country’s borders. Designers like Deola Sagoe and Mai Atafo have become favourites among brides for their bridal train outfits, instead of foreign designers like Vera Wang.

Lately I have been thinking a lot about socially-embedded economic sectors on the Continent, and their potential for mass job creation — think housing, agriculture, textiles, logistics, carpentry, funerals, weddings. These sectors provide low hanging fruits for policymakers for value addition and productivity gains. And their social embeddedness ensures that the surpluses are shared across the entire SES spectrum.

Unfortunately, most African governments spend all their energies on attracting FDI that ends up in enclave economies that create very few jobs. And to make matters worse, these sectors also get a ton of subsidies:

For example, multinational companies [in Nigeria] are entitled to tax incentives worth an estimated $2.9 billion a yearthree times more than our entire health budget. By comparison, small and medium-sized businesses and workers in the informal sector face multiple taxes. Regressive tax policies like this work to keep wealth concentrated amongst a few.

FDI is great for capital intensive sectors. But governments should also be thinking creatively about how to promote local (micro) SMEs that touch a wider base of households.

Perhaps its time for the World Bank to consider issuing “An Ease of Doing Business for Local Firms” index.

Mobile connectivity in Kenya is at 97.8%

Penetration of mobile phones reached 98 per cent at the end of June, up from 89 per cent during the same month last year, according to the Communications Authority of Kenya (CA) statistics.

“As at June 30, 2018, the number of mobile service subscriptions in the country stood at 45.5 million up from 44.1 million reported in March 2018. This also marked an increase of 13.2 per cent when compared to the 40.2 million subscriptions recorded as at June 330, 2017,” said the CA in its latest update. “This has resulted to increased mobile penetration of 97.8 per cent during the subject quarter from 95.1 per cent reported in the preceding quarter.”
The actual number of households with at least one mobile phone is probably 10 percentage points lower than the headline figure. Which is still a very high rate of mobile penetration. For comparison, the gross rate of connectivity in India stood at 65-75% last year.
The challenge for Kenyan entrepreneurs is to think of ways to exploit this potentially lucrative platform (beyond the exciting innovations in financial inclusion).

Portugal used to claim to be a big country

Screen Shot 2018-11-25 at 10.41.21 PM.png

This map is based on one produced by Henrique Galvão in 1934, supporting the imperial ambitions of the then-new Portuguese dictator Antonio Salazar.”

Angola (pop. 30m) is three and a half times the size of Germany (pop. 83m).

If you are interested in learning more about Angola and Mozambique, see here and here.

Claims About “Good” Institutions

This is from Yuen Yuen Ang’s excellent book on How China Escaped the Poverty Trap:

When foreign experts enter developing contexts and insist that there is one standard of good institutions — namely, that found in wealthy societies — this by itself imposes a lethal impediment against localized adaptation. Imagine “good governance” in medieval European communes being measured according to how closely they approximated institutions in the future. Then imagine foreign consultants dispensing praise and conditional aid to these European communes based on how well they score in good governance alongside contemporary countries; such an index would be titled “Worldwide and Timeless Governance Indicators” (WTGI). Further imagine medieval commune leaders and merchants being herded into classrooms to be taught about the technicalities of replicating institutions from the future in their current communities. Could this be an environment that empowers medieval actors to improvise fitting solutions for the needs of their time?

Highly recommended.

Public Debt in African States

This is from the IMF:

Screen Shot 2018-11-23 at 10.27.45 AMCountries in sub-Saharan Africa accumulated external debt at a faster pace than low- and middle- income countries in other regions in 2017: the combined external debt stock rose 15.5 percent from the previous year to $535 billion. Much of this increase was driven by a sharp rise in borrowing by two of the region’s largest economies, Nigeria and South Africa, where the external debt stock rose 29 percent and 21 percent respectively.

Export growth is not keeping up with rising levels of external debt:

….In 2017, the ratio was largely unchanged from the prior year, at an average of 138 percent. However, this ratio was close to double the average of 70 percent in 2010. Moreover, the average ratio masks wide disparity between countries. At the end of 2017 54 percent of countries in the region had an external debt-to-export ratio over 150 percent, as compared to 28 percent of countries in 2010 and the number of countries where the ratio surpassed 200 percent more than doubled, from 6 countries to 14 countries, over the same period. Most of these countries are ones that benefitted from HIPC and MDRI relief, including Burundi, Ethiopia, Niger, Senegal and Tanzania.

