The Trajectories of Economic Statism: The Prime Source of Sub-Saharan Africa’s Poor Economic Performance and Economic Inequality
Argument by Prosper Amos Munetsi | April 27, 2024
Sub-Saharan Africa’s economic poor performance and economic inequality dilemmas are rooted in economic statism. Statism is a doctrine and socioeconomic system characterized by varying degrees of centralized, coercive, and technocratic management of the economy and society by the state. The state refers to a centralized executive authority, thus the word statism describes institutions and practices in which executive authority is highly centralized. Statism further implies obedience to regulations handed down by the state.
Economic statism derived from statism extends to promote the view of the state being the major, and legitimate player in directing the economy. Economic statism is directly observed through state-owned businesses and economic planning of production, indirectly through economic interventionism and large macro-economic regulations of the market by the state. The government makes crucial decisions regarding prices, supply, trade, and distribution. This is the predominant principle form of governance in sub-Saharan Africa despite the region’s widespread efforts towards democratic principles in governance.
Trajectory Implications of Economic Statism in Sub-Saharan Africa
Sub-Saharan Africa’s economies are condensed into the state playing the major role of planning and controlling the market, production, allocation, and (re)distribution of resources. Economic statism led to sub-Saharan African nations’ insertion of economic interventions and policies through an authoritarian nature. It has given more power to the ruling elites in the post-independence era of sub-Saharan Africa. It is a common phenomenon in sub-Saharan Africa that ruling elites serve their interests in favor of their families, ethnicity, and tribe. It has hampered the developmental potential of sub-Saharan African countries as the rulership of small elites is exercised for self-interest and gains.
Citizens are then marked as less significant in the eyes of the ruling elite and to those with delegated state powers. This is one of the major reasons why Africa has more countries highly ranked for corruption, despotism, and nepotism than any region globally. It led to state resources in sub-Saharan Africa being controlled by heterogeneous political classes cemented by factional alliances and ethnic accommodation.
This crisis of state capture has been particularly prevalent in the case of South Africa. Economic statism led to a type of systemic political corruption that led to private interests significantly influencing the South African state’s decision-making processes to the advantage of the ruling elites. The most notable incident of state capture is the Gupta family scandal in South Africa which has been estimated by the South African government to have cost the country up to R 250 billion (US$ 17 billion) between 2014 and 2017 and reduced the country’s gross domestic product growth rate by an estimated 4% a year.
Notably, from 1975-2022, most sub-Saharan African states assumed the doctrine of economic statism and began experiencing the slowest economic growth of any region, with the highest gross domestic product increase recorded in 2004 at 6.55%. In 2022, sub-Saharan Africa recorded the lowest gross domestic product out of any region, coming in at $2,047.35B. It demonstrates that economic policies, interventions, and state enterprises in sub-Saharan Africa are not yielding the desired outcomes.
The International Monetary Fund also reported capital formation in sub-Saharan African countries is hindered by perceptions of high risks resulting from the absence of well-established economic, institutional, and legal infrastructures that support market transactions.
This has been the case in Zimbabwe. Economic statism led ZANU PF, the ruling political party, to establish economic policies that served the interests of the ruling elite. Economic policies included a Fast Track Land Reform Program of 2002 and the Indigenization and Economic Empowerment Act of 2007. These policies directed the redistributing of land and wealth resulting in inadequate protection of land property rights and insecurity over businesses and investments. Since 2002, Zimbabwe experienced a sharp decline in its gross domestic product and hyperinflation.
Economic statism in Zimbabwe led to the allocation of land, farming resources, and business investments by clientelist and corrupt means. This unequal treatment of citizens in the redistribution of land, resources, and wealth depended on connectedness to the ruling elites. The ruling party undermined the establishment of a rule-of-law-based culture crucial for industrialization, growth, and development. Governing leaders themselves are also deeply rooted in corruption. It presents itself as impossible in any case to eradicate corruption in Zimbabwe despite the imposition of economic sanctions by the European Union and the United States of America.
