A lot of people are saying “corruption”. Sorry, that’s not an explanation that’s an observation. There is a reason why there is a lot of corruption in Africa and it has everything to do with Western foreign aid and economic interventionism in the various states of Africa.
Before mentioning the two causes let’s dispel the myth that it was due to colonialism. There have been about 40 years since the vast majority of Africa was decolonized. To compare, 40 years after the liberation of the United States as colonies, they were a serious world economic power and growing at a REAL GDP rate of 5%-6% per year.
The majority of African countries have done no such thing 40 years after the end of their colonization so clearly there is a different reason for the poverty other than colonization.
One clear difference between the former independence movements of the Americas and Africa is that Africa receives a mountain of foreign “aid” every year.
FOREIGN AID: So what is it?
It is a transfer of wealth between two GOVERNMENTS, debased entirely from economic growth and good government. Obviously this provides a slew of perverse incentives. Think of it, if I give you a business but regardless of your performance you will always make 5 billion dollars, what incentive do you have to make your business ethical, efficient, and transparent? You don’t! In fact, you will probably plunder the business for even more money because success is detached from good management!
You see, a well-managed state knows that in order to be successful parasites they must suck a minimal amount of blood out of the economy(in the form of taxes) so as not to seriously stifle economic growth. In this way the economy will expand and with it, more potential blood to suck. If, however, the parasite has an unlimited food source without having to depend on the victim’s health it will suck so much blood out of the victim that the victim dies.
Foreign aid is an unlimited food source for most African states and politicians. They don’t care about their countries’ economic health because they get billions a year anyway from their western friends. All these billions are more than enough to provide them with immense personal riches and a nicely sized army of thugs to suppress local revolts.
So is it any surprise that most governments in Africa plunder their own economies through heavy taxes, regulation, and inflationary monetary policy? In a world without financial aid, they would have to be very careful to keep taxes low and let people and businesses flourish because, of course, if they ruin the economy they also ruin the extortion(tax) inflows and, therefore, their personal wealth and military power.
But in our perverse diplomatic world of foreign aid, governments are actually incentivized to keep their countries poor! In this way, they can justify the continued foreign aid!
Understanding this, it is rather unsurprising to see that the most corrupt countries in the world JUST SO HAPPEN to receive large amounts of foreign aid.
Notice the orange and dark red all over Africa and now compare the following list
Interesting to say the least.
It is the foreign aid that allows states to do the following
STATE INTERVENTION IN THE ECONOMY:
First of all, what is the state? It is a territorial monopoly on violence, law, and order. As in all monopolies, what happens?
The quality (transparency and equity) of law and order will constantly go down, and the price (taxes and regulations) will constantly go up. This is precisely because there is no competition in the market for law and order. If and when voluntary government springs up, a state calls it an insurrection and starts killing people in order to enforce their monopoly.
In Africa’s case, as we have seen, they have even more control because their reward is detached from their performance.
This is why they intervene in every way possible in the economy.
Due to all of the taxing, regulation, inflation, and legal red tape that African states impose, it is little wonder they remain poor.
In order for Africa to escape poverty they will either have to stop receiving foreign aid(VERY UNLIKELY) or the West will have to cut it off so that African states will stop intervening in the economy, stifling growth.
The good news is that economic growth can happen quickly once African nations embrace free markets and this has happened in other examples.
Hong Kong was a colony as well and was impoverished like the rest of the world decades ago. But something wonderful happened. They had their foreign aid cut! As a result, they realized they had to lower taxes and regulations and let the power of the free markets generate real wealth and lift people out of poverty.
Africa will one day become great when they can throw off the rule of their oppressive states and embrace free markets.
Lukas is an Economic Writer at Emergingthreads.com
