The Rational Optimist (37 page)

It is true that Botswana has a small and ethnically somewhat homogeneous population, unlike many other countries. But its biggest advantage is one that the rest of Africa could easily have shared: good institutions. In particular, Botswana turns out to have secure, enforceable property rights that are fairly widely distributed and fairly well respected. When Daron Acemoglu and his colleagues compared property rights with economic growth throughout the world, they found that the first explained an astonishing three quarters of the variation in the second and that Botswana was no outlier: the reason it had flourished was because its people owned property without fear of confiscation by chiefs or thieves to a much greater extent than in the rest of Africa. This is much the same explanation for why England had a good eighteenth century while China did not.

So give the rest of Africa good property rights and sit back and wait for enterprise to work its magic? If only it were that easy. Good institutions cannot usually be imposed from above: that way they are oxymorons. They must evolve from below. And it turns out that Botswana’s institutions have deep evolutionary roots. The Tswana people who conquered the native Khoisan tribes in the eighteenth century (and still do not necessarily treat them well) had a political system that was remarkably, well, democratic. Cattle were privately owned, but land was owned collectively. The chiefs, who in theory allocated land and grazing rights, were under a strong obligation to consult an assembly, or
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. The Tswana were also inclusive, happy to bring other tribes into their system, which stood them in good stead when a collective army was needed to repel the Boers at the battle of Dimawe in 1852.

This was a good start, but Botswana then had a stroke of good fortune in its colonial experience. It was incorporated into the British empire in such a half-hearted and inattentive fashion that it barely experienced colonial rule. The British took it mainly to stop the Germans or Boers getting it. ‘Doing as little in the way of administration or settlement as possible’ was explicitly stated as government policy in 1885. Botswana was left alone, experiencing almost as little direct European imperialism as those later success stories of Asia – places like Thailand, Japan, Taiwan, Korea and China. In 1895, three Tswana chiefs went to Britain and successfully pleaded with Queen Victoria to be kept out of the clutches of Cecil Rhodes; in the 1930s, two chiefs went to court to prevent another attempt at more intrusive colonial rule and though they failed, the war then kept bossy commissioners at bay. Benign neglect continued.

After independence, Botswana’s first president, Seretse Khama, one of the chiefs, behaved like most African leaders in setting out to build a strong state and disenfranchise the chiefs, as well as to win all future elections (so far so good for his party under two successors). This, together with the extreme poverty of the country and its dependence on foreign aid, foreign labour markets (in South Africa) and the sale of mineral rights to de Beers surely boded badly. Yet Botswana went from strength to strength by carefully investing its cattle export income and then its diamond windfall to develop other parts of the economy. Only a devastating AIDS epidemic, which lowered life expectancy between 1992 and 2002, mars the picture, and even that is now retreating.

The world is your oyster

It is not as if Africa needs to invent enterprise: the streets of Africa’s cities are teeming with entrepreneurs, adept at doing deals, but they cannot grow their businesses because of blockages in the system. The slums of Nairobi and Lagos are terrible places, but the chief fault lies with governments, which place bureaucratic barriers in the way of entrepreneurs trying to build affordable homes for people. Unable to negotiate the maze of regulations that govern planning, developers leave the poor to build their own slums, brick by brick as they can afford them, outside the law – and then await the official bulldozers. In Cairo it would take seventy-seven bureaucratic procedures involving thirty-one agencies and up to fourteen years to acquire and register a plot of state-owned land on which to build a house. No wonder nearly five million Egyptians have decided to build illegal dwellings instead. Typically, a Cairo house owner will build up to three illegal storeys on top of his house and rent them out to relatives.