Corruption has allowed South Africa to lose $329 billion from 1970-2018 due to mis-invoicing of mineral exports, embezzlement of state resources by state-owned companies, and the collusion of politicians and private actors. In Côte d’Ivoire, economic statism contributed to the crafting of economic policies to benefit the cocoa sector. The benefits have, however, only enriched the political elite and multinational companies, through exports and illicit inflows and outflows of money.
Critiques of Nigerian development also focus on the dilemmas of economic statism. Economic statism in Nigeria reflected a preference for administratively-guided resource allocations rather than market-driven allocations. Nigeria’s persistent economic stagnation is attributable to problems induced or worsened by state responses. Economic statism made it worse for Nigeria’s economy, after the state-induced policies that led to an overly petroleum-reliant economy, leading to the Dutch disease in Nigeria, as explained by the Rybczynski theorem.
The Dutch disease is a rise in the proportional expansion of the output in petroleum and an absolute decline of the output of other sectors such as in agriculture. The Dutch disease in Nigeria is because of the state’s excessive role in the inefficient and excessive allocation of economic resources in the oil industry usually sought through statist economic strategies. It has led to an increase in petroleum extraction activities and a decline in other valuable sectors such as manufacturing and agriculture.
Nigeria has thus missed an opportunity of unique proportions. From 2015-2022, Nigeria’s growth rate decreased and gross domestic product per capita flattened due to state-instituted economic policies. Decreased growth rates were driven by monetary and exchange rate policy distortions, increasing fiscal deficits due to lower oil production and a costly fuel subsidy program, and increased trade protectionism. Weakened economic fundamentals led the country’s inflation to reach a 24-year high of 31.7% in February 2024.
In combination with sluggish growth, it has pushed millions of Nigerians into poverty. Despite Nigeria being Africa’s leading oil producer, with 1.35 million barrels per day in 2023, the poverty rate is estimated to have reached 38.9% in 2023. It is estimated that 87 million Nigerians are living below the poverty line, the world’s second-largest poor population in the world after India and the leading poor population in Africa.
State Capitalism as the Way Forward for Sub-Saharan Africa
Sub-Saharan African states ought to migrate to state capitalism from economic statism. State capitalism is a system in which governments control at least one-third of the largest corporations in a country. State capitalism combines the traditional economic planning of statism with the introduction of free-market competition. State capitalist economic system allows the state to manipulate market outcomes for political purposes.
In this regard, state capitalism is embraced not because it is the most efficient model of economic performance, but embraced to allow it to serve both political and economic purposes. International political economists consider politics and economics to be inextricably intertwined. This is a vital ingredient that can significantly drive the political-economic progress of sub-Saharan African states.
The successful progression of social and economic developments in Europe after World War One is often interpreted by development economists as state capitalism. The transitional process transformed private capitalism into state capitalism. Even more so, the extraordinary achievements of China’s development are linked to state capitalism. Private firms in China benefit from connections with booming state-owned firms.
Development economists view countries such as China, Brazil, Saudi Arabia, India, Singapore, and Norway as state-capitalists. State capitalism copies strategies of high-growth Asian economies such as China, mixing central planning and export-led growth, and being more open to trade and investment.
Significantly, this argument addresses both neoclassical and mainstream sub-Saharan African economists. This has been an ongoing and unresolved debate between followers of Hayek and the Market Algorithm and followers of Keynes and Demand-Side Economics since the late 1930s. Followers of Hayek argue for limited government control of economic planning, expressing profound confidence in the ability of markets to take care of themselves. Followers of Keynes argue for stronger government intervention in economic planning, instead placing their faith in the ability of the state to create demand that takes care of the economy in the event of a depression. In light of the arguments above, sub-Saharan Africa’s economists ought to reach a consensus on adopting state capitalism to resolve the endless debate.
Sub-Saharan African countries will have to reduce the overall role of the state to create and provide more ample space for the private sector to grow and boom. In this regard, economists will have to reach a consensus on a fairly basic issue, the role of the state and its level of influence in economic planning. In the state-capitalist model, distortionary effects of economic statist policies will be attenuated by liberalization, while the state continues to play a significant role in institutional change which remains key to effective restructuring. State capitalism thus is the most attractive alternative development model for catching-up economies in sub-Saharan Africa.