Why is Africa so rich

Why Austria is rich, China is getting richer and Africa remains largely poor

Even decades after their independence, most African countries are still relatively poor. The economist Daron Acemoğlu not only has an explanation for this - but also a great theory about the source of wealth. Not surprising to him that there is still poverty. What is special is that today some regions in the world are prosperous. His theory made him famous together with the political scientist James Robinson.

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DEFAULT: Why are some countries poor and others rich?

Acemoğlu: Many great thinkers have pondered this. To some extent, James Robinson and I have a very simple answer to that. Much of it is about incentives and opportunities. A country does not develop prosperity if there is no incentive for people to invest and to be innovative and productive - just as the broad mass of society must have opportunities. If only a small elite controls important professions, companies, research and science, then there is no prosperity. Most economists agree on that.

DEFAULT: They keep walking ...

Acemoğlu: Our argument is that these incentives and opportunities arise socially and politically. One cannot understand this without delving deeply into institutions, into social norms and into politics. You need a special kind of economic institution that provides secure property rights. At the same time, public services are needed. The government must guarantee equal opportunities, the legal system must protect the weak from the strong. All of these things are part of what we call inclusive economic institutions.

DEFAULT: How do they come about?

Acemoğlu: Politically. They do not arise in a vacuum. When the king or dictator has all the power, you can be lucky for some time and still grow. But at the end of the day there is a conflict between the monopoly of political power and inclusive economic institutions. So if the general public cannot have a say in politics, the economic rules will not be inclusive for long. The problem is that for most of history, neither the political nor the economic institutions have been inclusive.

DEFAULT: Some think that there is poverty because there was exploitation. In your reading, it is not poverty that is surprising, but that some countries have developed these necessary institutions and then prosperity.

Acemoğlu: Yes absolutely. But when you think about the institutions in the world, you cannot ignore the role of the West. The West was the first to have institutions close to inclusive. That is the root of Europe's prosperity. But as Europe developed economically and technologically, it has also built a global colonial empire. It was exploitative in most parts of the world. One cannot understand the economic and political institutions in Latin America, Africa and India today without colonialism. But there are two big buts.

DEFAULT: Which?

Acemoğlu: First: That doesn't explain everything by a long way. Almost every country in Africa has been independent for more than 60 years. Latin America for 200 years. It is not enough to say that Europe has exploited a country and that is why it is poor. Europeans have also brought new technology, resulting in limited growth. It is noteworthy that there was no economic growth in Latin America 100 years after independence and in Africa 50 years after independence. To do this, you have to think about local politics and how governments used the formerly colonial structures. It's about the evolution of these institutions.

DEFAULT: The second but?

Acemoğlu: Inclusive institutions are the exception, not the rule, in all of human history. Almost all countries had exploitative institutions before the Europeans came. It wasn't like they were about to change that, either. The fact that there is political power for the masses is historically a very new phenomenon.

DEFAULT: What role does exploitation play in Europe's prosperity?

Acemoğlu: Some historians still believe that colonialism gave Europe a strong boost. But the evidence from a wide range of literature is that the resources from the colonies are in no way comparable to the economic growth that came from Europe itself. Colonialism, however, has strengthened groups that rebelled against the Crown in England. That also changed the institutions.

DEFAULT: Why is Africa the continent where incentives and opportunities are fewest?

Acemoğlu: Two answers. The first: Colonialism weighs heavily. Not like in India or Latin America, there it had a much stronger effect. But slavery has changed the political map in Africa. And then, when the Europeans came late in the 19th century, they ruled indirectly but very exploitively and invested little locally.

DEFAULT: The second answer?

Acemoğlu: Even before contact with Europeans, Africa was economically and politically different from the rest of the world. Many communities have been decentralized, with no state being able to maintain law and order or provide services. There were norms and traditions that did not always make it easy for things that originated in Europe to be adopted here. Colonialism was exploitative, but most elements of African societies that are bad for growth remained unchanged.

DEFAULT: For example?

Acemoğlu: There are still rules where there is no private ownership of land. There are many divisions in societies that make states powerless. But I want to emphasize that this is not a purely cultural narrative. We are not saying that there is an African culture that does not make development possible. Despite the very difficult initial situation, Botswana has changed its institutions and achieved spectacular economic growth.

DEFAULT: In your book "The Narrow Corridor" you write of the fact that state and society have to drive each other. Doesn't that happen in Africa?

Acemoğlu: Prosperity and freedom require a strong state and a strong society that mobilizes and controls the state. In India, the caste system prevents society from mobilizing. There are many ethnically divided societies in Africa, they are weak. Sometimes it ends up with a state being uncontrolled and despotic. But if the state is also weak, for example only on paper, then in chaos.

DEFAULT: According to their theory, China can never get as rich as the US or Western Europe because only the elite have political power. Have you changed your mind?

Acemoğlu: The first phase of growth in China is easy to explain. The country started with the worst possible institutions and has improved them. That explains the first two decades. Phase two was growth like in the Soviet Union, where the state controlled and invested everything, but there was no widespread innovation. That is not possible with despotic institutions. That was our view of China.

DEFAULT: But?

Acemoğlu: China followed this model until ten years ago. Now it is aware of this weakness. It started an experiment that has never been done before. It is the first despotic state trying to become a technological leader. There is no freedom, but massive investments in technology and research. I don't think it will work, there is a lot of tension in the system. But the country has an advantage in the age of artificial intelligence: it can collect a lot more data than western innovators who are restricted by data protection.

DEFAULT: In the book you also write of a "cage of norms" that blocks economic development in societies.

Acemoğlu: When there is no justice, norms often develop in such a way that everything stays the same. Any form of change is called potential conflict. So the norms are very rigid, there are a lot of things that are not allowed to be done. Also economically! For example, not trading in certain goods, there must be no hierarchies, no inequality. We call this the norm cage. There is no freedom and no prosperity in him.

DEFAULT: An example.

Acemoğlu: Let's take tribes in Africa. Some norms have survived to this day. Look to Nigeria. When you go to the metropolis of Lagos, you don't see it. But when you look in other parts of the country, you find that standards are still very important. The nature of the state is that it orders and regulates society. Whenever states emerge, the norms relax. That's good for people's freedom.

DEFAULT: What is the role of the West in the fight against poverty?

Acemoğlu: The most important thing he can do is take care of himself. He is no longer a role model. 20 years ago you could still say to an African politician: Look at the USA, England or Germany. Nowadays it's no longer like that. We have to create opportunities for the losers of globalization and automation. That happened almost nowhere. There is also social tension in the face of migration. To some extent this is a bottom-up social movement. People are dissatisfied and make themselves heard. The West must be careful not to fall out of the corridor. (Andreas Sator, November 20, 2019)

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