Institutionalizing neoclassical economics in Africa: Instruments, ideology and implications

Abstract

Post-war development economics drew broadly from an array of different theoretical approaches, including theorizing from the south. Academic economists and policy makers in African countries openly and critically debated alternative possibilities from different theoretical traditions. As the multi-paradigmatic approach was under assault, the great development economist Albert Hirschman reminded us, in 1981, that this transcendence beyond monoeconomics arose out of the ‘unprecedented discredit of orthodox economics’ from within the economics establishment following the Great Depression and that the reassertion of neoclassical economics was somewhat predictable. The unevenness of the patterns of development provided the opening for the wholesale attack on development economics. Following the crisis of the universities in the 1980s, brought on to some degree by donors like the World Bank, economics departments on the African continent were reconstituted and reshaped in the image of the monoeconomics of the West. Capacity building efforts emphasized a single theoretical paradigm aimed in part at supporting structural adjustment policies. The African Economic Research Consortium, based in Nairobi and founded in 1988, played a key role in transforming the economics profession in Africa. The paper will map out the institutional dynamics and the consequences of reconstructing economic departments and government agencies in African countries.

Keywords:

• foreign aid
• neoclassical economics
• capacity building
• economic education
• African universities
• neoliberal policies
• World Bank
• structural adjustment
• African Economic Research Consortium

Acknowledgements

An earlier version of this paper was prepared for the LSE Workshop, Capitalism from the Global South, 26–27 April 2016. I want to thank Keith Breckenridge for his continual feedback in his capacity as discussant, reviewer and editor of the collection. Also thanks to Deborah James for her detailed editing, arranging a transcript of the LSE workshop and suggestions for retitling the paper. The comments of the participants of the workshop and multiple anonymous referees were very helpful. I am also grateful to the Mellon Foundation for supporting the workshop through the WISER-Michigan collaborative conferences. The paper was also strengthened by the dedicated work of two research assistants John Schoenkopf and Ruth Dewitt. Thanks also to Horace Campbell for sharing his memories of University of Dar es Salaam in the 1980s and to Jostein Hauge and Jochen Oppenheimer for their helpful comments.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Howard Stein is a development economist and Professor in the Department of Afroamerican and African Studies (DAAS) at the Department of Epidemiology at the University of Michigan. He is the author of Beyond the World Bank agenda: An institutional approach to development (University of Chicago, 2008) which among other things explores the historical and theoretical roots of structural adjustment in Africa. He was a Lecturer in the Economics Department of the University of Dar es Salaam, Tanzania in 1980–1982. Since then he has done research in a variety of African countries focusing on economic development issues like foreign aid, finance and banking, neoliberalism, the methodology of randomized controlled trials, health and gender, climate change, industrial policy, export processing zones, agricultural policy, poverty and rural property right transformation, income inequality and Chinese economic relations with Africa.

Notes

1 One might ask about the relationship between neoclassical economics and neoliberalism. Neoliberalism is really a set of policies that arises from the foundational constructs of neoclassical economics. Among other things, there is an emphasis on methodological individualism, rationality of economic actors and the naturalism of markets. However, not all neoclassicals are neoliberals due to the presence of market failures which need to be carefully considered when neoliberals pursue policies like liberalization and privatization. However, neoclassical economists share the same constructs, methodology and ideology of World Bank and IMF economists, which is likely to delimit any opposition to their policy agenda. Moreover, as Hay (2004) points out rationalist assumptions of the type used by neoclassical economists have played a powerful role in institutionalizing the neoliberal policy doctrine.