Good for him. However, entrepreneurs who start businesses in the West usually finance them with mortgages, and you cannot get a mortgage on an illegal dwelling. The Peruvian economist Hernando de Soto estimates that Africans own an astonishing $1 trillion in ‘dead capital’ – savings that cannot be used as collateral because they are invested in ill-documented property. He draws an instructive parallel with the young United States in the early nineteenth century, where the formal codified law was fighting a rearguard action against an increasingly chaotic confusion of informal squatters’ rights to property. More and more states were tolerating and even legalising pre-emption – ownership acquired by settling land and improving it. In the end it was the law that had to give, not the squatters – the law allowing itself to change by bottom-up evolution, not top-down planning. The retreat culminated in the Homestead Act of 1862, which formalised what had been happening for many years and signified ‘the end of a long, exhausting and bitter struggle between elitist law and a new order brought about by massive migration and the needs of an open and sustainable society’. The result was a property-owning democracy in which almost everybody had ‘live’ capital, which could be used as collateral for starting a business. Enclosure had played a similar role in Britain earlier, though lack of unoccupied land made the result far less equitable. Revolution eventually achieved property rights for the French poor, too, rather more bloodily, and would probably have done the same for Russians, but for the Bolshevik coup.

The importance of property rights can even be demonstrated in the laboratory. Bart Wilson and his colleagues set up a land of three virtual villages inhabited by real undergraduates of two kinds – merchants and producers – making and needing three kinds of unit: red, blue and pink. Since no village can make all three units, the subjects had to start trading among themselves and did. Unlike in the previous, simpler experiment (see pages 89–90) they graduated to impersonal, market-like exchange. But when the players had a history of no property rights – i.e., they were able to steal units from each other’s caches – the trading never flourished and the undergraduates went home poorer than if they had a history of property rights. It is exactly what de Soto and economists like Douglass North have been saying about the real world for some time.

(Incidentally, there is now overwhelming evidence that well crafted property rights are also the key to wildlife and nature conservation. Whether considering fish off Iceland, kudu in Namibia, jaguars in Mexico, trees in Niger, bees in Bolivia or water in Colorado, the same lesson applies. Give local people the power to own, exploit and profit from natural resources in a sustainable way and they will usually preserve and cherish those resources. Give them no share in a wildlife resource that is controlled – nay ‘protected’ – by a distant government and they will generally neglect, ruin and waste it. That is the real lesson of the tragedy of the commons.)

Property rights are not a silver bullet. In some countries, their formalisation simply creates a rentier class. And China experienced an explosion of enterprise after 1978 without ever giving its people truly secure property rights. But it did allow people to start businesses with relatively little bureaucratic fuss, so another of De Soto’s recommendations is to free up the rules governing business. Whereas it takes a handful of steps to set up a company in America or Europe, De Soto’s assistants found that to do the same in Tanzania would take 379 days and cost $5,506. Worse, to have a normal business career in Tanzania for fifty years, you would have to spend more than a thousand days in government offices petitioning for permits of one kind or another and spending $180,000 on them.

Little wonder that a staggering 98 per cent of Tanzanian businesses are extralegal. That does not mean they are governed by no rules: far from it. De Soto’s study found thousands of examples of documents being used by people on the ground to attest ownership, record loans, embody contracts and settle disputes. Handwritten papers, sometimes signed with thumbprints, are being drafted, witnessed, stamped, revised, filed and adjudicated all over the country. Just as Europeans did before the formal law gradually ‘nationalised’ their indigenous customs, Tanzanians are evolving a system of self-organised complexity to allow them to do business with strangers as well as neighbours. One handwritten, single-page document, for example, records a contract for a business loan between two individuals – the amount of the loan, the interest rate, the payment period and the collateral (the debtor’s house) – and is signed, witnessed and stamped by the local elder.

But these customs, these laws of the people, are a fragmented jigsaw. They work well for sole traders in small communities, but being dependent on local people and local rules they cannot help the ambitious entrepreneur who tries to expand beyond his local community. What Tanzania needs to do, as Europe and America did hundreds of years ago, is not to enforce its unaffordable official legal system, but gradually to encourage this bottom-up, informal law to broaden and standardise itself. De Soto’s team identified sixty-seven bottlenecks that prevent the poor using the legal system to generate wealth.

