Afrobollocks
I clearly need to develop a scorecard for this sort of thing ...
"old Africa hand" - 3 cliche points
"Swiss bank accounts" - 5 cliche points.
on the other hand, he does at least avoid the use of a definite article before the country names Yemen, Congo, Sudan or Lebanon, and he doesn't witter about "tribal politics", so it could be worse. More to come (particularly on the IMO wildly asinine doctrine of "natural resource curse"), I hope.
First sentence:
ReplyDeleteIt is perhaps a sign of how far sub-Saharan Africa still has to go that the most vigorous — and certainly the best publicized — debate about its economic future in recent years has been between two American economists based in New York.
You live in New York and are writing in the New York Times, Mr. Ferguson. You might be a little more likely to be aware of New York-based arguments than discussions going on among Africans. (I don't know of any debates among Africans either, and maybe there aren't any, but I can occasionally recognize selection bias.)
Whoops, I forgot that Ferguson is at Harvard -- I think he used to be at NYU.
ReplyDeleteAn obscure but weighty counter-example to the "natural resource curse": the USA.
ReplyDeleteThere's an old Alexander Cockburn piece, I think, which goes round the world listing every journalistic cliché going. It's in Corruptions of Empire - and if it's not I've got it wrong and it's the old Christopher Hitchens.
ReplyDeleteIt's not a doctrine, it's an empirical relationship. A counter example (and US's actually not a very good one since what matters are resources per capita) does not invalidate an average relationship.
ReplyDelete(cockburn and corruptions of empire, yes -- hitchens never had the ear for this kind of mimickry)
ReplyDelete(the piece is 30 years old and by no means entirely out of date)
It's not a doctrine, it's an empirical relationship
ReplyDeleteNo, it's a causal hypothesis; that the curse of bad governance is caused by the natural resources, rather than by some confounding factor like, oooh I dunno, massive influence of foreign corporations. My alternative hypothesis also explains how things got so fucked up in Honduras and Dominica, without having to pretend that bananas are a natural resource.
I mean really:
It's not a doctrine, it's an empirical relationship
was the plaintive wail of the authors of "The Bell Curve" and they didn't have any better luck with that dog-ate-my-homework excuse than you will.
Oh jeez,
ReplyDeleteNo, it's a causal hypothesis; that the curse of bad governance is caused by the natural resources, rather than by some confounding factor like,
Alright, fine, it's a causal hypothesis based on an observed empirical relationship.
oooh I dunno, massive influence of foreign corporations.
You can control for that you know.
And hey, there's room for compromise here. Maybe it's both. Maybe abundance of natural resources attracts extractive foreign corporations (although if that's the case, I don't see why it shouldn't attract extractive domestic politicians as well) - which is sort of the Acemoglu or Sokoloff and Engerman view.
But just waving your hands and blaming it on them evil foreign coporations ain't gonna cut it. One causal hypothesis has been shown to up to hold up in the data. Yours ... maybe ... possibly ... I await the paper.
My alternative hypothesis also explains how things got so fucked up in Honduras and Dominica, without having to pretend that bananas are a natural resource.
Those aren't usually the poster boys for the natural resource course so you're a bit off the mark here.
I mean really:
It's not a doctrine, it's an empirical relationship
was the plaintive wail of the authors of "The Bell Curve" and they didn't have any better luck with that dog-ate-my-homework excuse than you will.
Wtf does the Bell Curve have to do with any of this? Quit trying to pull that guilt-by-association bullshit. And in any case the most damaging critiques of the Bell Curve - like Heckmann's - were that IT WASN'T a robust empirical relationship.
In any case, since you said "more to come" I'll save anything else till then (I think this is called ju-jitsu, given your proclivity to procrastinate the follow ups)
Maybe it's both. Maybe abundance of natural resources attracts extractive foreign corporations
ReplyDeletebut it's called the "natural resource curse", not the "corporations curse".
But just waving your hands and blaming it on them evil foreign coporations ain't gonna cut it. One causal hypothesis has been shown to up to hold up in the data. Yours ... maybe ... possibly ... I await the paper.
You "await the paper"? On the baleful influence of Western corporations in the Third World? Which doesn't have a 'literature' about it? I ask this question in all sincerity; are you having a fucking laugh?
