Friday, 29 February 2008

Rwanda's EDPRS

I came across Rwanda's Economic Development and Poverty Reduction Strategy this week, on the finance ministry's website at The plan and the procedure for reaching it are mainstream best practice: education, health, and governance reforms, government support for private sector development, and consultation in preparation.

One thing surprised me; the sky-high inequality, almost as great as Brazil or South Africa. I had always thought of Rwanda, for all its social tensions, as quite equal in distribution of income. The report has a good breakdown of how the distribution has occurred, and where.

One thing did not surprise me; national savings are low, while national investment is high. It is a problem elsewhere in Africa. Frequently growth is quite strong, helped by solid investment rates. However, foreign donations and cheap loans are responsible for holding up the investment, rather than domestic savings. It makes the growth seem artificial in some ways, because donors can decide on any growth rate they like and achieve it by large enough transfers. A major challenge, recognised by Rwanda, is getting savings rates high enough to support growth rather than relying on foreign largesse.

It is common wisdom that strong financial infrastructure is important for mobilising savings, which is one of the reasons that microfinance has achieved such attention in recent years. I'd like to know how East Asian financial mobilisation occurred, and whether the high savings rates were only possible because of microfinance. I've never heard of the Chinese communist party running microfinance.

This evidence would be valuable. It's on my list of things to look up.

Wednesday, 27 February 2008

A shocking atrocity in Burundi

There was a shocking story of an atrocity against a woman in Burundi reported on the UN news site IRIN News ( The woman's husband was convicted for chopping her arms off in 2004, nominally for giving birth to a girl. The husband has recently been released early from his life sentence, and has reportedly made threats against the woman.

The atrocity is the more shocking because women in Burundi, like Rwanda to the north, have had rather more political and personal freedom than elsewhere in Africa. A third of Burundi's parliament is female, and in 1994 its former prime minister was a woman, one of the most senior women either before or since in Africa. Her term was roughly the same as another woman prime minister in Rwanda, where the current proportion of women in Parliament is the highest in the world at 49% (from In Rwanda's capital Kigali, both Rwandan and foreign women walk the streets alone with less evident harassment than in some parts of the UK, for example. Women traders play cat-and-mouse with the police, who seem to chase them away from hawking positions, but the women return promptly.

Perhaps the atrocity was an individually motivated action, rather than the organised sexual violence common across the border in the Democratic Republic of Congo's war. It would be interesting to see a rigorous analysis of how Burundi and Rwanda's sexual balance and attitudes have occurred. The countries are internationally exceptional in many ways, and the origins of their social structures are fascinating.

Monday, 25 February 2008

Disproportionately useful theories #2: MRW growth theory

MRW growth theory's name is from Mankiw, Romer, and Weil, three economists who wrote a paper on economic growth around 1992. It uses a mathematical model to estimate economic growth, based on past data from a group of countries. Economic growth is estimated based on national savings, education, and population growth.

The paper has been heavily criticised: it uses a flawed theoretical model, it examines only a few of the causes of growth, its empirical estimation could be better, its data is imperfect. Even its supporters recognise its limitations.

Yes; and the paper is still an example of how economic research should be. It is scientific in its process: it proposes a model to describe existing data, fits the data sufficiently given the state of empirical techniques at the time, expands the theoretical model to a new setting, and produces predictions from the expanded model which have proved substantially correct. Its predictions are in perhaps the most important area of macroeconomics. Numerous other researchers have published minor or substantial modifications to the theory, and it has given momentum to studies of improved empirical estimation techniques not solely applicable in growth theory but throughout social sciences.

All in all, fab.

Saturday, 23 February 2008

The magic of accumulation

My last post ended without explaining why countries can keep growing and runners can keep running faster. Last time, the cliffhanger; today, the solution according to me.

In economics, it's the accumulation of capital and knowledge. Even if people do not do any more work now than they did ten years ago, people and companies have been investing some of their income during the time, so there are more machines and skills with which to work. That means more output.

In running, even if runners today are no more skilled than they were a decade ago, there has been investment in the science of running - finding more efficient running styles, for example, or better training techniques. These improvements should result in faster times, which they do.

