Hollywood Blood Diamonds

Blogs are for less formal notes. Part of researching African economic development is less formal too. Watching movies instead of academic research.

The first few minutes of Blood Diamonds show a poor fishing village where father works and all hope of future progress rests on his children (or at least, his son) going to school to become a doctor. In Hollywood, all parents seems to hope their child will become a doctor. Why not have a movie where children are interested in history, in learning why some countries are poor and others rich. Italians in the 1500s studied arithmetic and accounting along with other studies, and were highly valued across Europe.

The fishing village is a story in itself. Why in 2006 are villagers fishing with old wooden boats and returning with six fish on a single line? That is what American audiences expect in a movie about Africa. Why not have a movie chronicling a dozen African entrepreneurs fighting to establish and defend new enterprises? Private cell phones enterprises in Tanzania and Zimbabwe, modern fishing boats on Lake Victoria, tomato processing plants in Ghana. Each of these enterprises were disrupted by government bureaucrats or twisted by foreign aid funding.

Highly-recommended recent books on African enterprise and conflict include Robert Guest's The Shackled Continent, listed, with others on our Africa page (www.EconomicThinking.org/Africa).

From African chaos Blood Diamonds shifts scenes to European diplomats committed to solving Africa's economic and political problems, which are described this way:

"Throughout the history of Africa, whenever a substance of value is found, the locals die. In great number and in misery. This was true of ivory, rubber, gold, and oil. It is now true of diamonds." (Actors lines at European summit early in "Blood Diamonds") Next line "We must act to prohibit..."

This sweeping generalization is for rhetorical flair, but it is worth examining critically.

One could say equally of the United States: "Throughout its history, whenever a substance of value is found the locals prosper and flourish. English common law traditions of secure property rights, limited government, and the rule of law, encourage and protect production of agricultural crops and resources valued elsewhere in the world." It is true that American native populations died in great numbers as Europeans brought new diseases. And of course U.S. government laws were not just to either African slaves or the American indians that survived smallpox and other diseases.

It is true too that treasure resources like gold, diamonds and oil create different incentives than do minerals, crops and forests that take hard work to dig or grow, harvest, and transport. West Africa prospered for decades as Africans, temporarily enjoying secure property rights, vastly expanded production of cocoa, tea, palm oil, and other agricultural products. From 1900 to 1960, as population quadrupled in West Africa, average wealth also quadrupled.

In Ghana, though an English colony during this period, it was African entrepreneurs that were responsible for the astonishing expansion of cocoa plantations. Nigerian immigrants were the first to rapidly expand cocoa production on forest land distant from local villages. As production expanded, workers were hired from local tribes. As more and more workers learned the trade, purchased their own property, and improved production, more workers came from many miles away to try their hand at these new enterprises.

The British neither funded nor managed cocoa production. They were mostly sipping tea and scarcely knew of the complex agricultural revolution taking place away from British outposts. Anthropologist Polly Hill did the original field research and uncovered the astonishing story of migration, enterprise, and prosperity that followed the discovery of a "substance of value": cocoa. Just as tobacco production brought rapid prosperity to the early immigrants in Virginia, encouraging rapidly expanded immigration from Europe, so cocoa was a magnet for migration to Ghana, northern Nigeria, and other cocoa-producing area in West Africa.

So what happened next? How come West Africa's natural advantage in growing crops did not continue to raise living standards after the 1960s. That is the bigger story that explains far more of why much of Africa is poorer today than it was in 1960. But it is not as simple a story as claiming that diamonds, ivory, and oil cause turmoil and poverty in Africa.

Oil discovered in Pennsylvania, Ohio, Texas and California brought thousands of jobs and vast wealth to millions of American wildcatters, geologists, speculators, and stockholders. And today in Pittsburgh, Houston, Austin, and other cities, dozens of hospitals, universities, office complexes, and factories were funded on oil weath either invested or donated.

Oil wealth accumulated by John D. Rockefeller in fact brought major advances in public health around the world. Then, as today, the richest man in the world spent vast amounts of her personal wealth to try to reduce diseases like hookworm, Yellow Fever, and malaria. (I am reading To Cast Out Disease: A History of the International Health Division of Rockefeller Foundation (1913-1951))

The bigger problems for Africa have been European bureaucrats who think speeches at conferences and international agreements banning ivory or conflict-diamond sales will solve Africa's problems. European and American government officials could do much more to help Africa by removing quotas, tariffs, and import bans on goods produced in Africa. And after early centuries of taking Africans as slaves to the new world, now Europeans ban most Africans from leaving chaos at home to live and world for a time in Europe or America.