Those aren't usually the poster boys for the natural resource course so you're a bit off the mark here.
Do try to keep up. Natural resources, foreign corporations - bad news (Nigeria). Natural resources, not foreign corporations - good (Norway, Malaysia). No natural resources, foreign corporations - Bad (Honduras). It's evidence for the alternative hypothesis.
Wtf does the Bell Curve have to do with any of this?
they were also trying to smuggle a conveniently self-exculpatory hypothesis through by pretending that they were only talking about an "empirical relationship". It is not like the "natural resource curse" hypothesis is not racially loaded or unpleasant in its implications, so I am afraid it can wear the "guilt-by-association" too.
There are any number of African countries with variously appalling governance that have no real natural resources to speak of: Kenya; Uganda; Malawi; Chad (pre-oil discovery); Zimbabwe; Ethiopia etc. etc.
ReplyDeleteThen you've got Botswana with an abudance of natural riches, which has a really pretty competent government and holds free and fair elections. And, this despite the backdrop of a 40% HIV infection rate.
DD: What is your objection to observations about tribal politics? That it's a lazy cliche or it's importance is over stated? I suspect the likes of the Luo in Kenya don't think it's a lazy cliche.
Basically, because a "tribe" can mean anything from an extended family to an ethnicity as big as the Slavs, but the word carries inescapable linguistic connotations of people with bones through their noses and missionaries in big cooking pots.
ReplyDeleteI certainly agree that ethnic politics an be important in Africa (although there is a certain kind of beard-stroking amateur hour anthropology that always ends up in jigsaw puzzles of imagined monoethnic states that I'm not keen on), but I regard the the word "tribe" as almost always clouding rather than clarifying matters. In particular, profiles of African politicians which bang on about them being "chiefs" are particularly objectionable - nine times out of ten this is a factoid about as important as Gordon Brown being the son of a Presbyterian minister.
I'm keen to hear what you have to say on this one DD, since round my neck of the woods the "natural resource curse" is a pretty well established factoid. But I don't think you should be allowed to get away with this response to notsneaky (radek?)
ReplyDeletebut it's called the "natural resource curse", not the "corporations curse".
Well yes. But afaikt people who think that there is a resource curse don't think that having resources is a bad thing in **all possible circumstances** but rather that having them can be bad given other facts (such as the international legal recognition of the right of despots to sell their country's assets on world markets).
Yes, it might better be termed the explanans-curse rather than the explanandum-curse, but since we have much more consensus around the explanandum than the explanans, that's what's going to get referred to as the curse.
Yeah, I think Radek's jujitsu move will work here, as I keep meaning to write about this. I just think that "natural resource curse" *is* fundamentally on a par with "the phenomenon of low black IQ". In that, there's just something that sticks in my throat about looking at either the educational outcomes of black Americans, or the political outcomes of third world countries and stroking one's chin and saying "hmmmm what an innnteresssting phenomenon we 'ave discovered 'ere, wonder what might have caused it?". There is a general and largely valid critique of economists for ignoring historical explanations, but it seems particularly egregious in this case.
ReplyDeleteCountries with a lot of natural resources tend to have poor development outcomes and unstable politics. Countries from which a lot of slaves were extracted during the transatlantic slave trade tend to have poor development outcomes and unstable politics. Countries with no distinguishing features at all, but which happened to catch a case of Dole Fruit or ITT in the 1950s, have poor development outcomes and unstable politics. Given that the destabilisation of local politics has been part of the documented modus operandi of colonial capitalism, I think it rises to the level of wilful blindness to ignore the actual history. The whole "natural resource curse" thing just seems like horrible bad faith.
The case of Thailand actually provides a decent test case, in that it was ruled by an absolute monarch for most of its history, it has substantial natural resources (particularly rubber in the interesting historical period), and it had substantially better development outcomes than the surrounding countries, because it was never a colony. When you're looking at a phenomenon that is the result of actual actions that are someone's fault, to give it a name that implies a structural condition that's not really anyone's fault (or is the fault of someone other than the actual culprit) is not a neutral move. It's like looking at a company that has lost twenty sexual harassment cases on the spin and saying "what we have here is a case of fantastic knockers curse".
Hmm. Imperial Spain was the ideal test case for this argument - it discovered GOLD!!! and SILVER!!! in South America and proceeded to steal it.
