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Week Four Notes: African Economic Policies
Reading Notes
Reading 1: The Political Economy of Policy Reform
SOURCE: T.J. Moss and D. Resnick, ch. 7 “The Political Economy of Policy Reform” in African
Development: Making Sense of Issues and Actors, Rienner (2017) pp. 113-129.
SUMMARY: Summarizes 16 pages to ~ 6.
Across nearly all of Africa, reform has been one of the most prominent strategies for trying to increase
economic growth and reduce poverty.
The international community encourages reform as part of its assistance, and in many cases uses
financial and diplomatic means to induce certain kinds of reforms over others
State Intervention
Just as the African political story is one of state seizure of control followed by eventual, if often
tentative, steps toward liberalization and democracy there is a somewhat parallel economic story.
● Post-colonial period: nearly all governments seized more state control in the economy
● In general governments spent a lot more than they raised in taxes, leading to gaping budget
deficits and, inevitably, high inflation and mounting debt
○ Little transparency
○ Scant regard for private property
● Lasting legacies of the early post-independence period was heavy government intervention,
including state ownership of factories, invasive regulations, and mountains of usually
intentional red tape.
Nationalization
● A very common policy after independence was the nationalization of major industries,
whereby the owners of a company or a mine were expelled and the state seized control and
management.
○ For instance, in Zambia the government took over the copper mines that had been owned
by the South African-based multinational Anglo-American.
● The state also sometimes became involved in expropriating property from foreigners but also
from minorities within the country
○ Under Zimbabwe's Fast Track Land Reform program of former president Mugabe, land
owned by farmers of European descent was seized by the state and redistributed under the
guise of promoting local production, but the farms were handed out mainly to elites
connected to the ruling party
State-Owned Enterprises
● Other typical aspects of state intervention have involved the establishment of state-owned
companies that included not only utilities such as water and electricity but in other cases shoe
factories, farms, and even breweries.
○ Kenya, for example, the government owned about 150 different companies
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● Where enterprises were allowed to remain in private hands, there tended to be very heavy
regulations covering what the companies could do, whom they could hire or fire, and how they
managed their finances.
● To support these companies and agencies, often called state-owned enterprises (SOEs) or
parastatals, the government typically had to spend lots of money setting them up and keeping
them going and were ill equipped to run large commercial enterprises.
○ Because legal barriers protected these firms from competition, they also had no
overriding discipline from the market to encourage efficiency
○ SOEs were rarely profitable and became increasingly reliant on protection and
subsidies.
○ Thus, the major parts of the economy that should have been providing resources to the
state (via taxes) instead usually became a drain.
Rationale for State Involvement
Five basic justifications for why the state became so heavily involved in the economy:
● African nationalism: using the state to Africanize the economy as logical, and to many,
necessary step to control Africa’s destiny
● Socialist influence: outcome of Cold War, imitation of Soviet model; African Socialism,
socialism closer to communal economic system familiar in many rural African societies,
● Dependency theory: international capitalism, cutting ties to global economy, seizing the control
of economic activity, and perhaps expelling foreign business interests.
● Development economics theory: helping economies jump-start in global system
○ This theory suggested that the state should help small companies to get started, assist
them to grow, and protect them from outside markets until they were large enough to
stand on their own.
○ Trade barriers, cheap loans from the government, and state ownership thus could all be
justified as temporary steps to help bring African industry to the point of takeoff.
● Elite capture and patronage: elites pursued control of resources; theft and patronage, the
greatest barrier to reform.
Backlash of Failure
The early hopes of African nationalism leading to a resurgence were quickly dashed in the wake of
growing political instability and steep economic decline.
● Global changes undermined socialist ideas
● Dependency theory similarly lost legitimacy as those countries that tried to isolate themselves
did much worse than countries that tried to actively engage with the global economy.
● It also became increasingly obvious that elite capture was getting worse and that state
intervention in the economy was helping a narrow few at the expense of the many.
● State owned firms required large amounts of public funds and also provided low-quality
products and services for the public, or not at all
○ If the state-led economic strategy had worked, African governments would never have
needed to turn to international donors to bail them out
Turning to International Financial Institutions
Economies failed to grow fast enough, debts mounted, and capital fled the continent in a huge wave. By
the 1980s many countries had hit bottom and turned to the international financial institutions (IFIs)
and Western donors for assistance.
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Donors agreed to help, but only if the African governments promised to fix the problems that were
thought to have landed them into trouble in the first place
Structural Adjustment:
● Liberalization (reducing state’s role in economy): states demanded to curb mismanagement, get
out of loss-making ventures, stop over regulating the economy and sell off state-owned
enterprises.
● Over the next decade nearly every other African government entered into negotiations with the
IMF for a similar deal, comprising some combination of aid and policy change to restructure the
economy and the role of the state.
● Thus began the era of structural adjustment.
Conditionality:
● Policy changes in exchange for aid → The idea was not far from bribery or blackmail in many
cases, whereby large loans were dangled in front of cash-strapped politicians.
● Even if the policies the donors asked for seemed reasonable on paper, governments had little
reasons to actually make changes and donors found few reasons to enforce their previous
demands.
Liberalization and the Washington Consensus:
● The terms Washington Consensus, structural adjustment, and liberalization are often misused or
misinterpreted.
○ Washington Consensus → set of ten economic policy prescriptions considered to
constitute the “standard” reform package promoted for crisis-wracked developing
countries by Washington, D.C.-based institutions such as the International Monetary
Fund, World Bank and United States Department of the Treasury.
■ Market fundamentalism/neoliberalism.
■ Latin America, and some other developing regions, during the 1980s
○ Structural adjustment → Structural adjustment programs (SAPs) consist of loans
provided by the Bretton Woods institutions; IMF and the WB to countries that experience
economic crises.
■ Purpose is to adjust the country's economic structure, improve international
competitiveness, and restore its balance of payments.
■ Centered around increased privatization, liberalizing trade and foreign
investment, and balancing government deficit.
○ Liberalization → the removal or reduction of restrictions placed upon (a particular
sphere of) economic activity.
■ Refers to the reduction or elimination of government regulations or restrictions
on private business and trade.
■ It is usually promoted by advocates of free markets and free trade, whose
ideology is also called economic liberalism.
■ Also often involves reductions of taxes, social security, and unemployment
benefits, privitization…
● Set of policies thought necessary to help countries emerge out of their economic doldrums, based
on the conclusion that state policies themselves were one critical source of the problem