Public Health (Socialism) for Africa

Review of Meredeth Turshen's Privatizing Health Services in Africa. (See chapters available online here)

In researching alternative perspectives I found this book, with some chapters online at the link. Interesting that the author claims the victory of Monetarism over Keynesianism is somehow the reason for loss of faith in government-run public health and other services. Probably the fall of communism and collapse of socialism in England, plus the relatively poor results from decades of foreign-aid funded health services are more the reason.

(International agencies and the Federal Reserve System in the U.S. are full of Monetarist economists in part because through the 1960s, 1970s, and 1980s these economists could not get jobs in left-wing Keynesian university economics departments. Rutgers, where the author teaches, forced its few free-market economists out in the 1970s, and, being Austrian rather than Monetarists, they formed the early core of the then-unknown but now highly-regarded George Mason University economics department.)

The author faults governments in Eastern Europe for "abdicating decades-old commitments to public housing, public education, and public health." (page 1). Of course for Eastern Europeans these socialist "commitments" came at high cost and with considerable baggage (communism!), not to mention poverty. Eastern European countries, apparently not having learned the lesson about socialism in general, still provide government-funded education and health care (though informal private payments improve speed and quality of service).

In any case it is worth reading at least the first chapters of this book to gain a glimpse of the mind-set of a past generation of scholars whose socialist ideas so long inspired international aid agencies and governments in Africa. And for a market-perspective on this sad history see William Easterly's recent book White Man's Burden and Robert Guest's Shackled Continent (both due out soon in inexpensive paperback editions).

Clearing a Field of Dreams in Africa

I can see the attraction of aging rock musicians to the Live 8 project.  Wouldn't it be cool if any of us could help Africans just by doing what we are good at and like to do?  Performers perform. After years of practice they learn how to make song and spectacle.

Wouldn't it be great, rockers think, if they could help save Africa just by playing music? 

In a sense they have the right idea, just the wrong profession.  Turns out Africans already have music skills and accomplished bands, both young and aging. 

Far more gain might follow the Live 8 rockers doing month-long concert tours in Africa and selling the videos of music and scenery to television, cable, and pay-per-view around the world.  At least they and the world might learn something real about Africa that way.  What’s in store with Live 8, many suspect, is more music and emotion mixed with empty bowls and imploring looks to the camera.

They could try a "play for the people, stay with the people, help the people" tour, promising to stay out of western hotels and away from western aid projects. Between performances, rockers could invest time learning about the life and culture of everyday working Africans.  If they could bring the images and stories of everyday Africans to the attention of the world, that would be a great service.  Americans, for example, would be surprised to learn that the majority of Africans don't spend their lives scrambling for bags of rice when western aid trucks appear. Or rockers could tour refugee camps full of people eager and fully capable of leaving and getting on with their lives, if only there weren’t surrounded by U.N. “peacekeepers” (and troops from various governments) enforcing arbitrary restrictions on the freedom of movement.

A "Live 8 Reality Tour" would reveal that most Africans, like most people everywhere else, invest much of their lives making a living either from the hard earth as farmers, or fashioning the fruit of the earth into foods and fabric, and these into meals and clothes. People in Africa and elsewhere work at drawing minerals from the earth and mixing these metals and other materials, and in shaping these into useful products.

It is here that our Live 8 Reality Tour would stumble upon an hard reality. Most everyday African’s do everyday things very differently than workers in America and Europe. Hopefully rockers and their audience worldwide would wonder why working African’s lack the tools and equipment Americans and Europeans take for granted.

Far more useful to Africans in Africa would be a tour of folks who know about tools and machinery, rather than just about music. Tools and machinery, roads and power lines, factories and warehouses, don’t just spring from the ground. They require first a detailed infrastructure of rules and enforceable contracts that assure investors (either Africans or others with saved funds to invest), that the tools and machinery sent to Africa or built in Africa will be protected from theft or confiscation.

Do people have rights to economic freedom, to produce what they choose as long as they don’t infringe on the equal rights of others? If people have rights to be secure in the use of their arms and legs and minds, do they have equal or similar rights to produce goods and services with tools and equipment? Do they have rights to hire others to make use of their tools and machinery? If not, why not?

In the movie “Field of Dreams” a farmer has a vision that if he builds a baseball field, spirit players from the past will come to play a game and right a wrong from baseball history. The baseball field was built with great effort and expense by the farmer. And with great ridicule, since no one in the farmer’s small town could imagine people far away just waiting for the right field to be cleared and prepared so they could come. But the farmer reasoned that until the field was well-build and equipped the spirit players would not appear. He built it and they came.

