Friday 4 April 2008

Enough capitalism in Burundi?

A few years ago, I wrote a paper which proposed that "the IMF is not capitalist enough in Burundi". The title was a bit vague, being intended to capture several ideas at once, and did not have a great reception. Today, I would break it up into several precise hypotheses which align more with academic expectations for publication, something like:

1. Structural adjustment packages are not associated with significant increases in domestic saving rates (and then I'd identify which exact policies in the packages are best at promoting domestic saving)
2. The number of people earning in the second, third, and fourth quantiles (between 20 percent and 80 percent of the total income earned in the country) does not increase in countries with structural adjustment programs
3. Industrial organisations (whether trade union, managerial, or proprietorial in orientation) increase more quickly in some other economic policy regimes than under structural adjustment.

Conjecture 1 has received support from existing published evidence. The other two are to be tested, although IMF programs have been accused, with empirical evidence, of leading to a static economy which is not conducive to wealth creation among low to middle earners. The failure to promote saving would lead many development economists to call for more "capitalism".

At the back of my mind when writing the original paper was the idea that under capitalism there would be class formation in Marx's tradition of workers forced to work to pay their bills and a middle class who can live off the profits generated by their capital (probably left wing economists would like to say more than this). Then, these classes would cut across the ethnic groupings which have created conflict in Burundi, and ethnic conflict may decline.

There are a lot of assumptions in this argument, and I would sharpen it today into something like "In countries with a large section of the society earning above sub-subsistence wages, or earning in the middle three income quantiles (a less pure characterisation of the bourgeoisie), industrial disputes are more common and ethnic disputes less common". The statement is then testable, though measures of industrial disputes may only be available for rich countries, and characterising disputes - wars, say - as ethnic in origin may be tricky because of the frequent political agitation which uses ethnicity as a cover for other motives.

In much of Africa, there is the emergence of a wealthy elite and highly uneven distribution of income, so there will be a large experiment in the next few decades on whether income stratification reduces the likelihood of ethnic conflict. However, domestic capital accumulation still is missing from many countries, even those with rising inequality, so it is not an experiment in capitalism in its usual Western form.

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