I also expect a tendency for improvements in examination scores for students, for much the same reason. There is annual mourning in the UK over improvements in examination scores, with statements that children cannot be improving each year. Perhaps not each year, but an upward trend should be expected if educational scientists are doing their jobs.

The simultaneous call for a return to an earlier system of education as in the 1950s is flawed for the same reason. Sure, if people were taught according the earlier understanding of education, then their exam results may be comparable with the exam results in the 1950s. But it would throw away 50 years of learning in educational theory. I am not talking about student preferences or ideological or social changes in teaching practice here, but the hard theory of how people learn. People should be improving in intellectual ability by a certain percentage every year, and this may even accelerate if neuroscience and similar theories can bring more analysis to the mix.

While I am moaning, IQ and its usual applications don't exactly overwhelm me. The idea that someone has a fixed intelligence - and cannot overcome it - seems to be nihilistic and practically useless. For what it is worth, it even runs counter to the spirit of science which masters the world, not just describes it. And at least some of the work on IQ, when it has been applied to economics by non-economists, is very poor.

OK, this post started reasonably happily, and ended with a gripe. Here's some cheerier news: Tate and Lyle have decided to make all their sugar Fairtrade when it sold to the public. Probably there is a big PR element here, but still, thanks T&L.

Thursday, 21 February 2008

Breaking records

The world athletics record for two miles run inside a stadium was set last week in Central England. The Ethiopian record breaker ran both miles at close to four minutes per mile. The world record for two miles run outside is already under the threshold.

Apparently, some experts once thought that running faster than four minutes for one mile was impossible, and only fifteen years ago there was discussion whether people were approaching their limits in athletics in events as distinct as the hundred metre sprint and the marathon. In both of these events, the world record has plummeted in the last decade. There is a fair amount of pessimism and resignation to human limits, which is usually misplaced.

The pessimism sometimes is shown in economics too. I am often told that someone's country is growing slowly even if the economy is booming, and that it will never catch up with developed countries' income levels. As in sport, the attitude is misplaced. In capitalist economies, catch-up is actually very rapid.

Tuesday, 19 February 2008

Disproportionately useful theories #1: optimal currency areas

Much economic research is limited in application, perhaps relating to very special country circumstances and behaviour of people. Occasionally, a piece of research is far broader in its application, even though the superficial level of sophistication is no different from the more limited papers.

One of these disproportionately useful theories describes optimal currency areas. The essence of the theory was outlined in a single, short paper in 1961. The theory claims that the geographical areas most suitable for a single currency will have the following properties:

- the areas have trade integration
- if one area has a net trade surplus with another area, it is offset by a net capital deficit
- they have similar responses to external economic events
- they have similar macroeconomic character, in terms of quantities like inflation and government expenditure
- there is free movement of goods, people, and money between them.

The rough idea is that if these conditions hold, then not too many tensions will emerge between the areas under a single currency, and any tensions can be resolved by market mechanisms. Recent theories have refined the ideas, making allowance for things like sticky prices and capital market instability. But the core of the theory has proved remarkably robust, and is recognisable in the criteria which trading blocs such as the European Union apply when assessing whether they should have a single currency.

I suspect the theory has been so successful because it condenses and reapplies some other, well-respected parts of economics like the theory of Pareto optimality to produce a composite which is so logical that there is no need for extended exposition or analysis. In some ways, such an approach is dangerous - one would like an extensive empirical analysis of whether optimality is indeed a consequence of the criteria, and an analysis of whether alternative definitions of optimality could apply, and a full analysis of conditions for failure. The theory of optimal currency areas is so well engineered, however, that is seems likely that it would still be a theoretical core of any new theory, if only to reject the optimality of areas which deviate widely from the conditions.

Sunday, 17 February 2008

Fairtrade and competitive prices

The Fairtrade mark on consumer goods indicates that they meet certain standards, such as guaranteeing a minimum price for producers and being sourced from organisations with genuine control by producers, such as cooperatives. You can see them here (

The project is worthy, though a problem is that so few goods are sold with the Fairtrade mark that there is not much competition between them in markets. The Fairtrade standards do not seem to put a maximum price on goods sold with the Fairtrade logo. In the absence of price controls through price competition or Fairtrade restriction, a good with the Fairtrade mark could have high costs in addition to the Fairtrade standards. The shop which sells the product could mark up the price heavily, for example, to get large profits from the good.