ReplyDeleteBut it didn't make them rich, or rather it did but only temporarily. And the reason was essentially teh resource curse - there's yer rentier elite, there's yer import boom, yer inflation, yer overvalued currency, and yer crushed economic development outside the stealing-gold-from-bewildered-jibaros sector.
And they were the imperialists.
See also: Holland in the 1960s. There's a reason why the alternative name for this phenomenon is "the Dutch disease". Sudden influx of foreign exchange, rise in local-currency prices, import binge, etc.
And although Holland didn't nationalise its North Sea gas, one of the key corporations was Royal Dutch-Shell, who aren't foreign to Holland by any stretch of the mind.
Finally, the UK in the 1980s. Turn up the taps, let the quid surge, watch industry tank! And this can hardly be attributed to the malign foreign influence of British Petroleum, can it? Especially as it was partly state-owned at the time, and the infrastructure was operated by, ye gods, BNOC.
I'm not sure these examples are running in the same direction. Dutch disease, British deindustrialisation and the Spanish inflation are all specifically *monetary* pathologies, whereas "resource curse" as it's used in the development literature is a more structural hypothesis. You do often see overvalued real exchange rates in poor countries with natural resources, but you also see overvalued real exchange rates in poor countries without natural resources.
ReplyDeleteAnd although natural resources were not so great for manufacturing industry in Netherlands and UK, I think you'd be going some to claim that we'd have been better off without North Sea Oil - there was a bit of a boom toward the end of the 1980s as you may remember and it is not as if British manufacturing in 1979 was doing so incredibly well that all the blame for its decline can be placed on oil.
(I also have a few points of disagreement on Spanish economic history but don't really know enough specifics to argue them).
but it's called the "natural resource curse", not the "corporations curse".
ReplyDelete"Natural resource curse" says that, on average, abundance of natural resources is negatively associated with economic growth, even controlling for institutional quality. Obviously no one in their right mind is saying that just discovering some copper underneath your farm is magically gonna make you poor overnight. There has to be some kind of channel through which this occurs, and many have been postulated. I was being conciliatory by saying that foreign corporations could be such a channel. There could be others.
You "await the paper"? On the baleful influence of Western corporations in the Third World?
I want to see a paper that examines the natural resource curse and then says "ah but when we look at countries with similar degrees of foreign finance the relationship disappears". Point me to it. You're still hand waving you know.
"Do try to keep up. Natural resources, foreign corporations - bad news (Nigeria). Natural resources, not foreign corporations - good (Norway, Malaysia). No natural resources, foreign corporations - Bad (Honduras). It's evidence for the alternative hypothesis."
Nigeria - yup must've been foreign corporations. Not the Biafran war or nothing. Not military dictatorships or nothing.
I'll see your Norway and raise you a Switzerland, Hong Kong, Portugal and Japan.
Malaysia, admitedly is a well known outlier/counter-example to the natural resource curse.
There's also Kuwait (70-90), pre-present Iraq, Zambia, Guyana, and others. Also Venezuela nationalized its oil in early 70's (other industries earlier). Before that as it happens its oil industry was run by Exxon and in the 40's and 50's it had fairly high economic growth.
The point is, you can always find instances where it doesn't hold - there's always going to be observations below or above the regression line. The thing is that it holds on average.
It is not like the "natural resource curse" hypothesis is not racially loaded or unpleasant in its implications, so I am afraid it can wear the "guilt-by-association" too.
Is it "racially loaded"? Maybe the ethnic-conflict channel is, though I don't quite see it. But like I said there's many possible channels and that's just one possible one. So just to be sure you're not attacking a strawman here, which version of the hypothesis are you attacking here? The Sachs and Warner one? Or what?
Dutch disease, British deindustrialisation and the Spanish inflation are all specifically *monetary* pathologies
They're monetary pathologies induced by an over abundance of natural resources!! (and that generally have nothing to do with foreign corporations). Like I said, no one thinks that natural resources by themselves have a super natural power to thrust you into poverty. There's gotta be a channel. And now you're throwing out the channels you don't like, but which might be true as "not really natural resource course" simply because they make the strawman harder to construct and because they don't jive with your preferred thesis.
