Bryan Caplan  

Jeff Sachs Then and Now: Low Growth and Bad Policy in Africa

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In 1995, Sachs and Warner published "Economic Reform and the Process of Global Integration," one of my favorite "big think" papers on growth. The punchline: Basically any country can achieve decent growth by avoiding a handful of really stupid policies. A quotable quote:

[S]ocialist and SLI [state-led industrialization] policies should be understood mainly as "policy experiments" (albeit enormously mistaken and costly ones), rather than as inevitable consequences of the economic structures of the countries in question.

I was surprised, then, when Sachs recently took a very different stand on African growth:

The standard diagnosis is that Africa is suffering from a governance crisis. With highly visible examples of profoundly poor governance, for example in Zimbabwe, and widespread war and violence, as in Angola, the Democratic Republic of the Congo, Liberia, Sierra Leone, and Sudan, the impression of a continent-wide governance crisis is understandable. Yet it is wrong.

I instinctively found this claim hard to believe, and my suspicions were confirmed this morning when I saw the latest Doing Business rankings. Check it out: 9 out of 10 at the bottom of the list are in Africa!

On closer reading of Sachs, though, I shouldn't have been surprised. He doesn't really claim that African nations do not on average have bad policy, only that African policy is not especially bad controlling for income. African countries don't have bad policies considering how poverty-stricken they are.

And how does Sachs reach his conclusion that some African countries have good policy, when the highest-ranked country on the continent (Botswana) comes in 40th? By watering down the definition:

“Average” countries are those with residuals within 1 standard error on either side of the regression line. The table shows that, by this ranking, many countries [in Africa] are well governed.

I'm glossing over a lot of econometric subtlety, but frankly I think the 1995 Sachs would have read these results very differently. It only makes sense to start looking for non-policy explanations of poverty if countries are poorer than you would expect given their policies. The fact that African nations don't have especially bad policy considering how poor they are is evidence IN FAVOR of the theory that bad policy is the cause of their poverty!

It's time to stop making fashionable excuses for self-inflicted economic injuries in Africa, and get blunt: If you want to grow, you can learn a lot more from Hong Kong than Harvard.


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TRACKBACKS (6 to date)
TrackBack URL: http://econlog.econlib.org/mt/mt-tb.cgi/358
The author at PSD Blog - The World Bank Group - Private Sector Development in a related article titled Does Doing Business suck? writes:
    The last couple of days have seen ample discussion of the Doing Business indicators, with most commentators gratifyingly complimentary. But not everyone is persuaded. Robert Lawson at Divison of Labour, for instance, also wants to improve the business ... [Tracked on September 14, 2005 3:40 PM]
The author at Newmark's Door in a related article titled How Asian dictatorships differ from African ones writes:
    Interesting claim: The reason that—South Africa apart—sub-Saharan Africa has not developed is that it has not been in the interests of the controlling elites to develop it. In contrast to the developmental states of Asia—such as South Korea and T... [Tracked on September 15, 2005 4:22 AM]
COMMENTS (17 to date)
Mr. Econotarian writes:

My favorite example is Chile, whose high Economic Freedom Index and Doing Business index correlates well with high economic growth (now looking like 3 years of 6% growth).

David Thomson writes:

“If you want to grow, you can learn a lot more from Hong Kong than Harvard.”

Harvard University is vastly overrated. Its so-called elite graduates are often similar to intellectual thugs. They will do their best to destroy those who get in their way. Just remember that Ludwig von Mises and Freidrich Hayek did not teach at Harvard. That honor belong the mediocre John Kenneth Galbraith. What is that school’s motto? Could it be?: “Slut for the Democratic Party---and we will take care of you!”

The Harvard thugs used to get away with their nonsense. The Internet has changed the rules of the game. Increasingly, they will have to earn everything they get.

