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.

 

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.

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.

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? 

 

Is malaria responsible for underdevelopment in Africa?

According to a paper by Depetris-Chauvin and Weil, the answer is no.

Here is the abstract:

We examine the effect of malaria on economic development in Africa over the very long run. Using data on the prevalence of the mutation that causes sickle cell disease, we measure the impact of malaria on mortality in Africa prior to the period in which formal data were collected. Our estimate is that in the more afflicted regions, malaria lowered the probability of surviving to adulthood by about ten percentage points, which is twice the current burden of the disease. The reduction in malaria mortality has been roughly equal to the reduction in other causes of mortality. We then ask whether the estimated burden of malaria had an effect on economic development in the period before European contact. Using data at the ethnic group level, we find little evidence of a negative relationship between malaria burden and population density or other measures of development.\

And here’s a summary of the main finding:

With estimates of the extent of malaria mortality in hand, we then turn to look at the impact of the disease on economic development. We present regressions of a number of measures of development within Africa on a malaria burden measure that we create based on sickle cell prevalence. Of particular note, we apply our analysis to a data set measured at the level of ethnic groups as an alternative to more common country-level analyses. We present simple OLS results, as well as results in which we instrument for malaria burden, using an index of climactic suitability for malaria transmission. The result of this statistical exercise is that we find no evidence of malaria burden negatively affecting historical economic development.

Read the whole paper here.

And here, here, and here are related posts on mosquitoes and malaria.

Aliko Dangote lunches with the FT

This is Pilling in the FT:

As a rule, I don’t get worked up over oil refineries. But the one gradually taking form on 2,500 hectares of swampland outside Lagos, Nigeria’s Mad Max commercial capital, is so big, so audacious and so potentially transformative that it is like Africa’s Moon landing and its Panama Canal — a Pyramids of Giza for the industrial age.

If Aliko Dangote, the billionaire businessman behind what even he calls his “crazy” $12bn project, can pull it off, he will go down as the continent’s John D Rockefeller, Andrew Carnegie and Andrew Mellon combined. And once he’s built it, he intends to treat himself to a small indulgence: he’ll buy Arsenal, his favourite football club.

The whole thing is worth reading. Dangote is a fascinating individual with a very interesting life story (are there any bios out there?) This paragraph caught my attention:

There is not enough industrial gas in the whole country to weld everything together, so Dangote will build his own industrial gas plant. There aren’t enough trucks, so he’s producing those in a joint venture with a Chinese company. The plant will need 480 megawatts of power, about one-tenth of the total that electricity-starved Nigeria can muster. You guessed it. Dangote is building his own power plant too.

How resilient is the Kenyan economy?

The FT has a great special report on investing in Kenya. Highlights include pieces on devolution, President Uhuru Kenyatta’s “Big Four” legacy projects (including an ambitious plan to build 500,000 new homes), and the promises of the tech sector.

Meanwhile, nominal GDP growth is projected to remain respectable, despite sky-high corruption and generalized administrative failures in both the county-level and national governments.Screen Shot 2018-06-28 at 6.28.18 AM.pngAnd here is an excerpt from one of the pieces:

A 2016 report from New World Wealth, an independent South Africa-based research group, found that 8,500 of Kenya’s roughly 48m people controlled more than two-thirds of the country’s wealth.

Highly recommended.

Are Africa’s political and economic elites the most complacent class in the world?

This is speculative.

Africa’s elites are arguably the most complacent in the world. They engage in almost no innovation — whether in the fields of governance, technology, religion, philosophy, or science. This is not to say that there is not any innovation in these fields on the Continent.

Far from it. A lot of innovation is happening on the Continent. The problem is that innovation tends to be purview of individuals who are part of the economic and political underclasses, many of whom lack the power to mainstream their innovations.

Consider the case of which global elites attend the best universities in the world. If you did a survey you would find that political and economic elites from almost all parts of the world are represented in these institutions through their offspring. Africa, on the other hand, tends to be represented by smart but politically and economically disempowered students.