If
abundance of natural resources -->
monetary pathologies -->
bad economic performance
holds, then that's enough for me to say that there's a form of a natural resource curse. Just like if
abundance of natural resources -->
a non-diversified economy subject to terms of trade shocks -->
bad economic performance
or if
abundance of natural resources -->
greedy corrupt governments in conjunction with foreign corporations practicing extractive policies -->
bad economic performance.
At least be more specific damn it.
I want to see a paper that examines the natural resource curse and then says "ah but when we look at countries with similar degrees of foreign finance the relationship disappears". Point me to it. You're still hand waving you know.
ReplyDeleteNo, you're the one who is hand-waving, and this is exactly what I mean when I suggested to Chris that it's a fantastic example of the way that economists try to talk historical explanations out of existence. The activities of the ITT corporation in Chile, for example, or the Seven Sisters, are fantastically well-known and well-researched. You're trying to pretend that if you could find a country where the % of foreign investment matched Honduras, then it would make the Dole Corporation's activities there just fine. And you're trying to suggest that anyone who actually looks at the history is "hand-waving", while the festival of hand-waving which is the NRC literature is "rigorous". This is exactly the sort of unscrupulous debating tactic that I thought neoclassical economists didn't use.
And now you're throwing out the channels you don't like, but which might be true as "not really natural resource course" simply because they make the strawman harder to construct and because they don't jive with your preferred thesis
No, I'm throwing them out because they were rejected in the original Sachs and Warner paper and more or less all of the subsequent literature has concentrated on the particular pathologies of corrupt third world people. Also, "Dutch disease" can only explain lower growth in the non-resources sector, not lower growth overall which is what "resource curse" means surely to God.
Like I said, no one thinks that natural resources by themselves have a super natural power to thrust you into poverty. There's gotta be a channel
As I say above, this is like abstract theorising about the possible "channels" which account for the empirical correlation between the coolness and redness of one's sports car and the likelihood of it getting keyed in the pub car park. It's blame-the-victim stuff.
Just to make this clearer - there really aren't so very many regions of the world that have valuable natural resources that we need to go around creating summary population statistics and carrying out linear regressions (or any other kind of regressions). It's actually possible to pick up a stack of history books and ask "why is Africa in such a bad way?", "why is Latin American in such a bad way?" etc. And the common factor in these cases is colonialism. In non-resource-rich countries, the level of development today correlates strongly with the number of slaves extracted during the transatlantic trade - not a different phenomenon.
ReplyDeleteAlso, "Dutch disease" can only explain lower growth in the non-resources sector, not lower growth overall which is what "resource curse" means surely to God.
ReplyDeleteAs most people live in the non-resources sector, this is surely not an argument *against* its importance.
Well not really - as I say, was it really bad news for the UK that we struck North Sea Oil? Most people in California don't work in technology, but Silicon Valley is good for California, even though its growth has probably been a drag on the non-tech economy of California. "Last of the Summer Wine" was probably bad for the non-tourist sector in Holmfirth.
ReplyDeleteIn order to get aggregate negative effects from Dutch Disease type events, you have to get seriously into the kind of long-term, learning-by-doing prodcutivity arguments that don't really make much sense in the context of a nonindustrialised economy. In order to get a result that Dutch disease could make things worse for the majority of people, you have to assume some quite weird things about ownership and employment, and zero government reaction at all - in otherwise, you have to assume something like colonialism, in which case the problem isn't the exchange rate, it's the expropriation.
Anybody here read The Pearl by John Steinbeck?
ReplyDeleteNo, I'm throwing them out because they were rejected in the original Sachs and Warner paper
ReplyDeleteAre you reading the same Sachs and Warner as I am or are you just making shit up as you go along?
http://www.nber.org/papers/w5398.v5.pdf
"In the seventeenth century, resource poor Netherlands eclipsed Spain, despite the overflow of gold and silver from the Spanish colonies in the New World"
From the introduction, not really discussed in the rest of the paper as it is a contemporary not a historical study.