El Presidente writes:

post hoc ergo propter hoc

Be careful with the finger pointing. Let's look at Central/South America as a contrasting and informative example. The Monroe Doctrine and the Roosevelt Corollary declared that we would accept no aggression (including by inference placement of invited foreign military personnel or equipment, i.e. Cuban missile crisis) against a country on our contiguous continents. We obviously did this because we wanted so badly to protect them and ourselves from the evil people in the world (read with thick sarcasm). In reality we de facto colonized these countries by increasing the economic disincentives to competition from other nations for their resources. Now they grow and sell "black market" products for income (cocaine, marijuana, the flavor of the week). The "war on drugs" has amounted to economic warfare on people (unsavory fellowes) in these countries who are rebelling against colonization. So, is it the fault of their governments, politicians, populations that they are woefully outmatched by our economy or is this blanket of physical protection actually stifling their economic independence and success? Anyone remember that nice little section in the history book about Banana Republics that we "democratized", "liberated", "civilized" (insert preferred terminology here)?

Look at Africa and its history of colonization with that perspective and I think you'll appreciate where Sachs might be headed with this. Socialism and control economies could be viewed as a psychological fight response to a threat. Like how we have to sacrifice freedom to fight the "eevil durs". Too many responses like that and you'll show wear and tear but, in the short-run, they may be reasonable measures for the sake of protection. The other way to go is to nukify your region, a la India vs. Pakistan.

El Presidente writes:

“Slut for the Democratic Party---and we will take care of you!”

"Touché. On guard pussycat!" (obscure Tom and Jerry reference, ignore at will)

Barkley Rosser writes:

Just for the record, Jeffrey Sachs is now at Columbia, although he did get his Ph.D. at Harvard and was there in the past.

BTW, regarding these latest rankings, Hong Kong only comes in 7th, behind Norway among others (5th). New Zealand is first, followed by Singapore, US, Canada, and Norway. Denmark is 8th. Iceland, Finland, and Sweden are respectively 12th, 13th, and 14th, not as high up as on some other lists (especially Finland), but not too bad. Sweden is the most regulated of the Nordic bunch.

Wild Pegasus writes:

I find it somewhat incredulous that Norway and Canada both have an easier climate for doing business than Hong Kong. Is this true?

BTW, million billion points for the Tom and Jerry reference. Minus 900 thousand billion points for misspelling "en garde".

- Josh

Nit Picker writes:

Minus 900 thousand billion points for writing "incredulous" when you meant "incredible."

Garett writes:

Hong Kong's average IQ of 106 sure helps--that's half a standard deviation above Lynn and Vanhanen's estimate of U.S. IQ (a lackluster 98).

Lynn and Vanhanen, in their book, IQ and the Wealth of Nations, entitled one of their chapters "Intelligence and Markets as the Determinants of Economic Development." Since national average IQ correlates so strongly with ease of doing business (R-squared=46%), it looks like L/V's two main factors are, to some extent, just one big factor: IQ.

Smart-->Rich. Can it be as simple as that? No--that's only about half the story, according to my research. A look at Soviet Russia or the People's Republic of China (both high-IQ countries) is all you need to see to know that institutions have an independent effect on economic outcomes. But half isn't too bad for a monocausal theory...

More info here:
http://righteconomy.blogspot.com/2005/09/national-average-iq-and-good.html

c&d writes:

There is an important distinction to be made between income and growth. That bad policy and income are correlated more strongly than bad policy and growth would indicate that low income is the driving force behind bad policy rather than the other way around.

Sachs in not necessarily saying bad-policy is not the cause of slow growth, but that in a low-income nation, good-policy is harder to get because of a lack of resources. Thus, the a source of bad-policy is low income itself. Hence, the use of "trap.”

Sachs is looking for ways to create better policies in Africa, and that requires money. Bryan Caplan's approach of blaming the citizens of poor nations will not help them get better policies; rather, blaming the poor is a solution for people who do not want to care about the poor.

"self-inflicted economic injuries"

Only if you (wrongly) treat Africans as a monolithic unit could you be so callous.

Dan Landau writes:

My impression from Sachs work on both Africa and Eastern Europe is that, after an interesting, and often brilliant, analysis of the situation, he always finds a reason why the low income or slow growth country should get massive foreign aid.