Bond issuance is dominated by a handful of countries:

Bond issuance by sovereign governments and pub- lic-sector entities in the region rose to $27 billion in 2017, a more than fourfold increase over 2016, driven to a large extent by a surge in issuance in South Africa to $19 billion from $4 billion in 2016, 70 percent of bond issuance in the region last year. An important factor was non-resident purchase of bonds issued in the South African domestic market. Bond issuance by other countries in the region totaled $8 billion, a tenfold increase from 2016, reflecting continued investors’ confidence and search for yield. Issuing countries in 2017 were Nigeria ($4.8 billion), Cote d’Ivoire ($2 billion), Senegal ($1.1 billion), and Gabon ($0.2 billion). Nigeria’s $3 billion Eurobond issuance marked the country’s largest such operation to date, and at end 2017, bond issuance accounted for one third of the country’s outstanding external debt.

Overall, while the data suggests that things may not be as bad as they were over the lost long decade (1980-1995), the trends are not encouraging. Total reserves as a share of external debt peaked around 2010 and have been in decline since. Screen Shot 2018-11-23 at 10.54.37 AM

Does aid conditionality still work?

(Not that it used to work that well)

Here is a story on Tanzania:

On Wednesday (Nov. 14) the Danish government said it would withhold 65 million crowns ($9.8 million) in aid citing allegations of human rights abuses. The minister of development cooperation Ulla Tornaes announced the decision on Twitter noting “negative developments” and “unacceptable homophobic statements.”

The day before, the World Bank suspended a $300 million educational loan following a government policy banning pregnant girls from going to school. That ban has been roundly criticized by the development community.

Tanzania most likely anticipated these specific reactions from the donor community.

netodaAnd now news reports indicate the World Bank is walking back its suspension of the $300 concessional loan. According to the Tanzanian government, the Bank’s projects in Tanzania run to the tune of $5.2b. At some point the Bank’s board’s commitment to human rights and “good governance” runs against the cold calculus of having to signal effort by the amount of cash pushed out the door each year. Also, the net per capita overseas development assistance (ODA) to African states has been in decline over the last five years (see graph).*

For perspective, Tanzania’s budget for 2018/19 fiscal year is $14b. Which means that the total rescinded aid (if the donors keep their word) currently stands at 2.2% of government expenditure. If you factor in the “implementation surpluses” that typically arise due to suboptimal absorptive capacity, it is a wash. All to say that it’s not clear that these cuts (if the donors hold the line beyond the current news cycle) will inflict maximum pain.

How much aid goes into the government’s total budget?

Despite donors not meeting their commitments last financial year, the government expects to raise Tsh2,676.6 billion ($1.1 billion) from development partners which is equivalent to eight per cent of the proposed budget total funding.

In other words, the Tanzanian Treasury (and politicians) can absorb the hit on the country’s reputation emerging from policies and practices like this, this, and this without devolving into a fiscal meltdown.

*Population data from the World Bank. Aid data from Roodman.

There appears to be no systematic relationship between genetic diversity and economic development

This is from Caraher and Ash:

We replicate Ashraf and Galor (2013) and find that its conclusions concerning the association between human genetic diversity and economic development depend substantially on inconsistent coding and data selection. We correct the coding inconsistencies and add or update data on genetic diversity and population density from high-quality sources. We find little support for the hypothesis that variation in genetic diversity among subpopulations has a systematic relationship with economic development.

I suspect this debate is just beginning. And for the record, there is no harm in doing these kinds of research. Let the scientific evidence take us where it may.

I also wish that scholars of deterministic origins of development read more world history. For example, the historical record is chockfull of allegedly genetically “inferior” peoples who rose to build great societies. So at some level, I am yet to be convinced of the utility of the insights we stand to gain from these studies — perhaps beyond proving racist 18th century European intellectuals right or wrong (because if we are honest, that is the genealogy of these studies).

Which is to say that differences in incomes across the world are inherently temporal. Today’s backwater may be tomorrow’s Aksum, Timbuktu, or Kumasi. And vice versa.

My two cents on this is that scholars are better off focusing on the organizational origins of development. People (regardless of their genes) organize out of poverty — into firms, trading networks, guilds, market associations, city states, nation states, or empires. Contextually optimal organizations keep everyone locked on focal outcomes (good or bad), allow elites to milk all the surplus that is politically feasible from workers, and enable the same elites to channel some of that surplus towards productive (or non-productive) enterprises a la Olson’s stationary bandit.