Also on this whole bad institutions thing:
"This negative relationship holds true even after controlling for variables found to be important for economic growth, such as ... government efficiency"
(from the freakin' abstract)
"There is only weak evidence that primary resource intensity is associated with poorer bureaucratic quality"
So no, it's not about corrupt governments but something else. Maybe;
"Our main conclusion is that the estimated direct effect of SXP (natural resource abundance – the one most likely due to DD) on growth is about twice as large as all the indirect effects combined. Moreover, of these indirect effects, our estimates indicate that the indirect effect operating through openness is by far the largest. These results lend modest support to the view that the dynamic Dutch disease effects we emphasize in the growth model … are qualitatively important."
"qualitatively important" does not sound like "rejected".
and more or less all of the subsequent literature has concentrated on the particular pathologies of corrupt third world people
Name it so I can know exactly what it is you're referring to rather than trying to argue against or for some straw man you constructed.
Also, on the case of Malaysia:
"We postulate and find supporting evidence for a U-shaped relationship between openness and resource intensity. Our reasoning is as follows. Resource abundance squeezes the manufacturing sector as in the Dutch Disease. In almost all countries, the squeeze of manufactures provokes some protectionist response that aims to promote industrialization despite the Dutch Disease effects… Two interesting examples on the positive part of the U are Malaysia and Saudi Arabia. These countries are extremely resource rich and also have a long history of open trade."
And you're trying to suggest that anyone who actually looks at the history is "hand-waving", while the festival of hand-waving which is the NRC literature is "rigorous".
Oh, bullshit. The Acemoglu and the Engerman and Sokoloff I mentioned earlier do exactly that - look at the history. And again, what specific papers in the NRC literature are you objecting too? What version, what channel? Or is this just the standard cute "I take on a popular mainstream economic idea in order to look like a bad ass" posture?
This is exactly the sort of unscrupulous debating tactic that I thought neoclassical economists didn't use.
And this is exactly the sort of completely irrelevant and incorrect empty assertion - gotta get the kick in at the neoclassicals you know - that sets the tone for this discussion.
Also, you see to've switched from "foreign corporations" to "colonialism" here. Which is? Can you be more specific?
Hell, SW mentions Prebisch in a positive light - since that famous apologist for colonialism and vigorous supporter of foreign corporations was in some ways an originator of (a form of) the NRC idea.
ReplyDeleteRadek, the S&W paper is about "resource curse". Resource curse means that resource-rich countries have a growth penalty relative to resource-poor countries. Dutch disease can't explain an overall growth penalty, only a penalty in non-resource growth. That's in the Sachs and Warner paper (don't have JSTOR at my desk but it's in there).
ReplyDeleteRemember that there is a theoretical NRC literature too, which is if anything bigger than the empirical literature (of which I take Sala-i-Martin as representative of the post Sachs work). As Captain C says above, it's treated as a "stylised fact" these days, which people try to explain or come up with patronising solutions for (nearly all of which involve removing valuable things from the governments of the countries that own them). Have a quick google search and see how many pages you have to scroll through to find a single paper that acknolwedges that foreigners might have something to do with the problem.
Dutch disease can't explain an overall growth penalty, only a penalty in non-resource growth. That's in the Sachs and Warner paper
ReplyDeleteNo, as I indicate above SW think the NRC curse takes place through "dynamic Dutch-Disease" - Dutch Disease plus learning by doing - rather than through corruption etc.
SiM&Sub on the other hand do think it's about corruption; "Our key results are in sharp contrast to the commonly-held view about the impact of natural resources (especially Sachs and Warner, 1995)"(my emphasis)
There's more I could write here on the effect of colonialism (which would obviously effect level but not necessarily the growth rate after independence) vs. natural resource curse, but I'll wait till you write something full up.
Ferguson's star power apparently leads him to believe that he can write way outside his speciality (German economic history, mate) and not end up baring his arse. It's one thing to market yourself as Dr Hoorah McEmpire from the side of the white folks, but it's a bit rich to reinvent yourself as a neo-post-colonialist.
ReplyDeleteAnyway, I'm sure he's got lots of eager Harvard graduate students doing the primary research for his next book, which will be a curiously unironic echo of Nostromo.
Also, you see to've switched from "foreign corporations" to "colonialism" here. Which is? Can you be more specific?
ReplyDeleteWell, the division between the one and the other is a fluid and interesting one.
Dutch disease? I thought that our reluctance to have Pershing tactical nukes and cruise missiles stationed in our country was the Dutch disease?
