Should We Bring Back Colonization?
...and the effects of democratization on economic development
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Today’s post on Markets Markets Markets is a bit of a long read but I promise it’s worth your time. As always, I would love to hear your thoughts so feel free to respond to this email to share them with me.
Let’s dive in.
A beautiful photo of Cape Town went viral on Nigerian Twitter a couple of months ago, and I found out that a sizeable number of Nigerians believe the country would be better off if it was colonized for longer because nowhere in Nigeria is as beautiful as Cape Town.
This perspective also came to light in an unexpected conversation with my Uber driver in Abuja, who, without prompting, expressed his belief that British colonial governance should have been extended until the year 2000 and their early departure is the cause of the country’s ills. I happened to be researching how democratization affects economic growth, and this revelation provided an interesting angle and a nice distraction to make me feel like I was actually making progress.
Does Colonization make countries richer?
Implicit in the view that Nigeria would be better off if it gained its independence later is the assumption that South Africa has better infrastructure because it gained independence relatively recently in 1994. Several political scientists have spent much of their careers trying to understand the economic impact of colonial legacies, so the relationship between total years under colonization and per capita income has been studied widely in academia. One such political scientist is Paul Hensel, whose visualizing colonization project was indispensable in my quest for answers.
The correlation between the length of colonization and per capita income is expectedly faint because numerous other factors play a role in shaping a country's economic standing. Nevertheless, the study finds that most countries with higher per capita incomes were colonized for less than 200 years, and the few that were colonized for 400 years, including South Africa, all have low per capita incomes. This doesn't say much because many countries (like Nigeria) that were colonized for less than 200 years also have lower per capita incomes than South Africa.
What the data fails to capture is the timing of Africa's colonization.
Colonialism in Africa, beginning predominantly after 1882, allowed colonial powers to disrupt existing political structures without establishing a robust state framework to endure post-independence. David Abernethy identifies this era as the third phase of European colonialism. Unlike most of the continent, South Africa’s colonization commenced earlier, in 1652, marking it as an outlier that experienced the first wave of European expansion along with southeast Asia and the Americas. Furthermore, its climate, more conducive to European settlers, positioned South Africa not only as a site for extraction but also as a place to settle, distinguishing its colonial experience from regions like Nigeria or Congo, where colonial governance focused primarily on exploitation.
Excluding South Africa, the legacy of colonialism on the continent diverges markedly from that of other ex-colonies globally. Spain and Portugal succeeded in wiping out the indigenous regimes and reproducing their own political systems on the soil of the New World. In Singapore, the British not only established a previously non-existent port but also constructed an administrative framework to bolster their influence across Southeast Asia. In India, the British Empire’s most prized possession, the establishment of a British Indian army and civil service laid the foundation for institutions that, bequeathed to the newly independent republic in 1947, continue to function today.
The late onset of colonization in Africa, coupled with the prevalent use of indirect rule, provides little basis to assume that extending such colonization would have enhanced economic development today. Had Africa undergone colonization akin to that of other continents, or if it had been colonized during the initial wave, the outcome might have been different. However, we can’t forget about the associated costs of the first wave of colonization, such as the wiping out of indigenous populations or several decades of crushing apartheid.
Though Paul Hensel’s project might have missed certain nuances, the most interesting aspect of the Visualizing Colonization project was his perspective on the data, shedding light on the underlying biases and notions of political correctness in academia. The foundational hypothesis of the researchers was that prolonged colonization would lead to worse economic conditions due to the extended depletion of resources. This is in contrast to the predominant view of everyday Nigerians that longer periods of colonization would have created better economic outcomes.
Embedded in the notion that South Africa’s lengthier colonization has made it more prosperous is an uncomfortable implication regarding governance and race: white people are better at governing countries. Merely articulating this thought provokes a blend of skepticism and discomfort, highlighting the distastefulness of the hypothesis. This inherent discomfort deters serious scholars from delving into such inquiries, wary of venturing into territory that borders on scientific racism at best or echoes eugenics at worst.
But these views are worth a lot of deliberation because, all around Africa, citizens are becoming increasingly disillusioned with their political systems. In the last three years, there have been six military coups in West Africa, and at least some sections of the population in each country appeared to support the usurpers because they are in search of anything that can deliver the bare-minimum standards of modern political order.
While it seems strange on the surface that people yearn for dictatorship or colonization when their grandfathers struggled bitterly to get rid of it, a quick look at the economic and political situation in most African countries post-democratization makes it seem less so. Nigeria has seen its currency’s value more than halve in the last eight months, the Nigerian state has lost its monopoly of legitimate coercion within its borders while inflation and insecurity threaten to plunge millions of people into famine.
Five decades after independence, people no longer want to blame colonial legacies for their country’s lack of progress.
While East Asian countries had an advantage in state capacity immediately post-independence, they were in worse positions than many African countries in terms of economic development. Over the same fifty-year period, East Asian countries with similar or worse per capita income levels than their African counterparts became several times richer. This stark contrast has left African citizens weary, questioning the ongoing excuses for their governments’ and societies’ failure to secure economic development. Now, they are asking serious questions about their political systems.