A Fairtrade good does not have to display the split of price into Fairtrade parts and other parts (which other things being equal, buyers would like to see lowered). So buyers are not aware of whether the cost difference between Fairtrade and non-Fairtrade goods is going to the producers or to the shop. As more goods are sold under the mark, the cost difference will tend to decline and be paid to the producer.

Friday, 15 February 2008

The European trade in African footballers

There was a story in the news last week about young African footballers in Europe. It is a story which comes up occasionally: teenagers or their families pay agents in Africa on the understanding that they will transport them to Europe, and then arrange for them to play with a European team. The story sounds unlikely, but may be plausible to poor Africans unfamiliar with the recruitment practices of European clubs. The teenagers are often abandoned on European streets.

The largest European clubs could help by making it clear how they recruit, and by expanding regional African centres for training players as the transit points for skilled under 18s looking for a future in Europe, and by sending information to local youth clubs.

Another step towards a solution is to use an adjusted form of contract to slow the flow of players between the continents and reduce their resale value to European clubs. A side benefit could be to significantly increase export earnings for their countries of origin. The contracts would make it mandatory for clubs employing players of African origin to pay a percentage, say five or ten percent, of all future resale amounts for an African player to their original club or their national sporting federation if they were not employed in Africa. Such contract conditions are not uncommon already among European clubs selling a youth player to a bigger team. The European, African, or World governing bodies could encourage their adoption.

Whether the contract adjustment would work depends on the price elasticities of supply and demand for African footballers. If the supply of young African footballers is comparatively inelastic in response to their expected price, but the demand for them is elastic, then the number of young African players recruited into European clubs will decline, although the African origin countries would be likely to see an increase in export revenues from their sale. These conditions may arise if for instance the pre-adjustment expected amounts are already large enough to attract the footballers, but the European clubs consider the money earned at resale to be an important part of their worth.

Wednesday, 13 February 2008

Forty year plan for economic success

Here is a general plan for government to bring economic success to a low income developing country. It aims to take a country from destitution to incomes close to the world average in around 40 years.

Years 1-10: Identify the major blocks on economic growth. Where the government is directly responsible, stop causing them. Where the government is not directly responsible, do what it can to stop them. Encourage savings in the population by supporting the development of a stable domestic financial sector. Invest in education, particularly at primary level. Use foreign grants and cheap loans to boost the investment rate. Ask for debt cancellation.

Years 11-20: Implement more sophisticated controls on the financial sector, which should be seeing higher domestic savings and growing foreign investment. Liberalise the trade sector, and cautiously liberalise the capital markets. Government savings - ie, saved surpluses in budgets - can be maintained for future investment purposes, or in the form of foreign funds to keep the exchange rate artificially low. Protection of new companies or their domestic networks may be suitable in strategic industries. Encourage diversification of output through (limited) government investment, information publication, or infrastructure development. Increase education expenditure in primary and secondary schooling. Start to invest to offset the effects of global warming.

Years 21-30: Continued cautious liberalisation of the capital markets. Reform of tax system towards a form where income tax is the principal source of revenue. Maintain practices from years 11-20. Reduce industrial protection very gradually, and keeping companies informed of future plans. Increase secondary schooling expenditure and university schooling. Enter regional trade bodies.

Years 31-40: If politically possible, maintain a low exchange rate, so that the economy continues to grow in proportion to domestic investment without having to worry excessively about changes in domestic demand. Strengthen regional trade links. Increase sophistication of government and central banking economic activities. Start to lecture developed countries about the superiority of the government's economic approach. Worry about global warming.

The plan is somewhere between neoliberalism, Post-Washington Consensus, and the pragmatic ideas associated with Dani Rodrik. It doesn't reject Keynesianism or radical schools of thought, but tries to get into a position where the simple prescriptions of mainstream theory are workable without recourse to the generally more sophisticated ideas of the alternatives. If the country seems to be deserving, does not disrupt international markets, or is invaluable to them, then the plan should fly.

Tuesday, 12 February 2008

Reading Rwanda

In much of Africa, it is possible to recognise the influence of recent social and economic history in the way people act. If you didn't know that Ghana had social stability and comparatively equitable growth, meeting people around the capital Accra would give you that impression. If you didn't know that South Africa was tough, inequitable, and economically advanced, thirty seconds in Johannesburg would lead you to that conclusion.