David Thomson writes:

“Sachs is looking for ways to create better policies in Africa, and that requires money”

Requires money? Someone obviously needs to get their priorities straightened out. That is definitely placing the cart before the horse. Africa is in far greater need of democratic institutions and free markets. I completely agree with Kenyan economist James Shikwati who rightfully begs "Enough, Already, Please Stop The Aid!”:

http://www.littlegreenfootballs.com/weblog/?entry=16881


Jeffrey Sachs doesn’t answer the hard questions. He hides behind the “elite” institutional walls. To be bluntly crude, Sachs essentially interacts only with his fellow liberal circle jerkers. The man is an intellectual coward. And yes, he now teaches at Columbia, a school that is increasingly becoming well known for its rampant anti-Semitism. It was also the home of Edward Said, a second rate intellectual infamous for his hatred of Israel and Western values. Sachs and Columbia deserve each other.

Is everybody associated with the so-called elite schools an intellectual slut? Of course not, and it would be viciously unfair for me to suggest that this is the case. Nonetheless, there are just too many idiots at schools like Harvard and Columbia. Something is clearly wrong.

Charles Fimpel writes:

"And how does Sachs reach his conclusion that some African countries have good policy, when the highest-ranked country on the continent (Botswana) comes in 40th?"

South Africa came in 28th, making the above statement false.

Yeung Wai Hong writes:

I am from Hong Kong. Let me tell you, since the handover in 1997, we have gone the other way.

Case in point: We just opened a Disney theme park; it is 57% government-owned.

I will spare you the horror stories about education (practically 100% government run), health care(97% of the hospital beds are in the public sector), mortgage finanace (nearly 100% government), etc.

So when you put Hong Kong up as a shinning example of the free market way, you may be inadvertently strengtheing the hands of an interventionist-bent government.

andrew writes:

the whole concept of putting up Asian "tiger economies" as models for growth doesn't note that their protectionist tendencies (China with-standing) have a tendency to collapse on each other. After all Hong Kong and Japan are having to open their immigration policies just to get enough workers to fullfill the demand in their high-tech sectors and South Korea can't seem to be able to let go enough to let forieng investment in it's "free-economic zone" ghettoes. Indonesia and the Phillipines are both following the foriegn investment lead and getting killed by China. Look to Chile and South America. I think their the only boom that's truly sustianable.

peace,
a

Roger McKinney writes:

I wonder what Sachs has to say about the $90 billion that Africans send to the US, Europe and Japan for safe keeping.

Robert writes:


There is an important distinction to be made between income and growth. That bad policy and income are correlated more strongly than bad policy and growth would indicate that low income is the driving force behind bad policy rather than the other way around.

There is an important distinction to be made between income and growth. There is also an important distinction to be made between policy and change in policy.

If we accept the hypothesis that poverty causes bad policy, and bad policy hinders growth (thus ensuring continued poverty), then we would expect to see that poor nations have slow growth or contraction, and rich nations grow the fastest of all.

But that's not what we see. Instead, we see that rich nations grow at a slow, steady rate, and poor nations are all over the board, some growing wildly, some suffering drastic contraction. The correlation between present income and growth is weakest among poor nations.

Jim writes:

"Basically any country can achieve decent growth by avoiding a handful of really stupid policies"

Perhaps Sachs has changed his mind on this because this finding was so effectively critiqued by, amongst others, Rodriguez and Rodrik in their "Trade Policy and Economic Growth". They find that the Sachs-Warner measure of policy 'non-openness' (or in your terms, 'stupidity') didn't really measure trade policy very well at all and was more like a dummy for location in Sub-Saharan Africa. It seems to me that it is a realisation of this sort that lies behind Sachs' change of mind: he has come to appreciate that while bad policy explains part of why Sub-Saharan Africa lags behind the rest of the world, it does not explain nearly enough. Hence his subsequent work on the importance of geography.

Likewise, his advocacy of more aid isn't just plucked out of the air. Take Botswana, the SSA country with the best policy (according to your post) and very high income compared to its neighbours - it received massive amounts of aid. Ditto South Korea in the 1950s and 1960s. The best available analysis ("Counting chickens when they hatch", from the Center for Global Development) finds that aid that is actually aimed at promoting growth has a strong positive effect on it. Considering how much aid really was stolen or wasted in the past, that is some result. Considering that Africa is generally better governed now and aid generally better monitored, that supports increasing the amount of aid Africa gets. In my view this will also have the added benefit of removing one of the last excuses African governments have for bad performance - it's the West's fault for not giving us enough aid.

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