2 Berndt (2015) points this out in the context of smallholder behavioural experiments in Kenya:

A heterogeneous development community is actively implicated in the extension of capitalist market relations and/or the reconfiguration of the ways in which people and places in the global South are articulated with global commodity circuits … And it ends with the caprices of global value chains and markets, in one moment providing opportunities of linking and upgrading, in other moments unceremoniously severing ties with consumers in the global North or in the urban centres of the global South… (Berndt, 2015, pp. 575, 585)

3 Mankiw and Taylor put it simply and precisely in multiple editions of their popular economics textbook. For example their 2006 edition states: ‘As long as the firms using the factors of production are competitive and profit maximizing … land, labor and capital each earn the value of their marginal contribution to the production process’ (Mankiw & Taylor, 2006, p. 378). Institutional economists like Brown (2005) wholly reject the neoclassical theory of distribution. He warns it creates the dangerous idea that people are paid according to the natural laws of the market and receive what is deemed worthy of their contribution. They are not the result of human agency but of forces beyond human control. In contrast, the institutional theory of distribution points to the need to understand power and its relationship to the contestation of interests at the heart of the determination of the allocation of the shares of material rewards (Brown, 2005).

4 Colander (2015) an institutional economist and textbook writer sums it up nicely:

A textbook is a reflection of what the market wants, not what the author thinks is the truth. Textbook authors, of which I am one, are similarly caught up in the system. Publishers rely on focus groups to tell them what should be in the texts. Publishers recruit authors by telling them that they want something different, but then they use reviewers of existing users who are not experts in the field to determine what book they will publish. Why, because that is the book that will sell. The system becomes self-reinforcing. (Colander, 2015, p. 234)

5 In Tanzania, see for example Ndulu (1987), Ndulu and Lipumba (1986) and Lipumba and Hyuha (1985). Ndulu graduated in economics from Northwestern in 1979, Lipumba, from economics at Stanford in 1983 and Huyha from the Economics Department at the University of Alberta in 1980.

6 The World Bank’s 1988 African education report made this abundantly clear:

But, even with greater private contributions, education systems will not be able to ensure the increased stocks of human capital required for continued development, especially in those African countries where enrollment rates are lowest and where the access to primary and secondary education remains an urgent priority. The conclusion is harsh and inescapable: to meet minimally acceptable targets for coverage and quality of lower levels of education in most countries, the share of stagnant real public education expenditures devoted to tertiary education cannot expand and in some cases may have to contract. (World Bank, 1988, p. 69)

Later in the report they emphatically state, without citing figures, that conversations with African ministries ‘point overwhelmingly to surpluses of manpower trained at the tertiary level’ (World Bank, 1988, p. 70), as if the Bank’s austerity policies had nothing to do with this.

7 The section on staff development states: ‘academic staff subprojects are for subject discipline and teaching oriented studies and for training in the efficient use of laboratory and teaching equipment. No more than 20 doctoral candidates are to be included because the universities already have a relatively high proportion of teachers with PhDs’ (World Bank, 1991b, p. 19).

8 Bagachwa (1995) highlighted how widespread this was on the continent. The dismal conditions of the universities in Africa included evidence on the decline in educational quality due to terrible cutbacks in higher education in the 1980s reflected in the collapse of accessibility to books, decaying infrastructure, falling wages in 27 of 28 sub-Saharan Africa countries surveyed between 1980 and 1986, and falling government support for research. He concludes: ‘This has led to the emphasis on demand-led consultancy which reflects short-term donor policy concerns, rather than analytical research concerns which in turn are more reflective of institutional priorities’ (Bagachwa, 1995, p. 6).

9 See http://www.adamsmithinternational.com/content/our-values for a statement of the conservative doctrine of the Adam Smith group.

10 See SIDA (2002).

11 Beyond the support for the AERC, the ACBF provided funding to build local policy institutions to enhance the ‘African ownership’ for the ‘policy sustainability’ to counter ‘macroeconomic instability and policy mismanagement (distortions)’. By 2005, the ACBF had allocated nearly $200 million to 113 projects in 37 African countries. National Policy Units outside of universities were established in 20 countries to work closely with governments (Ndulu et al., 2007). Obviously the units were not created in isolation but would hire the graduates from the AERC training programmes to make sure they gave the proper advice to governments.

12 The Department once had undergraduate tracks in areas like economic policy and planning in the early 1980s. They adopted the standard Western core curriculum of microeconomics, macroeconomics and econometrics. Today there is no distinction between the course offerings in the department and any North American or European University. See current curriculum at https://www.udsm.ac.tz/web/index.php/colleges/coss/department-of-economics .

