Agricultural Neglect and Retarded Structural Change in Sub-Saharan Africa

Sub-Saharan Africa has followed a singular pattern of structural change that lags global trends and traps a large proportion of the workforce in low-productivity agriculture through a process of agricultural involution. This chapter focuses on the small land-rich crop-driven economies, which comprised the vast majority of sub-Saharan countries at independence. Baldwin’s yeoman farm model suggests that the diffuse linkages of such economies are advantageous for development, but his model neglects the need for resilient institutions and sound policy, which most countries lacked. The elite in sub-Saharan Africa abused crop marketing boards to extract rents from small farmers, converting the linkages from favourably diffuse to concentrated and theft-prone. Most economies traced staple trap trajectories and experienced growth collapses that, contrary to staple trap theory, failed to motivate the elite to promote diversified economic growth, with the exception of Mauritius. This chapter traces this policy failure to the prioritization of industrialization and associated persistent neglect of the potential development stimulus of agriculture.

The Rent-Seeking Legacy of the Plantation Economy in Trinidad and Tobago

The sugar plantation established rent-seeking in Trinidad and Tobago, drawing geopolitical rent from trade preferences, along with an ethnically diverse population living at a basic level of welfare. Colonial efforts to encourage investment to boost productivity and raise the income of a more compact workforce to UK levels coincided with democratization. This had the unintended consequence in Trinidad and Tobago of stimulating excessive rent-seeking, which eliminated plantation profitability in the 1960s. However, this chapter argues that the plantation is a more flexible development institution than both dependency theorists like Best and mainstream economists like Baldwin assume. In contrast to Trinidad and Tobago, Mauritius’s sugar plantations successfully reformed and prospered under developmental government policies running hard budget constraints.

The Staple Trap in High-Rent Trinidad and Tobago

The development trajectory of high-rent Trinidad and Tobago since the 1960s provides an example of the staple trap model. An extra-parliamentary disturbance combined with large oil windfalls through 1974–78 and 1979–81 to deflect an initially cautious developmental government into executing an overambitious strategy of gas-based industrialization. The economy experienced a growth collapse when oil prices faltered, which was protracted and sharply reduced average incomes. Eventual recovery relied on monetizing natural gas, however, which proved a minimum diversification away from hydrocarbon dependence, testifying to the inertia of rent-seeking once established. Governments need to build a political consensus to deploy rent for efficient economic growth. Chapter 5 shows how Mauritius achieved this.

Prospective Growth Impacts of Export Services

Since the 1980s, sophisticated export services in India have outpaced manufacturing in driving rapid growth of the economy and labour productivity. Prior to this, India repressed its emerging comparative advantage in labour-intensive manufactures and agriculture, and created large regulatory rents to pursue a heavy industry big push during 1955–65. A growth collapse of the mid-1960s ushered in two decades of slow economic growth and rising surplus labour until expanding debt forced faster reform. The dynamism of Indian export services reflects light regulation and investment by nationals linked to ICT companies in Silicon Valley and Greater Boston. The Gulf states also generated insufficient employment, but through resource-based industrialization that traced a staple trap trajectory. Governments responded by overexpanding public sector employment, which proved unsustainable and triggered a protracted growth collapse. Gulf governments may need to run undervalued exchange rates if export services are to absorb nationals from the public sector into productive private sector employment.

Low-Rent Mauritius as a Developmental Counterfactual for High-Rent Trinidad and Tobago

Mauritius’s existential Malthusian crisis at independence incentivized a developmental government to promote competitive diversification through a dual track reform strategy. The Mauritian government deployed its modest tapering rent stream to expand a dynamic market economy in Track 1 while postponing reform of the rent-distorted economy in Track 2 until the market economy could absorb it. Mauritius shows how expanding labour-intensive exports absorbs surplus labour, which triggers the labour-market turning point when structural change drives competitive diversification into more skill-intensive manufacturing and a proliferating range of export services (tourism, ICT, and finance). Critically, the omission of the labour-intensive industrialization phase of the competitive diversification model in Trinidad and Tobago prompted governments to combat rising unemployment by deploying rent to subsidize uncompetitive jobs. Even after a growth collapse, policy remained rent dependent because gas-based industrialization is a minimal economic diversification.

The Principal Findings and some Policy Implications

The resource curse is part of a broader rent curse linked to geopolitical rent, regulatory rent, and labour rent, as well as natural resource rent. Variation in the intensity of rent curse effects reflects major shifts in policy fashion. It declined with the post-1980s dismantling of industrialization by import substitution. Previously, low rent incentivized the pursuit of policies promoting efficient economic growth under hard budget constraints in East Asia and Mauritius (and now in Bangladesh, Vietnam, and the Philippines). High rent in Latin America and sub-Saharan Africa led to staple trap trajectories associated with protracted growth collapses. However, labour surplus South Asia and the Gulf states can learn from policy errors to, respectively, pursue labour-intensive growth and merge dualistic labour markets as part of a package of sector neutral policies, macroeconomic stability, and an enabling environment.

Aims, Approach, and Structure of the Study

This study sheds new light on several development controversies in addition to the resource curse including industrial policy, premature deindustrialization, urban bias, rural neglect, and dual track reform. The approach uses two stylized facts rent-driven models to analyze the political economy of economic development. It illustrates the models with two country case studies: high-rent Trinidad and Tobago and low-rent Mauritius. The stylized facts models provide a nuanced explanation of the rent curse and are applied to compare and explain the contrasting post-1960 development outcomes in five principal global developing regions: sub-Saharan Africa, Latin America, East Asia, South Asia, and the Gulf.

The Evolving Role of Manufacturing in Economic Development

Differences in industrial policy explain why Latin America lost its head start in economic development to East Asia. Latin America persisted with industrialization by import substitution under soft budget constraints, which failed to mature and generate adequate foreign exchange and government revenues. In contrast, East Asia abandoned import substitution early to pursue competitive industrialization under hard budget constraints that incentivized rapid sector maturation. East Asia is closing the productivity gap with the US, but Taiwan’s cautious competitive industrialization is more welfare-enhancing than South Korea’s aggressive big push. Chile pioneered Latin American reform in line with its comparative advantage in commodity-driven growth and successfully managed its mineral rent to become best practice. However, diversification remains constrained and economic growth has slowed. Brazilian reforms have been less effective than Chile in managing rents to minimize Dutch disease and curb growth-sapping rent-seeking. However, contrary to Rodrik, this chapter argues that Latin American structural change reflects realignment with comparative advantage and not premature deindustrialization.

Natural Resources, Country Size, and Development

More than two decades of statistical analysis have failed to establish whether a resource curse exists. This chapter complements the statistical analyses with a nuanced political economy case study approach that recognizes the resource curse as part of a broader rent curse that can be caused by geopolitical rent, regulatory rent, and labour remittances as well as resource rent. Two rent-driven political economy models, which are exemplified by high-rent Trinidad and Tobago and low-rent Mauritius, explain the divergent growth post-1960 in five major global developing regions. This chapter argues that changes in the global intensity of the rent curse reflect policy fashions. A bias to industrialization, mainly through import substitution, proved especially ill-suited to small economies, which comprised the majority of developing economies. However, changing global technology improves prospects for balanced development by facilitating diversification into export services and productive agriculture.