Some of these students are wealthy, but the vast majority are complete political and economic outsiders in their home countries. Many get absorbed into the middle and upper-middle classes of their adopted countries. The offspring of elites from other regions of the world go back home and work to mainstream the ideas learned abroad.

Meanwhile, the offspring of Africa’s political and economic elites largely attend mediocre academic institutions. Many never learn much, including the basics of economic and political management. It is therefore not surprising that many live and aspire to reproduce their parents’ complacency and mediocrity.

Am I painting here with a very broad brush? Perhaps. But show me a prominent African political leader and I will show you an offspring with mediocre grades and limited ambition.

Memes on State-Led Industrialization

The graph on the right is popular among pop development economists. But it doesn’t tell us what most people think it does.

In addition to experiencing a different form of colonialism than Ghana or India did, receiving lots of Western aid for geopolitical reasons, and having access to markets in Japan and the US, South Korea also had a much longer history of ethnically and socially unified statehood than either Ghana or India before colonization.

Here is a summary of the mechanisms involved from Bockstette, Chanda and Putterman (2002):

A longer history of statehood might prove favorable to economic development under the circumstances of recent decades for several reasons. There may be learning by doing in the ways of public administration, in which case long-standing states, with larger pools of experienced personnel, may do what they do better than newly formed states. The operation of a state may support the development of attitudes consistent with bureaucratic discipline and hierarchical control, making for greater state (and perhaps more broadly, organizational) effectiveness. An experienced state like China seems to have been capable of fostering basic industrialization and the upgrading of its human capital stock even under institutions of government planning and state property in the 1960s and 1970s, whereas an inexperienced state like Mozambique sowed economic disaster when attempting to pursue similar policies a few years later. Such differences may carry over to a market setting — contrast, for instance, the late 20th century economic development of Japan and South Korea, modern countries with ancient national histories, with that of the Philippines, a nation that lacked a state before its 16th century colonization by Spain.

Is Ethiopia in the midst of a green revolution?

This is from Bachewe and co-authors in World Development:

Screen Shot 2018-03-14 at 8.34.44 AMDespite significant efforts, Africa has struggled to imitate the rapid agricultural growth that took place in Asia in the 1960s and 1970s. As a rare but important exception, Ethiopia’s agriculture sector recorded remarkable rapid growth during 2004–14. This paper explores this rapid change in the agriculture sector of this important country – the second most populous in Africa. We review the evidence on agricultural growth and decompose the contributions of modern inputs to growth using an adjusted Solow decomposition model.Screen Shot 2018-03-14 at 8.35.03 AM We also highlight the key pathways Ethiopia followed to achieve its agricultural growth. We find that land and labor use expanded significantly and total factor productivity grew by about 2.3% per year over the study period. Moreover, modern input use more than doubled, explaining some of this growth. The expansion in modern input use appears to have been driven by high government expenditures on the agriculture sector, including agricultural extension, but also by an improved road network, higher rural education levels, and favorable international and local price incentives.

The improvement in agricultural productivity was driven, in part, by deliberate state investment in agriculture:

Ethiopia is one of only four African countries to have implemented the CAADP agreement of a 10% target of annual government expenditures going to agriculture over the 2003–2013 period.

… The GoE has for a long time put agriculture at the center of its national policy priorities. The Agriculture Development Led Industrialization (ADLI) strategy was formulated in the mid-1990s to serve as a roadmap to transform smallholder agriculture in the country. Rural education and health, infrastructure, extension services, and strengthening of public agricultural research were among its top priorities.

These gains are remarkable (if we can trust the state statistical agency data used in the analysis). They are also likely not replicable in other countries across the Continent on account of the high variance in state capacity in the region.