ReplyDeleteThe economic trouble the Netherlands went through in the sixties, and later in the late seventies/early eighties had nothing to do wit suddenly discovering natural gas reserves and everything to do with having several high employement industries (textiles, coal mines first, later ship building and such) go kaput because they couldn't compete on the world markets anymore.
Having the income from natural gas helped there, as it meant the government was able to spent more helping alleviate the effects of the collapse of these industries.
One of the reasons for them being unable to compete was that the gas caused the exchange rate to climb, hence making their products very expensive.
ReplyDeleteThat's yer Dutch disease.
But was a high exchange rate inevitable? Robin Ramsay suggested a while ago that the informal Treasury dictum "either North Sea oil or manufacturing industry, but not both" should have read "North Sea oil, manufacturing industry and the City - pick two".
ReplyDeleteMartin is correct that it's quite a controversial question in the literature (in as much as something from thirty years ago can be controversial) whether the Netherlands in the 1970s is actually a good example of the phenomenon which is called "Dutch Disease" these days - the original description comes from the Economist magazine rather than anything rigorous. And the Netherlands economy is in pretty darn good shape today.
ReplyDeleteTo be honest, I would have picked "North Sea Oil and the City, thanks" off Phil and Robin Ramsay's menu (albeit I am hardly unbiased). As I mentioned to Alex, it is not as if UK manufacturing industry was the envy of the world in 1978, there were serious problems of under-training, under-investment, poisonous industrial relations and really bad non-price competitiveness which can't all be blamed on oil or the City. The rest of his book on New Labour (which I seem to remember reading that bit in) is pretty good though.
(btw, the importance of financial services is often rather inflated by City boosters. The UK's real service sector success story is the media and creative industries).
What classification can identify rubber as a "natural resource" in Thailand?
ReplyDeleteBTW, I think I've solved Iraq. We should just blow up the oil fields. Like destroying the Afghans' poppy crop!
ReplyDeleteWhat classification can identify rubber as a "natural resource" in Thailand?
ReplyDeleteerrrm, it's not a manufactured good, it's valuable (much more so in the early part of the last century before synthetic alternatives to latex were discovered) and there's quite a lot of it in Thailand. Expand a little? (It's also not really like opium in that although you can plant more or less of it and it has a limited geographical range, rubber trees take 5-6 years to grow, so if you want guaranteed access to rubber, you need to either trade with or own one of a small number of countries, as the Germans found out).
btw, the importance of financial services is often rather inflated by City boosters. The UK's real service sector success story is the media and creative industries
ReplyDeleteHard to believe the latter are underrated though, since they're the people best placed to say how great they are (and not at all disinclined to say so).
dd I think you are raising hackles because you are (apparently wilfully) ignoring two possible "channels" of "the resource curse".
ReplyDeleteThe first, more obvious one, is that they provide a focal point for ethnic tensions. If there weren't a concentrated pool of oil at a few limited places in Iraq, it would probably be a whole lot easier to negotiate some sort of divorce settlement between the various warring parties. As it is, Sunni, Shia and Kurds are bound together by a mutual belief that they deserve some of the oil goodies, and so simply splitting apart ala Yugoslavia appears infeasible. Similarly for Sudan. Similarly for Nigeria. Similarly for diamonds in west Africa.
This is not a universal explanation. I don't know that it covers Congo, for example. But I suspect the regressions would show a robust correlation.
The second, IMHO more interesting channel, is the pathological state. The idea here is that "normal" states survive by some sort of fairly broad taxation, and that they are consequently compelled to deliver fairly broad services as quid pro quo, otherwise people get angry and do what they can to turf out those in power. Resource rich states, on the other hand, can survive by leeching off this one industry and channeling the money as they wish. The locals may not be thrilled at their lack of schools and hospitals, but they're not being much taxed so they grin and bear it. Once again one can present counter-examples, but I have listened to talks given by people who claim this is a robust correlation.
This second case is especially interesting in that it picks up cases that many people would not automatically consider as having been "cursed" until they look at the details. South Africa is, IMHO, the obvious example --- basically a flat economy since the late 1960s, with a government able to keep the country fscked up for years because of gold. Non-Africa oil-rich states are a second example (eg Saudi Arabia or Mexico). Many of them are not yet obviously cursed, but the trajectory they are on seems pretty obvious.