If you want to be poor, fight for independence

Freedom from empire was the ambition of every colonised country, but in a second extract from this new book the historian argues that independence does not necessarily lead to prosperity.

THOUGH WILLING TO USE military power to effect changes of government in rogue regimes and failed states, America has little appetite for nation building, a euphemism for taking over and running countries in the aftermath of regime changes. As far as Bush is concerned, the American presence in Bosnia, Kosovo, Afghanistan and Iraq is no more than a temporary expedient, paving the way back to self-government.

But is it right to think of national independence or self-determination as a universally viable model? Might it not be that for some countries some form of imperial governance, meaning a partial or complete suspension of their national sovereignty, would be better than full independence, not just for a few months or years but for one or more decades?

Since the end of the Second World War, a mixture of European exhaustion, non-European nationalism and American idealism has created the maxim that it is imperialism that causes poverty and wars and that self-determination will ultimately pave the way to prosperity and peace. But this has proved to be false. The coming of political independence has brought prosperity to only a small minority of former colonies. And although the former imperial powers no longer fight one another, decolonisation has in many cases been followed by recurrent conflict between newly independent states and, even more often, within them.

Nor has the disappointment ended there. Self-determination was supposed to go hand in hand with democracy. But decolonisation has often led not to democracy but, after the briefest of interludes, to indigenous dictatorships. Many of these dictatorships have been worse for the people living under them than the old colonial structures of government: more corrupt, more lawless, more violent. Indeed, it is precisely these characteristics that explain why standards of living have worsened in many sub-Saharan African countries since they gained their independence. Most of the former colonies of the Middle East are wealthier only because nature endowed some of them with underground deposits of oil, full exploitation of which came only after they had gained their independence. But with few exceptions their politics are little better than despotisms.

Colonialism was not all good, of course, and independence has not been all bad. But it is not convincing, though it is certainly convenient for the likes of the Zimbabwean despot Robert Mugabe to blame all the problems of the developing world today on the malign after-effects of colonial rule. In the words of the African Development Bank's 2003 report: "More than four decades of independence . . . should have been enough time to sort out the colonial legacies and move forward."

Take poverty. Although historical statistics for per capita incomes are very far from complete or exact, it is possible to measure approximately how former empires and former colonies have fared in the period from high imperialism to post imperialism. Only one former colony has significantly improved its relative economic position: Singapore, which in 1913 had a per capita GDP of a quarter of that of the United States, but which by 1998 had overtaken all the former European imperial powers. The other ex-colony to improve its position, Malaysia, has done so only modestly, raising its per capita GDP from 17 per cent to 26 per cent of the American level. All the others have fallen farther behind the United States than they were in 1913, in some cases very far behind. Yet these figures understate the extent of the global divergence between rich and poor because they omit many of the poorest countries in the world for which historical data simply do not exist.

In one respect, this great postcolonial divergence may be slackening as India, the most populous of all the former European colonies, enters a long overdue era of economic growth. However, most ex-colonies continue to lag ever farther behind the elite of wealthy countries. According to the World Bank, there are only 14 countries in the world with per capita GDP of three-quarters or more of the American level. Of these, all but two are European; the others (Japan and Hong Kong) represent the extremes of Asian experience, the former having never been a colony, the latter having remained under British rule for more than a century and a half.

At the other end of the scale, however, there are 20 countries where per capita GDP is 3 per cent or less of the American level. In more than 30 of the world's countries the average income is less than $1 a day. All but six of these are African countries that have gained independence since the Second World War. In the poorest of the former British colonies, Sierra Leone, per capita income is now $140 a year; the average Briton is more than 200 times better off. In 1965 the difference in income was a factor of just eight.

In short the experiment with political independence, especially in Africa, has been a disaster for most poor countries. Life expectancy in Africa has been declining and now stands at just 47 years. This is despite aid, loans and programmes of debt forgiveness. Only two sub-Saharan countries out of 46, Botswana and Mauritius, have bucked the trend of economic failure.

Why have so many newly independent countries failed so badly to achieve economic growth? Why have only a tiny handful improved their relative position since the days of imperial rule?