In Rwanda, I find it much more difficult. The capital, Kigali, is quite pretty, and quiet, with hospitable and non-avaricious people. The extreme violence of the 1994 war is only superficially suggested the unusually high number of amputees. Partially it may be because of Rwandan resilience; partially because there is perhaps no obvious way in which it could manifest; partially because I am not skilled enough to recognise the effects; partially because the experience is utterly beyond anything I have known.

In Johannesburg, the gestures and speech of the residents are recognisable to anyone who has lived in a large city, although even experience of a major Western city may leave people unprepared for the intensity of Jo'burg. The Rwandan capital Kigali, and the southern university town Butare, a few dozen kilometres from active war zones and threatened by military spillovers from them, just seem peaceful. Butare is like places in almost every country, with tracks leading to other similar towns, and a few buses waiting outside a cafe and some shops before carrying passengers elsewhere, whilst Butare mothers and grandmothers with babies wait only for some charity.

It's been a few years since I visited, so maybe it is easier to read now.

Monday, 11 February 2008

The legacy of Tutsi leaders

BBC News is reporting that arrest warrants have been issued in Spain for 40 Rwandan army officers, for crimes committed after the current government routed the regime responsible for the 1994 genocide against the Tutsi ethnic group. They are accused of a retaliatory campaign of genocide against the Hutu ethnic group. The Rwandan government rejects the charges, and
it seems unlikely that Spain will be able to try many or any of the accused in the absence of overwhelming public evidence. A French charge related to the same period against senior Rwandan figures was made two years ago, and created diplomatic tensions.

A less well-known figure, but whose legacy is perhaps more notable and important for his country, is Pierre Buyoya, the former Tutsi President of Burundi. He came to power in a bloodless military coup in 1987 against another military leader, and initiated reforms which led to democratic elections in 1993. He lost the elections and became among the first ruling African leaders (perhaps the first) who was in a position to overturn an electoral loss, but chose not to do so.

The Hutu winner was assassinated shortly afterwards. I am unaware of any evidence that Buyoya was involved. There are better historians than me, but my reading on recent Burundian history does not show attribution of guilt even by historians who are critical of past Tutsi leaders.

Buyoya returned to power in a military coup against the democratic government in 1996, after an outbreak of civil war and the genocide against his ethnic group in Rwanda to the north. Whether his action had any justification, it did not receive the sympathy of surrounding states, who imposed an economic embargo against Burundi. In fact the leaders of Kenya and Uganda, to name two of those states, turned out to have fewer democratic credentials than Buyoya, who relinquished power for a second time in 2003.

Buyoya's legacy may be blackened by new evidence on his role in government. In a country with such division and civil strife, there may not be any unequivocally good leaders. But in the long run, Buyoya may be the closest to a national political hero to emerge from the ruling Tutsi elite since early post-independence. He may also be forgotten, though.

Saturday, 9 February 2008

Where is the Keynes of environmental analysis?

There is an irritating problem with conventional growth theory, which comes from environmental damage. Economic output tends to increase the output of things which damage the environment, such as greenhouse gases from burning coal and oil. A recent report commissioned by UK finance ministry suggested that the long term damage will be equivalent to contracting the world economy by five percent every year, forever. This will probably exceed growth from other sources, so in other words, economic history will start to reverse and the world may end up looking something like it did a thousand years ago, that is, fairly rubbish in places. Even if the estimate is overblown, just three percent would still probably reduce the world economy overall, but we would reach catastrophe less quickly.

Growth theory is progressing quite nicely, and there are some interesting results. But it does not really seem to have risen to the enormous challenges of environment damage. The methods and analysis are all very "route one", the sort of thing that anyone can do if they worry away at things for long enough. Growth-caused global warming is civilisation threatening, and requires the sort of pioneering, iconoclastic, shocking, and useful insights that a Marx, a Keynes, or a Friedman made to the challenges of their day. Adjustments in discount rates or accelerated capital depreciation just don't measure up to the analytical and applied task.

