Habits of highly effective countries: Lessons for South Africa

(This policy bulletin is extracted from the book Habits of highly effective countries: Lessons for South Africa published by the Law Review Project in 2006.)  This book can be downloaded here.

Why don’t poor countries choose prosperity?

It is clear from the data what poor countries would have to change if they want to be more like winners, and it is clear fromThe Funnel that they are at no fundamental disadvantage. Since so few poor countries follow the example of the few that break from poverty to prosperity, it is necessary to see whether they are constrained in some way. There are many anecdotal anda prioriviews to the effect that poor countries do not have the sophistication needed for a market democracy, that they should not or could not do without dirigisme, that aid from rich countries gives governments of poor ones irresistible incentives to cause poverty, that rich countries keep poor ones impoverished in mysterious ways for sinister ‘globalisation’ reasons, and so on.

There seems to be no intellectually rigorous (testable) analysis behind such conjecture. Such hypotheses do not survive scrutiny. All suggestions that poor countries are at a disadvantage are refuted by a few basic facts.

-      Many poor countries with diverse starting conditions (big or small areas or populations, hot or cold climates, resource-rich or resource-poor, previously colonised or independent, coastal or landlocked, mountainous or flat, white or black, religious or secular) became rich after their governments adopted policies that coincided with prosperity elsewhere. There is no reason to believe that, from a growth perspective, there is anything distinctive about poor countries. That governments often say their country is a ‘special case’ may be an excuse for pursuing policies that failed elsewhere or for avoiding proven success factors in the interests of advancing hidden political agendas. There is disagreement among scholars on the significance of abnormal phenomena like conflict and disease. The evidence suggests that even such massive disasters as the incredible floods in Mozambique and the world’s highest incidence of HIV/AIDS in Botswana do no more than slightly reduce high policy-induced growth rates.

-      Some rich countries became poor after adopting policies that coincide with poverty internationally. Argentina was one of the world’s richest countries. It regressed under Peronist policies of the type that usually coincide with stagnation and regression, and is now a poor country. China also regressed economically under Maoism, and Zimbabwe is doing so under Mugabe. The economic performance of these countries is predicted by the policies they followed.

-      The idea that first world policies, or ‘globalisation’, cause third world poverty, also appears to be mistaken. Many poor countries achieve high economic growth rates under conditions that are supposed to hold them down. They seem to grow in direct response to internal policies, almost as if global conditions are irrelevant. It may be that governments fail to achieve their policy goals because they mistakenly believe that their fate depends on external forces, to which end they may divert energy to try to create favourable international conditions rather than to get things right at home.

-      The most conclusive refutation of third world poverty theories is that the world’s highest growth countries – the ones getting richer fastest – are poor countries. As explained later in the discussion of the income gap, a much higher growth rate in a poor country might add less in nominal terms to its per capita wealth than the addition to a rich country’s wealth where growth is much slower. In this sense the ‘gap’ between rich and poor countries may grow irrespective of how spectacularly poor countries perform. The essential point is that, whatever the current income level of a country, the best that can be achieved is for it to grow fast. Comparisons between itself and other countries on the basis of relative wealth should be ignored.

-      This income gap anomaly is similar to the off-a-low-base phenomenon. When the observation is made that a poor country, say Mozambique, is achieving one of the world’s highest growth rates, a typical retort is ‘yes, but it’s off a low base’. This is a virtually meaningless statement, yet it is exceedingly common. Is high growth meant to be easier to achieve off a low base? Perhaps this is so, but most poor countries stagnate or contract. What matters is the fact that poor countries appear to respond, as do rich countries, to whatever domestic policies their governments adopt. The only difference according to the data, as explained below, appears to be that the effects of comparable policies in rich and poor countries differ only in extent and not in substance.

Source: This Policy Bulletin may be republished without prior consent but with acknowledgement to the author. As always the views expressed in this Book are those of the author's and are not necessarily shared by the members, directors or staff of the Foundation.

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