A refugee from New York in Liberia

Would you ever send your son to a warzone to escape a housing project? One Liberian mother did. This fascinating piece comes from the New York Times.

Testing the Growth Diagnostics approach

Bolivia is the poorest country in South America - its income per capita is not much above Ghana. A revolution, radical land reform, decades of foreign aid and structural adjustment have not changed this basic fact. The only dynamic parts of the economy are the natural gas and soy beans produced in the eastern plains, far from where most Bolivians live.


Bolivia is therefore a prime candidate for a Growth Diagnostic as proposed by Ricardo Hausmann, Dani Rodrik and Andres Velasco. Growth Diagnostics are appealing to policymakers for two reasons. One, they are empirically grounded, without sacrificing theoretical rigour. Two, they combine hard data with case studies - which makes life more interesting for the grad students as well!

I joined David Elmaleh, Naomi Krieger and Molly Kinder to read dozens of reports, run regressions and crank out charts. We soon became dissatisfied with the standard explanations for Bolivia's poor growth. If low foreign investment was the problem, why didn't Bolivia boom in the 1990s? If the people of the highlands were poor because they were excluded from power, why didn't the Bolivian revolution of 1952 or the election of President Evo Morales change that? If the IMF and World Bank were the problem, why didn't the massive debt cancellation of 2002-03 help?

The key to Growth Diagnostics is that you can't do everything at once. The key is to identify the binding constraint to growth - the market or government failure that is the most important cause of the many problems you observe. Our very tentative conclusion, based on the best data we could find, was that Bolivia is stuck in an informality trap. Small businesses can't get credit to grow or increase their productivity, because they are in the informal sector. But when they try to join the formal sector, they find the taxes, regulations and red tape they have to endure put them at a competitive disadvantage.

Meanwhile, gas and agricultural exports are booming, but those sectors don't employ many people and the profits are captured by multinationals and large landowners. The government of President Morales is trying to tax them to fund welfare and pensions, but the (relatively) productive eastern provinces have responded by declaring autonomy and threatening to dissolve the state.

In this tense environment, what could the Bolivian government do to promote growth and poverty reduction? Nothing, say the eastern provinces - we know what to do, let us get on with it! We humbly suggest another approach: by tackling bank monopolies, cutting red tape and reducing the legal burden on small businesses, the government will be helping its core constituency, the indigenous people of the highlands, to break out of poverty. Neighbouring countries like Chile, Peru and Brazil have realized that being pro-poor doesn't mean you have to be anti-business.

We hope that the government and provinces will be able to resolve the constitutional crisis and give growth a chance. The prospects are good: after all, everyone from Argentina to Venezuela wants to help Bolivia. Why not get the World Bank to build roads and Hugo Chavez supply free heating oil to the (freezing) altiplano?

Institutions matter. Especially in football

My favourite economic cliche is any paper entitled "xxx matters". Governance, institutions, latitude, size - you name it, it's statistically significant in someone's regression.

Last weekend I watched Harvard thrash Yale in New Haven. I was surprised at our victory, but even more surprised at the good humour and complete absence of violence in the crowd before, during or after the game. If you have ever been to, or near to, a football (soccer) match in Europe, you will know what I mean. Any politician who laments the culture of violence in modern society should try putting on a Harvard shirt and walking through New Haven an hour after defeating the local team. We didn't get so much as a whistle from the locals.

So why are otherwise peaceful people like the Brits or Italians so eager to start a fight when it comes to football, while it's a family day out in New England? It can't be a greater police presence: they have them in Europe to. It can't be lack of alcohol: that was freely available at the pre-match tailgate. It can't be weapons: the US in general, and New Haven in particular, has lots of them. Maybe the huge geographic mobility of US society holds back the local pride and partisanship you find elsewhere. But when the Red Sox won the World Series a few weeks ago, I detected a fair bit of local pride at their victory parade.

I think there is a cultural norm at work here: football is a game for the family, so crowd violence is unacceptable. How this norm evolved is anyone's guess, but once it's there it's very hard to change. British police trying to deal with hooliganism in the 1980s had the same problem in reverse: the culture of violence had become an institution, an informally accepted way of doing things.

Social norms underpin economic behaviour wherever you look. Consider fare evasion on the subway. In London or New York, you have to pass through a fare barrier to get to the platform. In Paris, the barriers are as large and heavy as doors, to stop people from vaulting them. In law-abiding Vienna, there are ticket-stamping machines but no barriers. The city transport authority decided it would be cheaper to employ roving inspectors levying on-the-spot fines than build fare barriers in every station. Why do buses travel faster in Berlin than in Boston? Because passengers can use any of the doors to get on the bus, not just one - the driver takes it on trust that they have a ticket.