We do not really have a good handle on what makes some societies able to organize better than others?

Works on institutions have done a great job on this front. But “institutions” are becoming the new “neopatrimonialism” — hard to define and overused to explain everything, thereby rendering them analytically useless. Always ask: what specific institutions do you have in mind? 

 

On British Declinism

This is a great review essay in the LRB:

….I grew up with the assumption that we were going forward – jerkily, and with long unexplained halts in cold places, but forward. Prewar had been better, in ways which couldn’t be recovered (so my own family thought). But somewhere ahead, as the train began again to crawl across the grey plain of the 1950s, there would be warmth, light, undreamed-of gadgets, houses with inside toilets for all, travel on airliners. It was only a few years ago that I looked out of the grimy train window – as it were, at a station dimly seen in the night – and it came to me that we had passed this place once already. Mrs Hamilton-Paterson was right: it was all going backwards. Bankers’ economics? Didn’t we leave that station seventy years ago? Tories telling the poor they should have fewer children? Obsession with the national debt? Keeping foreigners out unless they are millionaires? Welfare only for the workshy underclass? ‘After all our gains’, Britain is slithering back downhill through the past we once rejected.

Read the whole thing here.

Is Kagame succeeding at nation-building?

This is from a paper that is forthcoming in the Journal of Political Economy:

Can a government in an ethnically divided, conflict-ridden society help bridge the ethnic divide?

…. This paper examines the role of propaganda as a tool of nation-building in Rwanda – a country in which Hutu extremists massacred more than 70% of the minority Tutsi population in 1994 in one of the worst genocides in recorded history. Critics of the government’s program of post-genocide nation-building (e.g. Thomson (2011a)), have noted how difficult it is to assess whether progress in ethnic reconciliation is cosmetic or real. In large part, this is because, under President Kagame, Rwanda is a quasi-autocracy that controls the media and tries to manage the narrative on reconciliation. In fact, according to a recent report on Rwanda in the New York Times: “Mr. Kagame has created a nation that is orderly but repressive…Against this backdrop, it is difficult to gauge sentiment about the effectiveness of reconciliation efforts.”

We exploit variation in exposure to the government’s radio propaganda due to the mountainous topography of Rwanda. Results of lab-in-the-field experiments show that individuals exposed to government propaganda have lower salience of ethnicity, increased inter-ethnic trust and show more willingness to interact face-to-face with members of another ethnic group. Our results suggest that the observed improvement in inter-ethnic behavior is not cosmetic, and reflects a deeper change in inter- ethnic attitudes. The findings provide some of the first quantitative evidence that the salience of ethnic identity can be manipulated by governments.

Taken together the evidence suggests that exposure to government radio leads to higher inter-ethnic trust and cooperation as well as lower ethnic salience.

Recall that the use of broadcast media — especially by Radio Television Libre des Mille Collineswas critical for mobilization that resulted in the Rwandan genocide.

The questions raised by the paper are a reminder that is in the long run, ethnic heterogeneity is endogenous to stateness and state capacity.

See, for example, the famous case of France.

Finally, Rwanda is still a personalist autocracy that is allergic to political freedoms and is a serial abuser of human rights. Whatever economic or socio-political developments Paul Kagame achieves while in office are at risk of unraveling as long as the entire political system remains organized around one mortal man.

 

The wonder that is Chinese growth

Below is an amazing illustration of shifts in the sizes of leading global economies:

For more on China see here, here, here, and here. This reminded me of this graphic from Carlos Lopes, former head of the UNECA:Dr3w9PhW4AAnCGU

All that happened in just 36 years. Time is on Africa’s side. If (and that’s a big IFF) African elites can get their act together. As shown in the graph below, the lost long decade (1980-1995) was particularly brutal for African economies — but it was a temporal dip and not a permanent feature of African economies.income

It is also worth noting that in 1980 African states and China were not at the same level of institutional development. By that time China had already accumulated centuries of coherent stateness — which made it possible for elites to optimally allocate human and capital resources in ways that produced the growth miracle.

Here is a good nuanced take on trends in economic growth and development on the Continent.

Nigeria fact of the week

This is from Bloomberg:

Nigeria loses $19 billion annually, or about 5 percent of gross domestic product, from the delays, traffic, illegal charges and insecurity that are increasingly prevalent at its ports, the Lagos Chamber of Commerce & Industry said in a report this year.

For perspective, that is slightly larger than the Zimbabwean economy.