One of the biggest economic questions of our time; why do attempts to establish sustainable economic growth in Africa fail dismally while other countries have succeeded?

This is one of the biggest economic questions, if not the greatest, of our time. At the start of the 1950′s many African countries had higher GDP’s per person than most of Latin America or Asia, had more natural resources, less internal unrest and had been occupied for much shorter periods by colonists (Ethiopia for instance had only been conquered by the Italians at the outbreak of WW2, whereas India had been occupied for over a century by the English). The almost universal lack of development in Africa is a big conundrum on which libraries have been written. I have no plausible answer, just a big question mark.

Some blame the West or some other outside influence (such as the cold war, big business, agricultural lobbies), but given the great diversity in situations, affiliations, history and starting positions of the African countries, it is always possible to come up with one or more countries which do not fit the proposed “external” explanation.

Internal factors, such as ethnic unrest and rampant corruption also fail as sufficient explanations because other countries with internal problems have still developed economically. Japan has notoriously in-bred politicians yet thrived nevertheless. Thailand, India and Burma are as much an ethnic melee as any African country with its artificial boundaries. Some African countries were not artificially formed and had cultures far older than almost anywhere else. Egypt for instance had no artificial borders. As to corruption, there is always the cause-result problem; if you see corruption as just one way for an individual to obtain money the reason for rampant corruption in many underdeveloped countries may be due to the lack of development. Then the question is why there weren’t equally good opportunities in business to become rich?

The most interesting and also dangerous possibility seems to be the cultural explanation. There seems to be a lot of evidence suggesting that different ethnic groups fare completely differently as immigrants in either the US or the EU, even given a certain level of ex ante wealth or position. This is perhaps the strongest indication that something cultural (learned human characteristics transmitted by lineage) is involved in development.

The cultural explanation is dangerous because wrong stories loom everywhere. An example of how easily we can misjudge culture is illustrated by the Chinese: Weber (in his book “…the spirit of Protestantism”) argued that the Chinese culture of Confucianism with its insistence on obedience and lack of independent thinking was very bad for development. Nowadays the same Confucianist culture, with its emphasis on savings and hard work, is seen by many as a positive influence. Therefore, “cultural” explanations for poor development lack credibility.

As cultures in Africa are also very diverse, what we need are sound measures of culture which can be systematically compared. Hofstede (1980) reviewed the many previous attempts to do this and convincingly argued they were no good. His own attempt involved such dimensions as “masculinity” “power distance”, etc… These are really too vague to be of much use. Besides that, his empirical methods were inadequate. He basically labelled a set of answers to vague questions in an appealing way and could only focus on different reports of individuals in offices of one multinational in different countries. Hence he interviewed only those people in underdeveloped countries who did manage to fit into a complex organisation. This almost makes it impossible by design to find anything worthwhile.

A recent cultural explanation, made popular though not originally conceived by Fukuyama (1995), is “trust”. In regions with low trust levels, business is hard because one needs costly pre-commitment devices to trade and no-one has an incentive to become more trusting. This is because the chance of having one’s trust betrayed is very high and detection probabilities for being untrustworthy are very low. In regions with high-trust, business is easier (less transaction costs associated with pre-commitment devices) and no-one has an incentive to become less trusting as the few untrustworthy individuals have a high chance of detection. Though appealing intuitively and supported by cross-sectional evidence from the World Value Survey (about 50000 respondents in 45 different countries in 1980 and 1990) this is not a very convincing explanation. There is no reason why recent immigrants moving from a supposedly low trust region in Africa to a high trust region like the US could not immediately switch to a different level of trust once they have been in a different trust environment for a couple of years. Also, there is again a cause-result problem (do people resort to becoming untrustworthy if other options of obtaining money are depleted? Also, trust is not static but changing over periods). Again, for my best guess approach, see Decoding Humanity: A Short Story of Individual Motivations, Groups, and Societies.

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