On a more serious level, business and government is a lot cheaper in high-trust societies. Imagine how much it would cost to send all your business mail by DHL or FedEx because the postal service is insecure. Try keeping a stash of $5 top-up cards in the petty cash box and giving them to your staff one at a time to make phone calls, because you can't get a telephone credit account. Or if you're a retailer, how about counting the inventory in your store at the end of every day to make sure nobody is stealing it?

Institutions matter, in sport as in everything else - we're just a little late to realize it.

Will your exports make you rich?

Rich countries make rich-country things. Poor countries make poor-country things. According to the theorem of comparative advantage, you should specialize in whatever you have relatively low costs - but we also know that over time, countries grow rich by changing and upgrading what they produce.

But why have some developing countries grown into diversified, mature economies whereas much of Africa is still stuck growing or mining a few basic commodities?

This answer comes from Cesar Hidalgo, Bailey Klinger, Laszlo Barabasi and Ricardo Hausmann, who just got it published in Science (or see here for the full version):This diagram shows the 'product space'. Imagine international trade as a forest, with individual products making up the trees. Firms are like monkeys swinging through the trees. The closer the trees are together, the easier it is for firms to move from one tree to another. Thus firms and countries specializing in products in ‘denser’ areas of the forest can diversify more easily. Countries tend to move into the centre over the time - but the denser the part of the forest where they start, the quicker they will get there.

Where does Liberia fit within this product space? It turns out that most of Liberia’s exports are within the sparsest part of the forest: rubber, cocoa, iron ore and palm oil all have extremely poor links to other products. See where tropical agriculture is in the diagram above . . . and compare it with garments, say, or vehicles and machinery.

The implication of this is that export diversification will not be easy in Liberia, because the economy has specialized in products that are very remote from other products. It takes 7 years for a rubber or cocoa tree to become economically useful. Rubber or cocoa plantations are therefore a huge ‘sunk cost’ and difficult to change. On the other hand, neighbouring countries like Ghana and Nigeria show the perils of trying to develop industries in which you don't have a comparative advantage. Maybe fruit, vegetables and low-tech food processing (canning, juicing) are a way forward.

If you go to the authors' website, you can download the map and the data for your country. A blinding insight or another example of economists restating the obvious in a more complicated way?

Back on the farm: the World Bank's view on agriculture

Last week the World Bank published its 2008 'World Development Report'. This weighty report, whose colour graphics alone must cost a small country's GDP to produce, sums up 50 years of experience in supporting (and not supporting) agriculture with a simple message:

"Agriculture is good for growth and even better for poverty reduction - but it is only effective with the right public policies and in many cases aid."

This may not seem particularly surprising, but it's welcome nonetheless. Since the report was commissioned under former President Wolfensohn, it will be interesting to see if Robert Zoellick (during whose time as US Trade Representative the US increased its huge, trade-distorting subsidies to cotton growers) follows up the rhetoric with loan dollars.

The report is at the World Bank's site but for a quick summary, see this from the New York Times.

A brief postscript: the costs of the slave trade

By coincidence Professor Dani Rodrik has been thinking about the slave trade as well, needless to say in a more rigorous, dispassionate way than I have . . . see this post on how the countries that exported the most slaves are now the poorest in Africa, even though they were probably richer before.

On a personal note, I'm back in the USA, trying to remember the taste of fried fish with cassava greens and the warm, welcome rain of Liberia, so unlike the cold, hostile showers of Massachusetts . . . I have to confess that I have been looking at travel planning websites to see if I can afford a trip to Monrovia in December to do some more work on agriculture. The answer is probably 'no' but if anyone knows of any great fare deals between the US or London and Liberia around then, please let me know!

Four stations on the slave trade

Last week I travelled from Monrovia to Dakar, Senegal and then to Brussels and Lisbon. This unusually indirect itinerary (the product of indecision and obscure ticket conditions) has made me think about something that rarely occupies a white European: slavery.

We spent two months living in the Baptist Compound, Congo Town: named after the ‘Congos’, as the freed slaves who founded Liberia were called. Monrovia was built by them, funded by their guilty ex-masters and grew rich on enslaving the locals in their turn. The Americans who settled in Liberia created plantations whose rubber still contributes half their country’s exports. Only one of Liberia’s presidents was not Liberian-American: Samuel Doe, a semi-illiterate brute whose vindictive rule so incensed the elite that they helped fund his removal. He was succeeded by Charles Taylor, a pale-skinned, white-suited Baptist preacher. Taylor’s concrete palace, freshly painted, is right opposite the Baptist Compound.