Millions of Americans and Europeans with billions of investment dollars are like spirit players waiting to right the great wrongs of African history. Just as baseball players can’t play in a cornfield, entrepreneurs and businessmen can’t play their game of ingenuity and enterprise without a clear field, without a field where rules are enforced, and don’t change after the game has started, or when one team gets ahead.

So, pick your metaphor, rock concerts or baseball games. Neither is quite like the daily work and enterprise each of us engages in. But a rock concert is a few people up on stage making lots of noise for a large audience. The rest of us just watch and listen. It is a top-down sort of enterprise. A baseball game can as well be a few playing while many sit and watch. But with baseball, football, basketball, and other sports, players engage in a symphony of cooperation and competition, all with established rules and swift sanctions for rule-breakers.

I suspect most Africans can make enough of their own music, and would be happy to attend their own concerts. And they would prefer to supply donations for their own charities. But as so many posts on CoolestAfricans and the Uhuru Ni Haki (http://uhurunihaki.blogspot.com/) make clear, what is needed is a faith in economic freedom, a faith that just clearing the cornfields of government red tape and regulations would open vast fields of dreams for African entrepreneurs.

Build these fields and Africa's future enterprises and capital investments will come.

Don't Hector the Farmers and Don't Wrap the Veggies

[an edited version of this essay was published by www.AWorldConnected.org as "Two Approaches to Development": http://www.aworldconnected.org/article.php/1034.html)

Too bad New York Times reporters don't read Forbes.

Contrast a Forbes article (below) about a global corporation bringing to developing countries the know how for producing and the trust for buying quality goods, with a recent NYT article. In "Kenyan Village Serves as Test Case in Fight on Poverty."
[www.nytimes.com/2005/04/04/international/africa/04village.html?] the NYT gives its usual glowing and optimistic report on yet another go at foreign-aid based development.

Jeffrey Sachs' Earth Institute is going to try to teach people in one single Kenyan village how to farm (I hope they like farming...). Then they plan to really ramp-up: "Eventually there will be 10 such test villages, scattered across the world's poorest continent."

How does this new Sachs-inspired project work? The New York Times describes how "hope decended onto" a Kenyan cornfield: "No, no, no, no!" cried Herine Okoth, an agricultural extension worker, as she marched over the freshly tilled land. "Stop!" The extension worker's energetic nos were directed at Patricia Awino Odera "a frail-looking 54-year-old grandmother who had never had a day of schooling in her life [why should this matter? Do people learn proper "hoeing" in school?], had thrown fertilizer in with her corn seeds and spaced her holes too closely, both of which would reduce the harvest she and her children would get."

The farming lesson from Herine Okoth continues: "We agreed that you'd put the fertilizer in first, separate from the maize. It's not so difficult. It's like this. Fertilizer first. Then cover it with some dirt. Then throw in the seeds. Then cover those. It's not hard at all."

I hope the Earth Institute, U.N., World Bank, etc. are up to it. No doubt development experts are now crisscrossing the globe to coordinate planning and funding for teaching more African about hoeing. (Okay, enough sarcasm for now. Maybe in the end some good things will flow from the project.)

Elsewhere in the developing world, Forbes magazine reports on a private-sector effort to improve the quality of goods available to small enterprises. Metro, the fast-growing German firm is expanding worldwide in an effort to increase sales and profits. Metro also provides farmers tips on producing higher-quality goods. Let's see which development project best services people in the developing world. To start with, though, Metro has a track record of success unmatched by foreign-aid funded development projects. Beginning in Poland and Hungary right after the fall of communism, Metro's for-profit operations have expanded to Moldova and other countries in Eastern Europe, and to India, Vietnam and China.

Globalization moves goods and services, capital and people, knowledge and news, around the world. And it brings trust to places where long experience with both communism and corruption limit trust to extended families.

Titled "Don't Wrap the Veggies," Forbes reports on this entrepreneurial German corporation, a Costco-like (members-only, warehouse format) supermarket for the developing world. The firm targets the growing class of entrepreneurs in developing countries. Metro started internationally in Poland and Hungary right after communism collapsed.

The first couple paragraphs of the story tell of creating distribution efficiencies as Metro's Vietnam stores moved to buy directly from farmers. Like McDonalds in the USSR, they had to push knowhow and technology back through the supply chain to get the quality, reliability and prices they wanted. Deeper in the story are great observations on how global corporations like Metro create trust with skeptical buyers.