In the visualizing colonization project, Hensel and team stated very casually that the former colonies with higher per capita incomes "all have notable reasons for doing so."
"It's interesting to note that the countries that stand out for having higher current per capita GDPs all have notable reasons for doing so. Qatar, Kuwait, Saudi Arabia, Oman, and Bahrain all have significant oil resources (in fact, I believe Qatar has one of the highest per capita GDPs in the world due to its oil reserves). Singapore and South Korea experienced rapid economic growth as countries among the "Asian Tigers" while post World War II Japan rose in economic strength as an industrial center."
The question most Africans have, living in the most resource-endowed continent in the world, is what are Africa's notable reasons for remaining poor?
Is Democracy the Problem?
While the data is sufficient enough to quickly dispense with the idea that African countries need more colonization, it is a lot less clear whether or not democracy is working as a political system.
A frequent argument against democracy is that economic growth often requires politically unpopular but mission-critical decisions that might not be taken by people who must seek re-election every few years. Nigeria's fuel subsidy saga is a perfect example. The federal government continued to pay petrol subsidies to the tune of billions of dollars until it ran itself into a fiscal crisis while neglecting education, healthcare, and infrastructure investments because it was the political path of least resistance.
While the drawbacks of authoritarian governments are well known, they can have great economic advantages when led by a competent group of elites.
Li Kuan Yew's miracle in Singapore is often cited as the best example of the benefits of a benevolent despot. The success of the Chinese communist party, based loosely on Singapore's model, in lifting hundreds of millions of people out of poverty over the last forty years is further proof of the potential economic benefits of autocratic government. Despite some of these successes, the data does not show that autocracies perform better economically than democracies.
In a 2019 study, Daron Acemoglu, a world-renowned economist from MIT, demonstrated that democratization leads to a roughly 20% increase in per capita GDP over the long term compared to non-democracies. This research, covering 175 countries across five decades from 1960 to 2010, employed econometric models to filter out influences on per capita income other than democratization. Essentially, one of the best economists globally has provided strong evidence that democracy indeed fosters economic growth.
A valid point is that democracy’s benefits depend on pre-existing conditions of economic and human capital development, and democratization can be economically costly for countries that haven’t scaled these hurdles. In other words, democracy doesn't work in impoverished countries. Richard Posner, the most cited legal scholar of the 20th century, wrote in his 2010 book on the crisis of capitalist democracy:
"Dictatorship will often be optimal for very poor countries. Such countries tend not only to have simple economies but also to lack the cultural and institutional preconditions to democracy."
Daron Acemoglu’s study includes a focused analysis of whether the impact of democracy varies with a country’s economic development, specifically addressing how democracy fares in nations that are both impoverished and have low education levels. His findings reveal that the economic condition of a country prior to democratization has little statistical significance, suggesting democracy does not adversely affect low-income countries.
Considering the compelling evidence from Acemoglu, it's reasonable to assume that the problem is that African countries don't actually have democracy. European and American observers of voting exercises on the continent have occasionally called them "election-like" events due to the widespread rigging, violence, and electoral malpractice they witnessed. So, if democracy causes growth, Africa hasn't grown because most countries are democratic in name only.
But if you exclude the western industrialized countries, the map above shows that African democracies are not much worse than other areas in the world that perform far better economically.
The reality is that It doesn't matter that some African countries are not "truly democratic" because the important distinction is between modern systems operated for the broad public good versus those run on patrimonial lines. Just as patrimonial states can be democratic, modern states too can be autocracies. In a patrimonial state, the government is seen as a personal asset by those in power, used primarily for personal enrichment and the benefit of their immediate circle. Despite having the trappings of democracy—elections, supreme courts, and extensive bureaucracies—these states govern with self-interest, distributing state resources among a tight-knit group of friends, family, and allies.
The Journey to Modernization
To understand why some countries are able to develop modern states where bureaucrats are selected based on merit and govern for the interests of broader society, it is important to outline the three components that make up a modern government:
The first institution is the state itself. The essence of any state, as Max Weber outlined two centuries ago, lies in its monopoly of legitimate force within its borders. This foundational principle remains relevant because it underscores the fact that states are about concentrating and applying power. States must consolidate power to enforce laws, collect taxes, and maintain order through the imprisonment of lawbreakers. The legitimacy of this power is crucial because it requires everyone to agree that the state has the right to exert that power.
The second institution is the rule of law, which constrains society's most powerful political actors. This principle hinges on the premise that leaders themselves must adhere to the state’s laws. Without this constraint, the rule of law gives way to rule by law, a scenario prevalent in many of today’s patrimonial states, where laws serve the interests of those in power rather than the collective good.
The third institution involves mechanisms of accountability, which in contemporary democracies, manifest as free, regular, multi-party elections. The underlying purpose of these processes is to ensure that the government reflects the interests of the broader society rather than serving solely the political elite. This principle of inclusivity is fundamental to the concept of accountability within a democratic framework.
Considering these three institutions together highlights a dynamic tension: the state’s objective to amass power sufficient to exert legitimate force is strained by the rule of law and accountability, which aim to limit that power. Because of the problems faced by western industrialized countries, political order in the modern day focuses too much on the institutions of constraint rather than the institution of power — the state — which has the ability to exert legitimate force over its territory, grow the economy, and administer services in an impersonal fashion. Before governments can be constrained, they have to have the capacity to do things.