The glories of growth theory

One of my research specialisations is growth theory, which looks at the causes and nature of changes in economic output. It has been actively researched in the two decades, with improvements in theoretical modelling and applied analysis.

Growth theory is important for many reasons. A country with a high growth rate will see its national income increase quickly, which is highly likely to result in people's average incomes rising quickly over time, at least in the long run, with all the social benefits that usually brings. Few things are more likely to lead to social instability than a contracting economy. Most issues of concern to macroeconomists, such as inflation control or the theory of the firm, at least partially have as their indirect aim the promotion of economic growth.

Growth is exceptional in human history, with almost all of our past spent in extreme poverty. The driving force behind the exceptional change in the last two hundred and fifty years has been capital accumulation, either through market mechanisms or through state involvement - either capitalists save money and goods, or the state does. Scientific developments have increased the value of capital accumulation enormously. To condense the main conclusions of growth theory, what eases capital accumulation helps growth.

Friday, 8 February 2008

Africa Cup of Nations Semi finals

The African Cup of Nations semi finals were held yesterday.

The first, Ghana opposing Cameroon was OK. Nothing special, though, which was disappointing. The match ended 1-0, and the 90 minutes perfectly suited the scoreline, with Ghana failing to take their chances, and the slightly better team taking one of theirs. There was an odd point in the game, where one of the players shoved over a stretcher bearer who was tending to an injured player. There seemed to be no reason for the push; maybe he recognised the stretcher bearer from the pub the previous night. Weird.

The Cote d'Ivoire-Egypt match was much more the business. It had some of the character of a World Cup Brazil-Italy game. Cote d'Ivoire have an attacking style, but they were slightly below par last night, and Egypt were efficient and relentless in defence. The Egyptian attack in the end showed that they are as good as anyone in the competition, and put four past the Ivorian goalkeeper, who had previously only let in a singleton. 4-1 at the end of normal time, and Cameroon play Egypt on Sunday.

Thursday, 7 February 2008

DR Congo and other people's problems

There was an earthquake in eastern DR Congo last weekend, and there is an ongoing outbreak of cholera. There are major problems for the whole country in healthcare and economic development. Sorting these problems out would be so much easier if there were not foreign supported militias running around the east of country stealing, raping and killing when the urge takes them.

The most visible of these militias is from Rwanda, having fled after the Rwandan genocide. They are opposed by the group affiliated to another rebel soldier who is allegedly supported by the current Rwanda government, although the rebel's group also fights against the national government. The group should not be confused with any group allegedly funded by the Ugandan government (groups who have also fought the Congolese government), nor rebels from Burundi taking part in cross-border raids. They are also distinct from regular armies from those countries, and from Angola, the Central African Republic, and Zimbabwe, who now have all left DR Congo, at least for the moment. And please don't mistake them for the main Sudanese rebel group who (reportedly) left a few days ago.

DR Congo's internal security problems are frankly larger than those of any of its neighbours, and more people have died in its last war than in recent wars in its neighbours. The mean-spirited cry in western countries that too many foreigners are bringing their problems to them is not mean-spirited in DR Congo; foreigners in DR Congo are using it as a playground to fight bigger battles and inflict more suffering for longer than they could at home.

Rebel groups and former refugees should be the problem of their own countries, not DR Congo. The transfer of responsibility can begin with the Rwandans who were formerly refugees but who now have no business in DR Congo. The international community should work with the Rwandan government to assist their prompt repatriation, and fair treatment there. Yes, it is an administrative burden and may create tensions in Rwanda, but that is the problem of Rwanda with international assistance if they will. There will be a rump of Rwandans who are afraid of return because of their actions in Rwanda or DR Congo, but their status is clarified by their decision, and confronting them will be easier if they cannot hide in and feed on refugee populations. If their rebel opponents are not pacified by this action, their status locally and internationally is also clarified as foreign-aligned criminals.

National solidarity is important, but development in western Congo should not be given a low priority because of the conflict in the East. Growth - high, explosive growth - can occur in one part of the country while another isolated part fights, as Uganda and other countries have shown. Poverty in western Congo is a humanitarian disaster and should be treated as such, in the same way as a disease is treated despite a war going on around the doctors. Kinshasa is la belle - the beautiful - not Kinshasa la poubelle - dustbin - of all the region's problems. Western Congo has the geographical, economic, and human skill advantages of a Ghana, and there is no reason why it should not be as pleasant and successful as the West African state. Western prosperity could fund peacekeeping and provide an example in the East.