We laugh at Monty Python's Dead-Parrot sketch. Who in the UK or US would really try to sell a dead parrot (claiming it was just asleep)? I wonder if consumers in Asia would get the joke.

When Metro launched their store in Shanghai they made various trust-oriented mistakes: "We discovered that in China fresh means ‘alive,'" says Körber. Metro installed tanks for snakes, frogs and snails in its Shanghai store." Chinese vendors offer live fish because consumers just don't trust them to promise fish are fresh (as I have learned not to trust that promise in Chinese restaurants run by recent immigrants to the U.S.).

In Metro's new Vietnam store they started with German-style order in the produce section: stacks of neatly wrapped tomatoes: "People started ripping the packages open. They thought we were hiding rotten fruit underneath the pretty pieces on top."

Metro spends a lot of time teaching producers in the developing world how to produce cleaner, higher-quality products. And it thereby saves small entrepreneurs lots of time and money.

"The cash-and-carry format--no credit and serve yourself--works remarkably well in emerging markets with throngs of small enterprises. In Asia the first move off the farm might be to peddle snacks and cigarettes at a kiosk. Likewise someone who has lost a job at a state-owned enterprise in the former Soviet bloc might open a small shop or restaurant. Buying supplies can mean endless trips to traditional markets--complete with flies, dicey fruit and raw meat sitting in the sun--or buying from unscrupulous or unreliable wholesalers."

Without a functional legal system, small businesspeople have little recourse against shady vendors. "Buyer-beware" means buyer be really wary. Global corporations introduce both knowhow and trust to formerly-communist countries. Trust saves time. Reagan's quote was "trust but verify." Good policy for nuclear disarmament, but not for buying fish and veggies. Time spent verifying the quality of each good supplied is time lost to adding value to those goods.

And learning how to provide quality products for international corporations opens the door to international trade: "Farmers gain from the entrée to a wider world that a network like Metro's can provide (unless protectionist politicians block them). Farm-raised Vietnamese catfish and shrimp are now supplying Metro stores worldwide. In India Metro is working with nonprofits to train 14,000 shepherds and 1,000 fishermen in hygiene and chilling techniques, even as it finances repairs to ocean piers for tsunami-stricken fishermen. For Metro, it's not charity so much as quality control. "

Lots of people work full-time telling other people what to do and how to do it. The profit motive creates one set of institutions and incentives for people with wealth and knowledge to give good advice, and for people with less wealth and knowledge to act on that advice. Nonprofit institutions create, unfortunately, a different set of incentives both for giving advice, and for acting on advice.

New York Times reporters and editors seem to prefer nonprofit incentives and development adventures. Forbes reporters and editors seem to prefer for-profit adventures. New York Times readers are encouraged to donate to projects like Jeffrey Sach's Earth Institute. Forbes readers are encouraged to invest in self-sustaining enterprises like Metro, enterprises that find ways to improve productivity in the developing world and at the same time create wealth for stockholders. Results from these for-profit institutions contrast starkly with nonprofit groups like the Earth Institute that manage to consume the wealth of donors while while hectoring poor farmers around the world.

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The full article is on the Forbes site (URL below).

http://www.forbes.com/forbes/2005/0418/094_3.html

Greg Rehmke

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Ghana's "scant $3 billion, supporting some 20 million"

According to the New York Times lead editorial on April 25, Ghana is the new success story of Africa. Though still terribly poor, Ghana is a role model of stability. And its needs only.... you guessed it: more foreign aid. Tony Blair's "Marshall Plan for Africa" is just the ticket, according to the NYT (by the way, the Marshall Plan was a huge failure in the UK, where it funded socialism, and France, where it funded French colonialism in Vietnam. And Germany thrived only after market reforms. A viewpoint on the topic is here: www.imfsite.org/abolish/betteroff.html. You can find an depth analysis in badly-scanned pdf file here: www.gmu.edu/jbc/Tyler/Marshall_Plan.pdf)

The NYT sees Ghana's small budget as the problem: "Almost half of Ghana's national budget comes from foreign aid; Britain is its largest single-country donor. But the size of the country's budget, a scant $3 billion, supporting some 20 million people, is testament to just how far Ghana still has to go, and just how much more it still needs to climb out of poverty."

The full NYT article is here: http://www.nytimes.com/2005/04/25/opinion/25mon1.html?.