Not only is democracy unnecessary for the purposes of creating this modern state, but it can actually be a hindrance to its development.
Democracy, as practiced, requires the mobilization of a large number of uneducated, uninformed, and often disinterested people to participate in elections. The easiest way to get these people to vote is to bribe them. Countries that transition to democracy prior to establishing a modern state—one where administrative roles are filled based on impartial criteria like merit, education, or technical expertise—tend to spiral into patterns of patronage and clientelism.
The United States, democratizing immediately after independence, had a highly clientelistic political system for its first 100+ years of existence.
At the time, 85 percent of Americans lived in rural areas, were involved in agriculture, and had no more than a fourth-grade education. These citizens were induced to come to the polls with Christmas turkeys, bottles of brandy, or get-out-of-jail-free cards. By the time the Republicans replaced the Federalists in government in 1800, presidents were already using their power to place political allies in powerful positions, leading to a state that was limited, inefficient, and plagued by corruption. This sort of patronage and clientelism is often misinterpreted as aberrant political conduct unique to developing nations, attributed to cultural characteristics, largely because of a lack of awareness about similar practices in the early histories of now-developed countries.
The reality is that the political patronage relationship is the default form of human organization.
Throughout time and in all countries, states have had to contend with the tendency of political elites to favor their allies, driven by the deeply ingrained biological principles of kin selection and reciprocal altruism—a trend that persists today. The countries governed by impersonal, merit-based organizations are actually the exceptions, but they have come to be seen as the rule. What we need to understand is how a handful of countries have managed to go against this basic human nature.
The experience of previously clientelistic countries like the United States, Greece, and Italy has led many people to emphasize the importance of sequencing in the process of state formation. Countries should ideally develop an autonomous bureaucracy and a liberal rule of law with well-trained judges and independent courts before introducing democracy. Samuel Huntington, the former director of Harvard’s Center for International Affairs, argued in his book Political Order in Changing Societies that countries were better off making an authoritarian transition to a modern economic and political system because “societies need order before they need democracy”.
Many African countries have managed to establish authoritarian regimes that maintain control via a mix of repression and patronage, but none have succeeded in developing institutionalized bureaucracies governed by clear, well-defined rules akin to the German Rechtsstaat or the Chinese mandarinate system. It is easy to emphasize the importance of sequencing in state formation; however, the actual institutional construction is a much more complicated matter. Under the conditions of a corrupt and/or incompetent dictatorship, what could be the benefit of delaying democratization?
Without the presence of a benevolent despot, countries can look to the only three ways that states have moved from neo-patrimonial to modern:
Direct colonial inheritance
Military competition
Getting rich
Historically, war and military competition have been one of the most important forces driving states toward modernization. The looming threat of powerful outsiders threatening the survival of elites necessitated the development of a strong army and the tax collecting abilities needed to finance that army, which both require strong bureacracies. This path to state modernization is so reliable that Edward Luttwak, a noted military analyst and author of a book on coups d’état that ranks among my favorites, actually suggested that we should “give war a chance” in areas like sub-Saharan Africa that are plagued with weak states. While it is true that European countries forged their modern states through nearly endless military competition, no one should wish a similar fate on their own country. Moreover, several formerly patrimonial states, including the US, were able to achieve high-quality government without war, so there are certainly other paths.
The other powerful force apart from direct colonial inheritance that has driven states towards modernization is economic growth or “getting rich”. In nineteenth-century Britain, the Industrial Revolution created an urban middle class led by industrialists and entrepreneurs that replaced the feudal agrarian society. In pursuit of self-interest, the new British middle class advocated for merit-based standards of advancement in all institutions in order to get their kids into Oxbridge and find employment for them in the civil service. A few decades later, the new middle class in the United States, also created by industrialization, had little stake in the entrenched clientelistic system and was mobilized into interest groups that upturned the existing patrimonial political order.
In both of these cases, economic growth created the foundation for new political coalitions to mobilize against the interests of a political class that had succeeded in co-opting the masses of nonelite voters into the patronage system. The failure of countries like Greece and Italy to fully transition away from clientelism because their middle classes were absorbed into the local patronage networks illustrates that reform is primarily a political process rather than a technical one. Clientelistic systems do not exist because the politicians do not understand how to organize an efficient bureacracy, but because the incumbents benefit from the system. Moving towards a modern bureaucratic system requires not only implementing technical characteristics like educational qualifications and examination requirements but also dislodging the political godfathers who get money and power as well as the patrons who get jobs and favors.
What I am Reading
Books:
The World for Sale: Money, Power and the Traders who Barter the Earth’s Resources
I thoroughly enjoyed reading this book by Javier Blas and Jack Farchy. I was acutely aware of how important global shipping and commodities trading are to the economy, but I didn’t have a clue how any of it worked. I tore through this book in less than a day and came out and learnt about the people and companies that run perhaps the most powerful global industry.
Great stuff, as usual.
Well thought out and entertaining.