Category: Campus Life

By Agbo Agbo

As noted in the first part of this piece, theories are a fundamental aspect of scholarship because they help explain phenomenon. An aspect that further brings the importance of theories to bear is the economy. Massachusetts Institute of Technology (MIT) economist, Daron Acemoglu and the Harvard University political scientist, James A. Robinson powerfully articulated their theory in a remarkable book, “Why Nations Fail: The Origin of Power, Prosperity and Poverty.” In this book – which I have read severally and recommend to readers, – there are theories that don’t work. Organisations like the World Bank (WB) and International Monetary Fund (IMF) have forced African countries in the past to apply theories which they turn around to say weakened the economic foundation of these countries.

Acemoglu and Robinson wrote that African nations are poor today because their policies were anchored on wrong theories that informed their national visions. Any national leader that allows such theories and adopts policies based on them will make his nation poor, have high unemployment, bad governance, human rights violation and all the other challenges that African leaders and states are facing. To them, it is not an issue of race, colour or even geographical location. It is basically the application of wrong theories.

If a nation or continent is always forced by others or the so called international “donour” or “development” agencies or institutions to follow certain kinds of theories in their policy prescriptions, they will of course remain with their challenges, or the challenges may even worsen over time. So, until the theories themselves and therefore, the policy visions and prescriptions are changed, the situation will never change.

There are two ways to look at this. According to Dr. Dan Mou in his book Without Vision the People Perish: Confronting Public Policy Challenges to African States and Leaders, it is not an issue of lack of technology or capital etc., as important as these may seem to the uninitiated in the politics of underdevelopment and the development of underdevelopment. It is purely an issue of politics and political economy. Solve this first, and the other problems of technology, capital, extension services and similar technical issues, will definitely take care of themselves or be made to do so without further delay.

He reasoned that if it was an issue of capital, Nigeria for instance, with all her billions of dollars from oil would never have been suffering the same challenges with the other resource starved small African nations. Surprisingly, most African countries are rich in key minerals and other relevant natural resources. So their current common challenges come from elsewhere – politics and political economy.

Acemoglu and Robinson make this point cogently when they state: “Because there is no consensus (on theories and policies), what rules society ends up with is determined by politics: who has power and how this power can be exercised…that’s why our theory is about not just economics but also politics. It is about the effects of institutions on the success and failure of Nations – thus the economics of poverty and prosperity; it is also about how institutions are determined and change even when they create poverty and misery for millions – thus the politics of poverty and prosperity.”

They added: “The bottom of the world income distribution paints a sharp and distinctive picture as the top. If you instead make a list of the poorest thirty countries in the world today, you will find almost all of them in sub-Saharan Africa. They are joined by countries such as Afghanistan, Haiti and Nepal, which, though not in Africa, all share something critical with African nations …”

I was privileged to listen to Prof. Robinson in 2015 during the 70th commemorative lecture of Wema Bank in Lagos. Rather than speak on why nations fail, he delivered a lecture on “Why Nations Succeed.” Just like in their earlier book, he argues that the key differentiator between countries is “institutions.” Nations thrive when they develop “inclusive” political and economic institutions, and they fail when those institutions become “extractive” and concentrate power and opportunity in the hands of only a few.

So, why is Nigeria and most of Africa poor? From his perspective, Robinson said Africa is poor because it has suffered from a long history of “extractive economic and political institutions.” This, according to him, are part of deeply rooted historical processes which reveal the slow development of centralised political entities compared to Eurasia. The negative impact of the slave trade, which had a devastating institutional impact in Nigeria, the “extractive nature” of colonial rule and the legacy of colonialism since independence equally formed part of why we are poor.

He raised two salient and age old questions: Why is it that some parts of the world are much richer and more successful economically than other parts of the world? What can poor countries do to make themselves richer? To answer these simple, yet complex questions, he proposes a theory based on differences in economic and political institutions. “Institutions” are defined as the rules (both formal – written laws and the constitution – and informal – like social norms) that structure economic, political and social life and generate different patterns of incentives, rewards, benefits and costs.

Nigeria is partly where she is because of the “negative institutional legacies of colonialism” which created colonial institutions, such as agricultural marketing boards. Colonialism also created an arbitrary state system which has led to political conflicts, instability and dictatorship. Colonial authorities, he noted, also created “gate-keeper states which were only interested in ruling rather than in developing the countries and these have left a path dependent legacy.” The political authoritarianism of the colonial state is therefore a direct source of the authoritarianism that has plagued Africa to date. Colonialism thus created and shaped identities and cleavages in dysfunctional ways that still plague us.

The “extractive political institutions” that was in place for a better part of our post-independence period took the form of military dictatorship which led to a weak state unable to raise taxes, enforce law and control violence as is evident with the Boko Haram insurgency and the spate of kidnappings and armed banditry/robbery. This weak state is at its best creating monopolies for the politically connected. But as expected, the result has been economic decline.

So, what is he proffering to change the tide? The broader evidence is the need to move towards “inclusive” institutions. “Our framework emphasises that this is not a technocratic economic problem, this is a political problem. Focus first on developing inclusive political institutions and the economics will sort itself out. All countries which now have inclusive institutions historically had extractive institutions. How did they change them? We emphasize the emergence of a broad coalition which pushes for and underpins inclusive institutions.”

Citing two of the world’s richest men – the American Bill Gates and the Mexican Carlos Slim – Robinson said the difference between the two is clear. One is an entrepreneur while the other is a monopolist. “Both men are remarkable people, but their energies were channeled in different directions by the different institutional environments in which they live. In the US innovation is the way to make great wealth. In Mexico, innovation is less well rewarded than monopolies because there are so many barriers to entry.”

These two examples and approaches have varying degrees of impact on society. Bill Gates, who established Microsoft, created huge “positive externalities” generating far more wealth than his income.

On the other hand, the Organisation for Economic Co-operation and Development (OECD) estimated that Carlos Slim’s monopolies reduced Mexican income by US$70bilion, far more than his fortune.

Behind these differences, he pointed out, is politics. The American approach is “inclusive” because it creates incentives, level playing fields and a rule of law based on universal principles. The political institutions deliberately allow broad participation, pluralism? and placing constraints and checks on politicians.

In so doing, it creates powerful forces towards economic growth by encouraging investment (because of well-enforced property rights), harnessing the power of markets (better allocation of resources, entry of more efficient firms, ability to finance for starting businesses etc.) and generating broad-based participation, especially in education and investment in new technology and “creative destruction”. This is not the case in Mexico.