Some questions I have: If $3 billion in annual gov. spending "supports" 20 million people, then that works out to $150 per person. Have I done the math right? The article claims most people in Ghana survive on $300 to $400 a year. Does that include the $150 a year in services the NYT implies they receive from their government?

Is it possible that the "scant" $3,000,000,000 a year in government spending doesn't find its way to everyday Ghanian people as useful services? When economists calculate a country's GDP per capital, do they include government spending? It would be double counting if government funds come from taxes. But if a significant part of government funds come from foreign aid (or from oil income), then this is money collected at least in the name of the people.

If Tony Blair's call to double aid to Africa reaches Ghana, and if today it receives, as the NYT claims, $1.5 billion in aid (one-half of the budget), then foreign aid would reach $3 billions and the government budget would increase to $4.5 billion. Spending for government services per person in Ghana would rise to $225.

I hope people in Ghana ask what they get from their $150 a year share of government spending now. This knowledge would give them some insight into what services to expect from their government following a 50% increase in foreign aid

Link to full NYT editorial: http://www.nytimes.com/2005/04/25/opinion/25mon1.html?

Learning to Love Africa

{E-mail to Monique Maddy, a businesswoman and author of "Learning to Love Africa: My Journey from Africa to Harvard Business School and Back"]

Monique,

Your book arrived yesterday. I started it last night and am reading this morning. It's great! I started at beginning this morning after reading chapters 10 (Coming to America) and 11 (Georgetown, John Hopkins, Sorrow) last night.

I have been interested in Africa ever since listening to the Books-on-Tape versions of Alan Moorhead's history books, "Blue Nile" and "White Nile." year ago. In college, I read Peter Bauer's books on development economics, especially his research on economic growth in west Africa (1900-1960: a period when in Ghana and I think Ivory Coast, population quadrupled and per person wealth quadrupled, all without foreign capital. This is not to claim these decades of the colonial period were grand, but just that something worked and it is worth researching and understanding.).

I remember trying to argue the importance of markets and capitalism for Africa in an international relations course in college. My professor had a sort of pained expression on his face as he explained to the class that Africa was too poor for the "wastefulness" of competition (five companies making shaving cream, etc). I started copying articles and bringing them to class to offer students another perspective.

I had taken a number of economics classes and my third econ class was an upper division "Social Economics" (i.e. pollution, racism, discrimination, resource depletion, and other reasons why Capitalism was bad. One of the texts was Herman Daly's "The Steady-State Economy," by Al Gore's prof. and mentor). At home on holiday break after taking my Social(ist) Econ course I tried to explain to my father why General Motors was bad for America, how advertisers tricked people into buying things they don't need, and on and on. My father, a businessman, listened politely for awhile (I don't remember how long) before he got angry. I returned to school a little shaken but still confident that international corporations were the problem.

Next quarter I took a Comparative Economic Systems course. I researched and wrote a term paper comparing East and West Germany. That did it. I learned everyday people couldn't buy bananas in communist East Germany. This was in the late 1970s. And the East Germans were shooting people who tried to escape.

Anyway, P.T. Bauer's books were great He died a couple years ago but you can read on Amazon part of "From Subsistence to Exchange and Other Essays" by Peter T. Bauer, Amartya Sen (Introduction)

http://www.amazon.com/exec/obidos/tg/detail/-/0691006679/qid=1108044478/sr=8-3/ref=pd_bbs_3/002-2742113-2247269?v=glance&s=books&n=507846

I remember in the 1980s reading some of Polly Hill's "Development Economics on Trial : The Anthropological Case for a Prosecution" by Polly Hill (which you can also read some on Amazon

http://www.amazon.com/exec/obidos/tg/detail/-/0521310962/qid=1108044593/sr=1-3/ref=sr_1_3/002-2742113-2247269?v=glance&s=books).

You can also watch a wonderful interview with Polly Hill online here:
http://www.alanmacfarlane.com/ancestors/Hill.html

Bauer noted that population had increased four-fold in parts of west Africa from 1900 to 1960, and that average wealth had increased four-fold as well. All, he said, without much foreign capital, and without much foreign direction. Polly Hill's field research was on the cocoa farmers in Ghana. Both Hill and Bauer's work supports the innate entrepreneurial spirit of people (not all people, but enough).

(Also highly recommended is William Easterly's book, "The Elusive Quest for Growth: Economist's Misadventures in the Tropics.")

Anyway, I look forward to reading the rest of Learning to Love Africa.

Greg

Economic Thinking - Africa posts

I plan to post essays, book reviews and links to African economic development articles here.

Greg Rehmke