13 The Bank effort to build neoclassical economic capacity was not restricted to Africa but applied globally. See Bourguignon et al. (2007) which documents the efforts not only in Africa but in Hungary, Russia, China, South Asia, Latin America and East Asia. Cohn (2017) provides an excellent book length analysis of the impact of the institutionalization of neoclassical economics in China.

14 Ajayi et al. (1990) surveyed the state of economics departments in English speaking universities for the AERC at the time and found conditions to be woeful.

Deteriorating economic conditions have led to declining government support, in real terms, for tertiary education in Africa … In many countries, a month's salary is inadequate to cover outlays for clothing, food, rent, and basic services … Under the circumstances research becomes a luxury … staff hold second and third jobs unrelated to their careers or training … . (Ajayi et al., 1990, p. 19)

15 The original idea came from Professor Gerald Helleiner, an economics professor at the University of Toronto, who wrote to the IDRC in 1981 on the macroeconomic problems in Africa. He felt the IDRC should work on building up this capacity partly so they could better deal with and perhaps contest some IMF and World Bank demands. Fine was his former student at the University of Toronto and was put on the macroeconomic network project after it was approved in 1983. Helleiner worked closely with the network and later with the AERC (Helleiner, 2018).

16 Bill Lyakurwa was also a Tanzanian who received his PhD in economics from an American university (Cornell) in 1978. Another Tanzania economist Delphin Rwegasira was head of the AERC in between the Ndulu and Lyakurwa regimes. He received his PhD from Harvard. He went to work for the IMF after he left the position at the AERC.

17 One reviewer of an earlier version of this paper claimed that Collier was an institutional economist not neoclassical. Not only is Collier neoclassical he was also a strong proponent of neoliberalism in Africa. Collier was Director of the Development Research Group of the World Bank 1998–2003 and among other things worked closely with Burnside and Dollar on their highly criticized work that aid only works with neoliberal conditionality. See for example Collier and Dollar (1999). The Deaton Report on World Bank research cited it as having ‘deep flaws’ such that ‘the results cannot be regarded as remotely reliable’ (Deaton et al., 2005, p. 53).

18 From 2005 to 2006 the annual reports list the Board of Directors and the Program Committee. Collier is on the programme committee from 2005 to 2010. Frequent co-author Stephen O’Connell is on the same committee from 2006 to 2012. Chris Adam an Oxford economist and close associate of Colliers’s group was vice chair and member of the board of directors from 2006 to 2016. Arne Bigsten another frequent co-author was chair of the board 2008–2010. The earlier reports list Collier and his associates as resource persons in various seminars (AERC, various years). Earlier documents show the same pattern. For example, Horton’s 1999 Review of the Phase four of the AERC lists another close associate of Collier, David Bevan as the chair of the research subcommittee. Collier is listed as a resource person and chair of the programme Group C.

19 For example, Shanta Devarajan chief economist for Africa was on the board in 2009–2010 (AERC, 2010).

20 The Bank has been particularly impressed with the AERC:

the … AERC has emerged as one of the leading promoters of research activities Africa … By all accounts the AERC has met if not 'exceeded its objectives … In an area in which results have been meagre and disappointing, the AERC has achieved wonders in research capacity building through a program of research stimulation and support … The interaction between African scholars and foreign experts, is particularly stimulating and productive. (World Bank, 1994, quoted in Horton, 1999)

21 The evaluation of phase IV revealed in interviews that some people felt the resource people were too close to the World Bank and IMF: ‘Some of those interviewed also commented that the group of Resource Persons is excessively concentrated on mainstream economists, with a predilection for econometrics, with strong representation from the World Bank and IMF’ (Horton, 1999, p. 16).

22 Collier’s Centre for the Study of African Economies at Oxford University also runs a programme for AERC researchers. Their Journal of African Economies has been active in publishing papers from AERC sponsored researchers and AERC conferences and workshops (AERC, 2020).

23 Compare this to national per capita incomes of $3–500 in the 1990s in many African countries. A number of annual reports after the 1990s listed the research grants given to individuals. Amount most commonly cited was $12,500. See AERC (various years).

