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An economic strategy for The Gambia 0

Recently I spent time in The Gambia, a country whose people overthrew a megalomaniacal, authoritarian and vicious President, Yahyeh Jammeh, in an extraordinary democratic moment, due to their courage and the timely supportive action of other countries in West Africa (and very little if at all due to support from major powers, apart from their role in placing some effective limits on prior abuses and eventually supporting a Security Council resolution that helped to legitimize the regional action).

I was able to observe a moving event in which members of the country’s diaspora, from Alaska to Taiwan and from Cape Verde to Sweden, most of whom were active in opposition (and quite a number of whom were highly educated professionals successful in the countries to which they have departed) assembled to meet the new President and to express their pleasure at the New Gambia as well as their sincere hopes for the future. Conversations with ordinary Gambians reveal general relief and enormous optimism. Arguably, the current juncture provides the first opportunity since the country’s independence in 1965 for a broad ranging public conversation on the ends and means of development.

On the agenda of the new and widely welcomed government are now not only the restoration of the rule of law and democratic institutions, but addressing economic and social concerns long severely neglected. Gambians had been among those who are crossing the Mediterranean to Europe, in the hope of a better life, in large numbers relative to their small population. Many concerns need urgent attention.

This includes a population in poor health and insufficiently educated, an undiversified economy vulnerable to downturns in demand for its few exports, and an economy unable to generate sufficient employment, especially for youth. The smallness of the country makes it difficult to pursue many strategies available to larger countries, such as those which might accord a driving role to domestic demand (which presumes that the national economy can provide the scale and diversification required for such an approach).

Break the chains of imperialism? Rouse the people to revolution? One wishes it were so simple. The responsible economic analyst must provide prescriptions relevant in the here and now, while not losing track of the broader questions and ultimate concerns. International and national realities – financial, technical, political and social – must all be faced, even as one dreams a dream. Fostering a dynamic and inclusive market economy, able to weather the unforgiving storm of the global economy, even while combatting its constraints and attacking its limitations, is the most proximately realizable utopia.

The dominant approach to economic management for the Gambia and countries like it, coming from the World Bank, IMF and Western governments (who tend speak more or less in unison on such issues) emphasizes “sound” macroeconomic management, interpreted in terms of maintaining manageable debt, low inflation, a realistic exchange rate conducive to avoiding sustained external deficits, and a climate for doing business that is attractive for investors. This is not always wrong, but it is very frequently wholly inadequate.

The focus on these priorities reflects the thinking and interests of external institutions, and in particular the perceived desirability of a reliably pro-business (and in particular pro-foreign investor) economic environment. It is based on the idea that such conditions, perhaps complemented by some investment in human capabilities and administrative reforms, are sufficient to jump-start economic growth, as the country specializes in the areas in which it has a comparative advantage. This worldview leads to a concern with lowering costs rather more than it does with raising productivity. Most importantly, it does not directly consider what is needed for the incremental structural transformation of an economy.

Those countries that have successfully developed in any sense have generally pursued a more active strategy. A program of action focused on a country’s own development goals must therefore extend beyond providing economic stability and an institutional and policy environment attractive to business, whether foreign or domestic. In the present delicate transitional situation of The Gambia, sensitivity to a broader range of issues – economic, social and political – as well as a long-term orientation that is strategic, is needed. (For purposes of this discussion I shall take as given the colonially derived borders of the Gambia, despite the reasons for thinking that it is an important part of the reason for the country’s woes. The maxim that one might adopt is that the borders may not be abolished but that they can be made less relevant).

One contrast between the different views on economic policy is expressed at the level of high theory by the orthodox view that it can be dangerous and costly for any government to attempt to intercede in ways that aid particular industries, as this involves forms of prognostication of which it is not capable – picking winners. However, this criticism fails to recognize that interventions can be of very different kinds, and that they do not have to involve costly subsidies – which may be infeasible quite apart from their being ill-advised.

They can involve helping to remove infrastructural obstacles (such as in power, storage or transportation), changing trade or tax policies so as to lower the costs of producing or procuring specific inputs, steps to enhance skill development and dissemination of technical knowledge, improving marketing or distribution, organizing industry, workers and civil society to share information or overhead costs better and otherwise solve problems, and many other actions. Some of these measures can be undertaken even by governments with limited capabilities, on the basis of a specific analysis of what is needed combined with a realistic assessment of what it is capable of doing. The idea of growth diagnostics advocated for in recent years is in this spirit, as it recognizes that there may be structural obstacles to be identified and removed in order to bring about higher levels of economic growth.

A part of the theoretical grounding for such an approach within the framework of standard economics is the theory of the second best, which clarifies why impediments to the functioning of markets or states that cannot be directly negated might have their adverse effects diminished by introducing other measures, but noting that the right actions can only be identified through a contextually sensitive study of the various impediments that are present.

These impediments may exist either in the national economy or in the world economy and may affect the ability to realize a higher national income presently to enter onto a higher growth path. A set of economic policies and actions that best serve the country’s development must at a minimum sustain livelihoods and generate employment, raise incomes and relieve the country’s foreign exchange constraint (The Gambia is perennially aid dependent and accordingly constrained).

Continue reading on Africa is a country

By Sanjay Reddy

Credit picture: Pawel/Flickr.com

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