It is this kind of institutional reform that will in the end do far more for African living standards than dams, factories, aid or population control. In the 1930s, Nashville, Tennessee, was rescued from poverty by its music entrepreneurs, using good local copyright laws to start recording indigenous music, not by the giant dams of the Tennessee Valley Authority. Likewise, Bamako in Mali could build upon its strong musical traditions given the right copyright laws and entrepreneurial spirit. In a neat example of bottom-up change, the poor have taken to mobile telephones with unexpected gusto all across Africa, to the surprise of those who thought this a luxury technology for a later stage of development. In Kenya, despairing of state-controlled landlines, one-quarter of the population acquired a mobile phone after 2000. Kenyan farmers call different markets to find the best prices before setting out with their produce, and are better off for it. Studies of rural villages in Botswana find that the ones that have mobile reception have more non-farm jobs than the ones that do not. Mobile phones not only enable people to get work, but also to pay for and be paid for services – mobile phone credits having become in effect a form of informal banking and payments system. In Ghana, manufacturers of T-shirts can be paid directly by American buyers using phone credits. Micro-finance banking, mobile telephony and the internet are now merging to produce systems that allow individuals in the West to make small loans to entrepreneurs in Africa (through websites like Kiva), who can then use their mobile phone credits to deposit receipts and pay bills without waiting for banks to open and without handling vulnerable cash. These developments offer opportunities to the poor of Africa that were not available to the poor of Asia a generation ago. They are one reason that Africa saw economic growth rise to Asian-tiger levels in the late 2000s.

The role of the mobile phone in enriching the poor was especially well illustrated by a study of the sardine fishermen of Kerala in southern India (though similar stories can now be told about Africa). As documented by the economist Robert Jensen, on 14 January 1997, a typical day, eleven fishermen landed good catches at the village of Badagara only to find that there were no buyers left: the local market was sated and the price of the perishable sardines was zero. Just ten miles away in both directions along the coast, at Chombala and Quilandi, that morning there were twenty-seven willing buyers getting ready to leave the markets empty-handed because they could find no sardines to buy, even at the inflated price of nearly ten rupees per kilogram they were offering. Had the Badagara fishermen known, they could have diverted to the other markets and pocketed on average 3,400 rupees of profit each, after fuel costs. Later that year, using mobile phones on the newly installed cellular network (whose signals could be picked up twelve miles out to sea), the Kerala fishermen started doing just that: they called ahead to find out where best to land their catch. The result was that fishermen’s profits increased by 8 per cent, sardine prices to consumers fell by 4 per cent and sardine wastage fell from more than 5 per cent to virtually nil. Everybody gained (except the sardines). As Robert Jensen commented: ‘Overall the fisheries sector was transformed from a series of essentially autarkic fishing markets to a state of nearly perfect spatial arbitrage.’

Using such technologies, Africa can follow the same route to prosperity that the rest of the world is following: to specialise and exchange. Once two individuals find ways to divide labour between them, both are better off. The future for Africa lies in trade – in selling tea, coffee, sugar, rice, beef, cashews, cotton, oil, bauxite, chrome, gold, diamonds, cut flowers, green beans, mangoes and more – but it is almost impossible for poor Africans in the informal economy to be entrepreneurs in such international trade. A handwritten contract between two people in Tanzania may be affordable and enforceable, but it is little help if the debtor wishes to start an export business supplying cut flowers to a London-based supermarket.

Of course, it will not all be easy or smooth, but I refuse to be pessimistic about Africa when such an opportunity is available at a few strokes of a pen and when the evidence of entrepreneurial vitality in the extralegal sector is so strong. Besides, as its population growth rates fall, Africa is about to reap a ‘demographic dividend’ when its working-age population is large relative to both the dependent elderly and the dependent young: such a demographic bonanza gave Asia perhaps one third of its miracle of growth. The key policies for Africa are to abolish Europe’s and America’s farm subsidies, quotas and import tariffs, formalise and simplify the laws that govern business, undermine tyrants and above all encourage the growth of free-trading cities. In 1978 China was about as poor and despotic as Africa is now. It changed because it deliberately allowed free-trading zones to develop in emulation of Hong Kong. So, says the economist Paul Romer, why not repeat the formula? Use Western aid to create a new ‘charter city’ in Africa on uninhabited land, free to trade with the rest of the world, and allow it to draw in people from the surrounding nations. It worked for Tyre 3,000 years ago, for Amsterdam 300 years ago and for Hong Kong thirty years ago. It can work for Africa today.