African Development for the Completely Bloody Ignorant

For our purposes, the interest of Jeffrey Sachs‘ book The End of Poverty is what it has to say about Africa. However, he first turns his attentions to the world’s biggest developing countries, China and India.

Like China, Sachs sees India’s poverty as primarily a story of wasted opportunity: vast potential for economic growth only recently released. In China’s case, the problem was primarily one of isolation; in India’s, the obstacle has been colonialism.

Between 1608 and 1858, the British East India Company gradually took over the subcontinent. By a combination of military might and dirty political dealings, a few thousand British soldiers and businessmen conquered a land of over 100 million. They inherited a prosperous economy: India’s textile exports dominated the world market. But, Sachs argues, they reshaped it to Britain’s benefit. For example, through a combination of technological improvement in Britain and trade restrictions placed on India, they transformed India into a net importer of textile goods from Britain.

The merits and downsides of empire have been the topic of much discussion recently, following the publication of the popular reappraisal, Empire, by historian Niall Ferguson. I may have a look at the topic in more detail in future. Essentially, Ferguson argues that by pushing Asia and Africa into industrialisation and world trade, imperialism accelerated economic development to the benefit of everyone. Sachs acknowledges the investments Britain made in India, roads, railways, and electricity and telegraph networks. But he highlights an array of other failures, noting Britain’s lack of interest in education, public health, and solving problems of famine and disease that repeatedly took millions of lives. Furthermore, Sachs argues, the industrialisation Britain initiated was limited, and aimed purely at providing cotton for Britain’s mills, and extraction of other such resources. Industry remained dominated by British businesses, and the Indian businesses that arose were dependent on British funding. It’s a similar picture to that in China under British influence after the Opium Wars began in 1839.

Although empire did extend infrastructure and technology, it did so to Britain’s advantage. Without empire, the same technology could have diffused in many other ways: trade in capital goods, imitation and reverse engineering, the purchase of technical advice… and the spread of scientific knowledge… By keeping its sovereignty, Japan enjoyed an even quicker ascent into industrialisation than did the colonies.

Economic growth per person (”per capita”) between 1600 and 1870 was nil, and between 1870 and 1947 it was just 0.2%, a fifth of Britain’s rate.

When Britain’s rule crumbled and independence came in 1947, India adopted a path of democratic socialism. This meant state control of industry, and a deliberate policy of restricting industrialisation to protect small enterprise. It also meant striving for self-sufficiency in place of foreign trade. It’s strikingly similar to the economic models pursued by many African nations after independence. The result, Sachs argues, was disappointing per capita growth, of only 2% per year. Improvements in agricultural technology, the “Green Revolution”, accounted for much of that.

Although limited reforms took place in the 1980s, it was in 1991 that India properly embraced reform, spurred by a debt servicing crisis (and perhaps partially inspired by the wave of liberalisation sweeping Europe). The government dropped import and export tariffs, allowing the development of an export manufacturing industry (it’s not enough to just make exports easier, unless you have everything you need to manufacture already in the country. Often, you need to import some parts or materials). Slowly, the government allowed foreign investment too. It was a similar reform programme to China’s.

With very different results. India didn’t, as expected, develop primarily through strong textile manufacturing. To almost everyone’s surprise, it became a world leader in outsourced services: call centres, data processing and the like. India became the back-office of the dotcom boom. Responses range in Britain from rage to befuddlement at the likelihood of calling your bank at speaking to somebody in Bombay. But services like this have pushed India to a growth rate of 7% a year. Several factors made it possible: a strong core of technically educated Indians, thanks to a special network of institutes set up in the 1980s; a large collection of Indians working in IT in America, including many Silicon Valley entrepreneurs; and, of course, revolutions in communications. A damaged road from a village could play havoc with exports, but if the village could obtain a satellite dish, it could sell services to the West.

It’s hard to draw direct lessons from the Indian IT experience for Africa, except I suppose to conclude that you never know what a free economy will produce. But the effects of the growth, and the challenges that remain, are most relevant.
Sachs began working with the Government in 1994, advising on the need for further reforms. As in Poland, his advice included both elements of mainstream economic thinking and a more left-wing stance - emphasising the need for free markets, but also for state investment. Reforms must be expanded, he argued, to more areas of the economy. But also, investment must be made by the Government in infrastructure, health and education. He later expanded this plan into an ambitious scheme for massive investment in the 2000s. But in 2004, the Government was ejected from office in the national elections. For although growth had continued to increase - and extreme poverty to decrease at a strikingly similar rate - the progress was heavily limited to urban areas. The new Government is headed by Manmohan Singh, the architect of the economic reforms of the 1990s, and has made it a priority to spread the benefits of growth to rural areas.

What, then, are the lessons of India? Sachs argues throughout his book that geography and geopolitics are as important as politics in why some countries fail to thrive. In India’s case, he acknowledges that these obstacles can be overcome: “The pessimistic argument that I heard… that India is somehow condemned by culture, history, or geopolitics to continued poverty - is wrong.” At the same time, Sachs acknowledges, India “further deepened my understanding of how the physical environment helps to shape economic activity. Geography… continues to affect regional development in countless subtle ways.”

Second, India’s story reiterates that technology is a huge part of the development story. India’s entire boom was made possible by new developments in IT and communications. While this model might not work wholesale transported to India, it’s a reminder that technology will sometimes provide unexpected leaps forward.

Sachs’ perspective on China and India contains some valuable lessons for development-led economics. But the problems of Africa are, of course, unique. Fortunately, Sachs turns his attention fully to Africa in the next chapter.

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