Monday, August 17, 2009

A Marshall Plan for Africa?

Glenn Hubbard at Foreign Policy Magazine has an interesting solution for Africa:

The Marshall Plan made loans to European businesses, which repaid them to their local governments, which in turn used that revenue for commercial infrastructure -- ports, roads, railways -- to serve those same businesses. Aid to Africa has instead funded government and NGO development projects, without any involvement of the local business sector. The Marshall Plan worked. Aid to Africa has not. An African Marshall Plan is long, long overdue

Quite true. Foreign aid and development loans have possibly made Africa even poorer, since most of that money is skimmed off the top at every level of corrupt bureaucracy, leaving projects empty handed and Africans struggling to repay the debt. There are many objections and challenges to such a pro-business plan, but Mr. Hubbard has it all covered:

"The Market Failed in Africa."

But take a look at the World Bank's annual report, "Doing Business," and you'll realize that many African economies have never had a business market to fail -- thanks to their governments' dense, unnavigable regulations.


The Marshall Plan in Europe came with conditions: Each country had to adopt policies that allowed its businesses to operate normally. It made the same offer to all of them, and those that refused got no aid. The offer went out to all Europe, but the Eastern bloc, under Soviet threat, declined. Some African countries will also decline. That means they don't get the aid.

"Strong Businesses in Africa Will Be the New Colonialists."

This argument flies in the race of reality. First, Africa was poor before colonialism, and for many countries, colonialism may well have made Africa richer. There were some exceptions, such as the Belgian Congo in the early 20th century, where forced labor for rubber extraction made the people poorer. But overall, Africans in 1960 were healthier, lived longer, and had higher incomes than Africans in 1900.


What has not made Africans richer, however, are their countries' own governments, which have cut off that prosperity in favor of government and NGO assistance and foreign investment that benefits only the elite.

"Infrastructure Must Come Before Business."

In all rich countries, the development of a thriving business sector came before physical and social infrastructure. In fact, the Marshall Plan worked because it made loans to European businesses first, which then paid money back into a national pot to fund commercial infrastructure.


Besides, businesses that have a stake in the maintenance and viability of a given project are bound to be far more apt at building and maintaining infrastructure than aid agencies, which have been trying to do it and failing for the past 40 years.

"Democracy Must Come First."

The real question is not how to promote free elections -- which are certainly a good thing -- but how to promote lasting democracy. For that, the answer is very old and common across the globe: a middle class, created by local business. That's how it worked in Europe, the United States, and in every other enduring democracy on Earth.

"Microfinance Is Enough."

The "Doing Business" rankings show that most poor countries put up huge barriers of red tape that prevent citizens from starting small businesses and getting credit for them. Microfinance goes to unregistered businesses, so it stays under the radar. Yet small and medium businesses are the long-term answer to poverty -- as they have been in developed countries -- and microfinance cannot help them.

"Anti-Corruption Measures Will Make Aid Programs Work Better."

In Africa today, anti-corruption programs are doomed to failure because they leave the anti-business economic system intact. That economic system is based on aid, where the basic unit is government or NGO projects, rather than local businesses, as it is in prosperous countries. Anti-corruption measures do nothing to correct this flawed equation; in fact, they reinforce it. And no amount of transparency will yield economic growth until the structure of the African economy changes.

I don't have much to say about this article except that I absolutely love it. I've felt for a long time that aid to Africa has been deleterious to prosperity and democracy and Glenn has it absolutely correct. I don't care what the socialist and liberal sympathizers say, the reality is unavoidable. I believe such a plan could work, but only under certain conditions, as the original author stated above. I'm almost certain that the plan would fail in some countries, but I really think it could work more often and more powerfully than not.

And if we can help a handful of countries in Africa, the spillover effects could completely transform the entire region.


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