Critics of globalisation frequently claim that the big divergence in per capita incomes between rich and poor countries since the 1960s has been a direct consequence of globalisation. But this is a flawed argument. In theory, globalisation, meaning simply the international integration of international markets for commodities, services and capital and labour, should tend to maximise economic efficiency, yielding gains for all concerned. The real problem of the early 21st century is not globalisation but its absence or inhibition. Indeed, the sad truth about globalisation is that it is not truly global at all.

Part of the problem is that world trade is still far from being truly free. At least some of the blame for this can be laid at the door of the world's richest countries, which continue to pay subsidies to their farmers equivalent to the entire gross domestic product of Africa. American producer support still amounts to around 20 per cent of gross farm receipts; the figure for the European Union is more than 30 per cent.

But it is not just rich countries that are at fault. Many poor countries have hedged their economies around with a bewildering variety of restrictions that tend to hamper commerce. One of the principal reasons for widening international inequality in the 1970s and 1980s was protectionism in less developed economies. A comparison of per capital GDP among developing countries found that the more open economies grew at an annual rate of 4.5 per cent, while the closed countries managed barely 0.7 per cent. Even more significant is the flow of international capital. Most of today's overseas investment goes on within the developed world. In 1994 only 36 per cent of foreign direct investment and 10 per cent of portfolio investment went to poor countries. By 2000 the poor countries' share had fallen to around 12 per cent and 2 per cent respectively. The very poorest countries nowadays receive almost no investment from abroad. Why?

The key to economic success lies in the adoption of legal, financial and political institutions conducive to investment and innovation. Investors prefer to put their money in countries where rights of private property are effectively protected., where there is stable and honest government and where there are rights of personal liberty. A representative legislature, a transparent fiscal system, an independent monetary authority and a regular market for securities create the institutional environment within which all kinds of businesses can flourish. Democracy in the sense of a universal suffrage-based legislature is not indispensable for growth: witness the recent economic success of China, Malaysia, Singapore, South Korea, Taiwan and Thailand. On the other hand, democratic societies are more likely to invest in public education and public health, which also tend to enhance a society's economic performance.

It is in this realm of economic, legal and political institutions that so many poor countries fall down. There have been numerous attempts in the past 50 years to address the problems of economic backwardness by means of loans and aid. Indeed, Western countries gave away around $1 trillion (in 1985 dollars) in unrequited transfers to poorer countries between 1950 and 1995. But these efforts have yielded pitiful results, in large measure because the recipient countries lacked the political, legal and financial institutions necessary for aid to be productive. Arbitrary and corrupt rulers bear a large share of the responsibility for this economic failure. Much of the money that has poured into poor countries has simply leaked back out - often to bank accounts in Switzerland - as corrupt rulers have stashed their ill-gotten gains abroad. One study of 35 sub-Saharan African countries calculated that roughly 80 cents on every dollar borrowed by African countries flowed back as capital flight in the same year.

Perhaps the best evidence for the institutional argument is that even a poorly situated country can prosper with the right institutions. Botswana has enjoyed the fastest rate of growth of per capita income in the world over the past 35 years, despite being little better endowed in terms of geography, climate and natural resources than other sub-Saharan African countries. The main reason for Botswana's success is simply that it managed to adopt good institutions.

Helpfully, controlled experiments were carried out in both Europe and Asia after 1945 to see how practically identical populations - in terms of environment, situation and culture - would fare economically under quite different institutional regimes. The widely divergent experiences of the two Germanys and the two Koreas confirm that institutions do indeed play the decisive role in development. So too did the experiment of keeping one Chinese city, Hong Kong, under Britain 's liberal imperial system and one Chinese island, Taiwan, under a not dissimilar American-sponsored system, while the rest of the country endured the miseries of Mao's tyranny.

No doubt each of the failed states of the world has failed in its own distinctive way. But they also have much in common. Among the poorest countries in the world are the Central African Republic, Uganda, Rwanda, Chad, Tajikistan, Niger, Eritrea, Guinea-Bissau, Liberia, Sierra Leone, Burundi, Ethiopia, the Democratic Republic of Congo, Afghanistan and Somalia.

All these countries fall far short of being liberal democracies, and all have experienced in the recent past, or continue to experience, some form of war. In most cases their only hope for the future would seem to be intervention by a foreign power capable of constructing the basic institutional foundations that are indispensable for economic development.

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