Tuesday, 5 February 2008

Desert island economics

Economic systems can be a little bamboozling, so I like to think about economies with a small number of people, see how they interact with each other, and watch how growth occurs there. Desert islands are sometimes taken as examples by other economists.

For example, on a tropical island with two people Alison and Bertha, let's say that they have enough to eat from coconut trees. Alison likes to hear Bertha sing and Bertha likes to see Alison dance. One day Alison makes Bertha an offer: I will dance for you, if you sing for me. OK, says Bertha, and twenty minutes later they have an economy with total value added of one song and one dance per day.

A few days later, Bertha finds out that Alison is not really tired after her dancing, so Bertha makes another offer: you dance for me for seven hours, and I will sing for you for seven hours. We can do lunch breaks as well. OK, says Alison, your sharp observation has improved the operation of the market. Let's do it. Total economy value: seven hours of song and seven hours of dance.

There's a shipwreck. Clare survives and drags herself on the beach, and reveals she used to be a civil servant. She's got an idea: set up something like a small government, and us three might be happier. Alison and Bertha agree to try it, and Clare levies a tax: every six dances that Alison does, she has to do one in a place decided by Clare (she promises that her decision will be in the public interest). Clare levies another tax: every six songs that Bertha sings, she has to sing one in a place decided by Clare. Alison and Bertha are not too happy about this, but cheer up when Clare clears some plants, and Alison and Bertha perform their three taxed songs and dances publicly for everyone's enjoyment.

There's another shipwreck, and Diana is washed on a beach. She's a dance instructor! So she makes Alison an offer: you dance for me, and I will teach you new dance moves. OK, agrees Alison, but I will not be able to dance for Bertha so much today if I am to invest in my human capital by paying for your dance instruction. So she dances for just six hours for Bertha, and one hour for Diana. Diana teaches Alison for one hour. That day, the total economic output is six hours of song, seven hours of dance, and one hour of instruction. Clare does not levy a tax on Diana's teaching, as she considers it beneficial to everyone.

The next day, Alison shows off her new dance to Bertha. It's so good that Bertha will sing for two hours just for one hour of dance from Alison. Alison uses part of the remaining time to get an extra hour of instruction from Diana, and part of the time to sun herself on the beach with Clare. The total output that day is seven hours of song, three and a half hours of improved dance, and an hour of instruction. Alison's human capital investment has resulted in increased productivity, which has led to increased output and increased leisure time.

Clare notes that the economy is getting a bit complicated for the purposes of accounting, so suggests setting up a form of money - coconut shells with an official marking on that only she can make with everyone else's approval. The others agree, and Clare makes a hundred marked shells and gives twenty five to each person on the island. She announces that the government will take tax only in the form of shells, and will pay in the form of shells - it starts by saying that one hour of song is worth five shells, one hour of improved dance is worth ten shells, and one hour of teaching is worth ten shells. Because everyone has to deal with the government regularly, they soon get used to pricing in shells, and even adjust prices as supply and demand changes. After a few days, the market sets prices more than the government.

Well, that's one way to set up an economy, with market exchange, market completion, capital accumulation, productivity and output growth, and money. With another three people and a dozen more paragraphs, you could have immigration, central banking, international trade, government transfers, institutional design, currencies. Pretty much all of the theory relating to modern economics can equally be applied in small economies, but is often far easier to understand in them. Even the theory of perfect competition, which assumes a very large number of market participants, is rightly being refined in modern economic work into recognition that the number of market participants is always finite, so individuals will affect the market when they make decisions.

My, this blog article has taken over an hour! Probably it will be useful in economics teaching though.

African Cup of Nations

The African Cup of Nations soccer tournament is coming to its conclusion this week. The quarter final matches were played over the last two days, and they were very exciting. The semi-finals later in the week will be:

Ghana (the hosts) v Cameroon
Egypt (the holders) v Ivory Coast

These teams were probably the best teams in the competition. Ghana and Ivory Coast have perfect winning records in the qualifying and knock-out stages, and Ivory Coast have averaged three goals a game with only one against them in the whole tournament. Given that international tournaments' semis are usually better than their finals, and often the highlight of the whole thing, that's my Thursday and Friday evening sorted.