24 Papers can be found at http://opendocs.ids.ac.uk/opendocs/. Seventy-two of the 95 research papers are considered to be finance related by the site’s search engine.

25 Not a single paper in the 1990s in the research paper series focused on poverty. There are some papers on poverty after 2000, but they are infused with the same themes. Obi (2007) for example blames rising rural poverty in Nigeria, not on the impact of the adjustment policies but on their purported abandonment (with no evidence provided). He completely accepts the standard World Bank assertions that poverty is lowered with macroeconomic stabilization polices. He uses a CGE model with the usual neoclassical economic assumptions like utility maximizing consumer behaviour to illustrate that typical neoliberal position that poverty is worsened by tariffs but improved by transfers to the poor or to sectors where the poor allocate their budgets.

26 McKinnon-Shaw financial repression theory believes that the low savings and investment often found in developing countries is a product of state intervention in the financial system. The theory argues that investment and savings have been repressed by controlled and negative interest rates, lack of competition, high reserve requirements, and government directed credit. The key to economic development is through deregulated interest rates, privatization, and freeing the acquisition of bank licensing to enhance competition which improves the efficiency of intermediation, lowering reserve requirements, and dismantling any directed credit programmes. The rise in the rates of interest enhances the incentive to save, raises the supply of savings financing higher investment and growth rates. The quality of investment will also rise because higher interest rates weed out less productive investment and discerning private bankers without the burden of government fiat will make optimal loans. The theory has many weaknesses. For example, it relies on the pre-Keynesian classical economics that sees interest as the reward for savings and that prior savings is necessary for investment. Handing bank licenses to private players in poorly regulated environments can be a license for fraud and malfeasance. The World Bank and IMF sponsored financial liberalization inspired by this theory led to many banking crises. Demirguc-Kunt and Detragiache (1999) linked 78 per cent of banking crisis in 53 countries between 1980 and 1995 to financial liberalization. Twenty African countries experienced banking crises throughout the 1990s (Laeven & Valencia, 2012). Alternatives and critiques are widely available not only using institutional and post-Keynesian economics but from the imperfect information school of Stiglitz. AERC papers generally do not cite this literature. See Stein (2008, ch.7) and Stein et al. (2002) for discussion of the theory and policy consequences including the detailed study of the financial crisis in Nigeria that followed financial liberalization.

27 In Francophone Africa, training is undertaken since 1994 by the Programme de Troisième Cycle Inter-universitaire en Economie-PTCI financed by the African Capacity Building Foundation in close cooperation with the AERC. The programme covers training in 18 different university economics departments in Francophone Africa. See for example https://www.acbf-pact.org/fr/what-we-do/how-we-do-it/grants/projects-regions/afrique-de-l%E2%80%99ouest-et-centrale/burkina-faso/nouveau

28 Details of the curriculum can be found at https://aercafrica.org/training/cmap/

29 This is done by simply adding the grant/income figures in the annual reports through 2018–2019.

30 Helleiner’s (2018, p. 103) comments are pretty typical ‘Despite its reliance on networking rather than in-house staff, the AERC has long been generally regarded as the foremost economic research and capacity building institution on the African continent’.

31 There is plenty of good work on development policy in a supply chain world using different theoretical approaches and drawing on other disciplines. See for example the writings of sociologist (Gereffi, 2018) or on the African continent the work of Mike Morris at the University of Cape Town, who was trained in the 1970s in development economics at IDS at Sussex University (Fessehaie & Morris, 2018).

32 The impact of the neoliberalism on the continent is well documented and will not be repeated here. See for example Stein (2008, ch.3) for a good summary of the empirical literature. Sylla (2018) in a short piece sums up the experience succinctly:

In Africa, the International Monetary Fund (IMF) and the World Bank do not have a good reputation. Many people consider them agencies of misery, poverty and social distress. This perception is driven by the experience of the structural-adjustment programs that the international financial institutions (IFIs) insisted on in the 1980s and 1990s. (Sylla, 2018, p. 1)