For instance:

[while the] Comprehensive Africa Agriculture Development Programme (CAADP) proposed that African countries allocate 10 percent of their total annual budgets toward boosting agricultural productivity…, only 13 countries [have] signed the CAADP compact (Benin, Burundi, Cape Verde, Ethiopia, The Gambia, Ghana, Liberia, Mali, Niger, Nigeria, Rwanda, Sierra Leone, and Togo).

And out of these 13 only Cape Verde, Ethiopia, Ghana, and Rwanda seem like they have the capacity to translate state fiscal outlays into real productivity gains in agriculture.

Read the whole paper here.

What is the “Rwanda Model” of development?

Here’s Nic Cheeseman’s summary:

Instead of sitting back and waiting for foreign investors and the “market” to inspire growth, the new administration intervened directly in a process of state directed development. Most notably, his government kick started economic activity in areas that had previously been stagnating by investing heavily in key sectors. It has done so through party-owned holding companies such as Tri-Star Investments.

Combined with the careful management of agriculture, these policies generated economic growth of around 8% between 2001 and 2013. Partly as a result, the percentage of people living below the poverty line fell from 57% in 2005 to 45% in 2010. Other indicators of human development, such as life expectancy and literacy, have also improved.

Cheeseman rightfully cautions against copying the Rwanda model:

Shorn of the internal and external political control required to make it work, the application of the Rwandan model elsewhere would generate very different results.

Extending the control of the ruling party over the economy is more likely to increase graft and waste than to spur economic activity. And efforts to neutralise opposition parties are likely to be strongly resisted, leading to political instability and economic uncertainty.

What this means is that if other countries on the continent try to implement the Rwandan model, the chances are that they will experience all of its costs while realising few of its benefits.

Read the whole thing here.

Cheeseman argues that the RPF’s total political monopoly is a necessary condition for the observed bureaucratic discipline in Rwanda. While this might be true, I am curious about what conclusions we might arrive at if we drop the assumption that Rwanda’s is a system of “developmental patrimonialism”.

What if we were to see it as just bureaucratic developmentalism (infused with good old crony capitalism)? Are there lessons on the industrial organization of the Rwandese state that are transferable to Malawi or Sierra Leone?

For more on neopatrimonialism and development in Africa check out this important paper by Thandika Mkandawire.

Pepinsky On Identity and Politics

The whole post is worth reading here.

Here is an excerpt:

My hunch is that the next big conceptual move for political economy is to take identity seriously. The task for political economists now is to integrate identity into our theoretical architectures as a conceptual primitive rather than as a nuisance, a behavioral distraction, or as merely a consequence of something else.

[If you are reading this and pounding the table, saying “I’ve been doing this for years,” please bear with me. I recognize that scholarship on identity and political economy has a long history. I am proposing that we need to do it more, and rather differently.]

What would this look like? Take, for example, the literature about preferences for economic integration. One view holds that people’s preferences are a function of their economic interests: in the simplest Stolper-Samuelson world, low skill workers in advanced economies should oppose trade, and high skill workers should favor it. In a world in which ideas are foundational, individuals favor trade because they have learned (or come to believe in) a cosmopolitan worldview in which trade is good—they possess a causal belief about what trade does. In a world in which identity matters, people oppose trade because they are part of a community that opposes trade.

The first thing to observe about this identity-based explanation is how vacuous it seems. “One does X because one is an X-doer” is infinitely generative claim, but that is because it is nearly tautological. Here is a more pointed way to think about identity in political economy. When people search for information about what they should do, how do they go about it? One view is that they consider costs and benefits, although not necessarily in a materialist or egoistic way. Another view is that they consider their existing beliefs about how the world works, and then try to apply them by analogy. The third is that they look for cues among the beliefs and actions of people whom they consider to be like them. That third possibility is an argument for identity in political economy.