Sunday, 3 February 2008

Institutions of democracy

And while I am talking about newly democratic countries...

In applied economics, particularly since the experience of Eastern Europe and Russia in the 1990s, there has been a great emphasis on robust institutions being required for a transition to a capitalist economic system from a state-run economic system. "Institutions" here is a broad term, including organisations like government regulatory bodies and consumer rights bodies, but also attitudes and relations of people.

No doubt some political theorists have proposed necessary requirements for a transition from an authoritarian system to a democratic one in the light of recent experience. Some of them seem likely to overlap with the institutional demands of capitalism, such as good knowledge of the operation of the system by a wide number of participants, and protection against capture by a small number of individuals.

One requirement in the economic case is probably low or moderate degrees of economic risk. Rationally, some Eastern Europeans were unwilling to participate in some capitalist markets in the presence of extreme risk in those markets or in the macroeconomy. It would be interesting to know whether perceived political risk leads to increased conservatism in newly democratised countries, or complete withdrawal from the political process.

Saturday, 2 February 2008

Kenyan clashes

Kenya has seen civil clashes following the disputed general elections a month ago. The international media reporting has often been along the lines of "Conflict arrives in one of Africa's most prosperous and stable countries". The conflict has had a clear ethnic dimension, which has surprised some observers, with clashes between the Kikuyu group (from central Kenya, and associated with the incumbent president), and the Luo group (from Western Kenya and associated with the rival presidential candidate who claims to have been cheated in the election).

Kenya does not have a history of ethnic tension along the lines of, say, Rwanda, but Kenyans are fully aware of their ethnic identity and I have heard anti-Kikuyu sentiments in the capital Nairobi relating to corruption. Nevertheless, the ethnic diversity in Kenya would seem to provide some protection against ethnic tension - the majority of the country are neither Kikuyu nor Luo and would not want to see their country destroyed for an in-fight. The situation is very different in the ethnically torn countries of Rwanda and Burundi, where almost everyone is in one of two ethnic groups, although there is considerable debate whether ethnicity is meaningful in those countries, or just a terrible social construct. So, the Kenyan tension is a bit surprising, and it seems unlikely that the worst predictions of a war will happen in Kenya, at least for ethnic reasons.

The poverty in Kenya is perhaps more of a explanatory factor behind the conflict. Although described as prosperous, the comparison is with the surrounding countries, several of which have seen conflict in recent years. Growth in Kenya is lower than many other stable African states, which has been ascribed partially to a high rate of corruption. For the often very industrious and enterprising Kenyan workforce, the rate of growth must be disappointing and frustrating for their manifest ambitions.

It is also possible that the recent advent of multi-party democracy provided a focus for ethnic tensions, by the identification of ethnic groups with certain political parties. The ethnic diversity again provides a caution against subscribing too exactly to this theory, since the two major political parties must have supporters from many different ethnic groups, purely because of the size of the votes each received.

Perhaps the exit of former president Daniel Arap Moi from politics was another indirect contributory factor. Arap Moi, like Mobutu in Zaire, was widely criticised for corruption and suppressing democratic institutions but survived for decades in power. The skill of an Arap Moi or Mobutu in controlling a country and balancing ethnic groups and tensions cannot be underestimated. Kenya may need a new Arap Moi, but one with the skills and ideas for a democratic regime. Sadly, as political stalemate and ethnic clashes continue, it seems that neither of the main players have them.

Welcome to the blog

Testing, testing, 1-2-3. Oh, the post has appeared on the blog...

Um, hi. I'm new to this blogging thing, though I do run, which is being updated and will be really good when it completed around, um, April.

So here's the sales pitch for this blog: Sub-Saharan Africa is going to be an economic success story, to rival China or India. Great Lakes Economics tells you why it is going to happen, and challenges negative reporting about the continent. It describes where the booms are happening, and who and what is driving them. The blog will often ramble into other African and economic topics.

The "Great Lakes" parts describes the area of central Africa surrounding Burundi and Rwanda, which will feature on the blog frequently.

Hope you find it interesting, rewarding, or lucrative.