I flew to Dakar on Slok Air. Its clapped-out 737 performs the West African stopping service the Royal Mail steamers used to. We stopped at Freetown to take on passengers. Across the river, a peak shone in the late afternoon sun. You could make out scattered houses on it: this is Hill Station, where the ‘Krios’ who founded Sierra Leone built their bungalows well above the malaria-infested ‘native settlement’ down below. The Krios were freed slaves too, but after 50 years of self-government the British decided they were getting ‘uppety’ and took over on the pretext that the Krios were excluding the natives of Sierra Leone from power. You guessed the next bit: a century of resentment and rivalry, boiling over in a bloody civil war . . .

Senegal is a complete contrast. It is the model of a self-confident Africa: it celebrates its French administration and bread as much as its Islamic heritage and vibrant music. A little offshore of booming Dakar, the Ile de Goree welcomes visitors. I went on Sunday, along with thousands of Senegalese, to delight in the colonial architecture. One of the prettiest buildings is called ‘La Maison des Esclaves’. Each room has a label: ‘Hommes’, ‘Femmes’, ‘Jeunes filles’ and so on. An arched door leads straight into the Atlantic ocean. Through this door, it is estimated that some tens of thousands of slaves were packed into waiting ships. There were many such houses on Goree, which was so lucrative that it changed hands repeatedly between 1650 and 1815, captured and recaptured by Dutch, French and British navies. Just like the Portugese, Arabs, Germans and British fought over Zanzibar.


What the guide on Goree didn’t tell us was that Mauritania, 300km to the north, tolerated slavery until 1981. Indeed, while I was in Senegal, the parliament of Mauritania voted to make slave trafficking a crime, so as to be able to prosecute it (see this article in Jeune Afrique, or the BBC for background). Mauritania’s democratically elected president – its first since 1960 – had made the issue a central pillar in his campaign.

I flew to Belgium on SN Brussels, a fading relic of empire whose Airbuses are still the best link to Kinshasa and Kigali. Belgium was the last European country to get into slavery. To make up for lost time, they kept the slaves right in the Congo where they came from. The pompous palaces of Brussels were paid for with Congolese copper and diamonds. In Tervuren, near the airport, King Leopold built the ‘Royal Museum of Central Africa’. It is still open, but when I visited in 2004, the ivory tusks and photos of happy natives dancing were being replaced with maps and mementoes of slaughter: for when Mr Kurtz died, he took an estimated 5 million Congolese with him.

Finally to Lisbon, from where Europeans first set sail for Africa and the Carribbean. Portugal was the first country into Africa and the last out: Angola and Mozambique didn’t attain their independence until 1974. The picture below shows the Cap Sao Vicente, the most south-westerly point in Europe. On the cape is an old fort: a naval college built by Prince Henry the Navigator. Its style reminded me of a fort in Mombasa, on the Kenyan coast some 5,000km away: not surprisingly, since that too was built by the Portugese. When Portugal abandoned East Africa in the 16th century, the Arab traders took it over.



What, if anything, links these four stations?

First, it turns out that the slave trade was the largest mass movement of people in human history. Some 12-15 million Africans were shipped across the Atlantic between 1500 and 1900. 5 million went to Brazil and another 5 million to the Carribbean – mostly Cuba and Hispaniola. Less than half a million ended up in the USA. In countries like Jamaica, Haiti or Guyana, Africans essentially replaced the native population. Yet it is estimated that FOUR OUT OF FIVE captured slaves died before they got across the Atlantic – half of them didn’t even make it onto the ship. This puts the total captured at something closer to 25 million. To that add millions sent through Zanzibar to the Arab world or bought and sold in countries like Mauritania. (See here for details on the Atlantic slave trade or here for the Arab - though they were really part of the same phenomenon).

Second, nobody escapes from blame. All maritime powers were involved in the slave trade and many African rulers connived in it. Christian preachers like William Wilberforce and David Livingstone fought against slavery, but the slave traders of Lisbon, La Rochelle and Liverpool were Christian too. The great Arab historian Ibn Khaldun, writing in the 14th century, described Africans as “the only race who willingly accept slavery, owing to their low human state and closeness to animals”.

Third, slavery doesn’t end with being freed. The sad stories of the three republics founded by freed slaves – Haiti, Sierra Leone and Liberia – should make that clear. Haiti spent 100 years trying to pay ‘damages’ to France and the next 100 years oscillating between dictatorship and chaos. Haiti is the poorest country in the Americas and Sierra Leone the poorest country in the world. In the early 20th century, Liberia exported slaves to the Spanish colony of Fernando Po (now Equatorial Guinea) to work on the cocoa plantations. The League of Nations censured it for this in 1929 and when President William Barclay came to power in 1931 he largely ended the practice.

Growing up in Central Europe in the 1990s, my history teachers focused on the twin horrors of the 20th century: the Holocaust and the Gulag. The slave trade deserves similar attention: not just in Africa or America, but in Europe and Arabia as well.