A possible avenue for methodological advancement here would be to treat identity as encompassing a non-transactional political relationship between principals and agents, but with a lot more emphasis on what elites do. Materialist models of politics focus on what politicians give voters. Including identity would simply expand the scope of rewards to include identity affirmation as a central part of the principal-agent relationship (most current works relegate identity to the world of residual psychic benefits of having a co-ethnic or co-partisan in power).

One logical implication of this conceptualization is that elites (agents of voters) have loads of arbitrage opportunities under identity politics — and will likely under-provide populist promises of public goods and services.

By peddling identity politics, populist politicians can shirk on the delivery of real material benefits for their supporters; which implies further upward redistribution. Politicians will grant their voters honor and respect (by, for example, turning a blind eye to racists and other “anti-PC” movements) and do little else in terms of pro-poor policies.

In short, elites stand to gain the most in a world of identity politics.

A Kansas City High Schooler’s Development Questions

I regularly receive emails from readers with all sorts of questions and requests. This one caught my eye:

Hello Dr. Opalo,

My name is [redacted] and I am a senior in high school in Kansas City, MO. I am currently working on an exhibition regarding poverty in sub Saharan Africa. My essential question is: What are the factors that contribute to ongoing poverty in sub Saharan Africa. I was wondering if you would be willing to answer a few questions to assist me in my research.

1. How would you describe the current state of poverty in sub-Saharan Africa?

2. What can be done to solve the feminization of poverty?

3. Is Time Poverty a large factor in ongoing poverty and how can time poverty be solved?

4. How can safety be maintained in sub-Saharan Africa through policy?

5. What can an average American do to help end poverty?

Thank you for your time!

If you have answers to any of these questions, let me know in the comments section. I plan to write back before the student’s exhibition is due…

J. D. Vance’s Hillbilly Elegy and Economic Development

Hillbilly Elegy has been touted as a the guide to understanding Donald J. Trump’s overwhelming support among working class European-Americans.

It also has important lessons for students of development. Take this excerpt, for example:

Despite its reputation, Appalachia – especially northern Alabama and Georgia to South Ohio – has far lower church attendance than the Midwest, parts of the Mountain West, and much of the space between Michigan and Montana. Oddly enough, we think we attend church more than we actually do. In a recent Gallup poll, Southerners and Midwesterners reported the highest rates of church attendance in the country. Yet actual church attendance is much lower in the South.

This pattern of deception has to do with cultural pressure. In southwestern Ohio, where I was born, both the Cincinnati and Dayton metropolitan regions have very low rates of church attendance, about the same as ultra-liberal San Francisco. No one I know in San Francisco would feel ashamed to admit that they don’t go to church (In fact, some of them might feel ashamed to admit that they do.) Ohio is the polar opposite. Even as a kid, I’d lie when people asked if I attended church regularly. According to Gallup, I wasn’t alone in feeling that pressure.

The juxtaposition is jarring: Religious institutions remain a positive force in people’s lives, but in a part of the country slammed by the decline of manufacturing, joblessness, addiction, and broken homes, church attendance has fallen off. Dad’s church offered something desperately needed by people like me. For alcoholics, it gave them community of support… For expectant mothers, it offered a free home with job training and parenting classes. When someone needed a job, church friends could either provide one or make introductions.

This is not a political book. Instead, it is simply a powerful narration of a story that is often ignored: that America has millions of poor European-Americans, a good number of whom feel economically and culturally isolated from the public sphere. Vance suggests that this feeling of isolation may have been rendered more acute by the ongoing erosion of the idea that European descent ought to be an automatic ticket to material stability and high social status.

I read this book hoping to get an insight into Hillbilly politics, but the key lesson that I came out with is that people organize out of poverty.

Atomization is disorienting. Stable homes, communities, and well-ordered societies make a huge difference for material outcomes from generation to generation.

History teaches us that the only means of inter-generational persistence of material advancement is through stable and resilient organizations — family units, churches, investment clubs, firms, capable and responsive governments, etc.

I highly recommend the book, whether you are interested in American politics or not.