Your next “landlord” will not be Ethiopian: how globalization undermines the poor

by Aklog Birara, PhD Abstract Sub-Saharan Africa is full of promise. It has immense untapped natural resources and a growing human capital base, mostly young. Its immense potential is constrained by poor governance, rent seeking, and massive illicit outflow of capital, tribal conflicts, and terrorism. Ethiopia represents Africa’s promise and pitfalls.  Recent events in Oromia show that the country is poorly governed. I do not dispute growth in social and physical infrastructure fueled largely by foreign aid, Foreign Direct Investment, and remittances. Aid contributes 50 to 60 percent of government budget. Social development indices show that Ethiopia is among the most repressed and poorest nations in the world. It is experiencing the worst famine in 30 years with an estimated 18 million people requiring food aid. Ethiopia is the largest recipient of Western aid in Sub-Saharan Africa. It is part of the globalization process. My argument in this paper is that, in the absence of good and empowering governance and a regulatory framework that is transparent, fair, just, empowering, pro-poor and the domestic private sector, increases in aid, FDI and remittances will not solve Ethiopia’s legendary structural poverty. Ethiopia’s priority is therefore to get its governance problem in order. The world’s obligation is not to grant more aid but unbridled commitment to human rights, the rule of law and democracy. Introduction With the permission of the publisher, I decided to republish this article included in a must-read book “Foreign Capital Flows and Economic Development in Africa: the impact of BRICS versus OECD,” 2017 as is with a setting added. Today, we Ethiopians, especially those in the Diaspora are preoccupied with the tragedy inflicted on Ethiopia’s 116 million people, most of them poor. This unfolding, inexcusable and costly war triggered by the Tigray People’s Liberation Front (TPLF) is a huge set back in the transformation of the Ethiopian economy. It is important to imagine the untold human, financial and economic cost. Equally important is to reflect on the lessons we must draw from this costly and inexcusable war. Ethiopian ethnic-elites cannot continue with same model of political competition and expect a transformative economy. There is no scenario I can think of under which Ethiopia can transform the structure of its agriculture-based economy without changing its governance drastically and boldly. In this article written more than 3 years ago, I drew attention to the pitfalls of the developmental state led by the TPLF that had created favorable conditions for future ethnic conflicts. The financial, economic and resources elite capture issues embedded in the model foretold the explosive nature of conflict-prone governance in Ethiopia. Although the TPLF is on the run, the salient policy, institutional and structural hurdles that affect Ethiopia’s development remain intact. “David Roth Kopf’s book “Superclass: The Global Power Elite and the World They Are Making” depicts the deepening gap in incomes and wealth between the few and the vast majority of the world’s poor. “The current global system seems, to many people, to be fundamentally unjust. The richest get much richer and the great majority of others struggle to remain in place,” 1/ Page 318, in Rothkopf, D. Superclass. I subscribe to this thesis; and am weary that Africa has become a victim of globalization. I grew up in a world dominated by two superpowers: The United States and the Soviet Union. This global phenomenon changed with the collapse of the Soviet Union. For a brief period, we lived in a mono-super power world dominated by the United States. The world has changed dramatically since, with economic power shifting from West to East and South. The term BRICS (Brazil, Russia, India and China) became a vocabulary. The 21st century is increasingly governed by a multi-polar world with diverse economic and political actors. Although the evidence is not apparent yet, the so-called African Renaissance is taking place in a changing environment. This new form of globalization compels us to re-write and redefine an uncertain world in which each person is affected, with only a few controlling the levers of power; and dictating the rules of engagement. What we know is that they are not governed by democratic and inclusive governance. The Nobel Laureate Joseph Stieglitz, one of the staunchest critics of undemocratic globalization opined “Investments with high social returns were being starved” through misallocation of capital; and that the U.S. should “get out of the way and let us create an international architecture for a global economy that works for the poor.” 2/ In “America is on the wrong side of history,” paragraph 2, Joseph Stiglitz, August 7, 2015, www.ethimedia.org. I agree with this narrative; and disagree with the Western ideology of continued hegemony that enables the rich and elites in poor countries to “get much richer; and the great maj

Your next “landlord” will not be Ethiopian: how globalization undermines the poor

by Aklog Birara, PhD

Today, China is the second largest economy in the world

Abstract

Sub-Saharan Africa is full of promise. It has immense untapped natural resources and a growing human capital base, mostly young. Its immense potential is constrained by poor governance, rent seeking, and massive illicit outflow of capital, tribal conflicts, and terrorism. Ethiopia represents Africa’s promise and pitfalls.  Recent events in Oromia show that the country is poorly governed. I do not dispute growth in social and physical infrastructure fueled largely by foreign aid, Foreign Direct Investment, and remittances. Aid contributes 50 to 60 percent of government budget. Social development indices show that Ethiopia is among the most repressed and poorest nations in the world. It is experiencing the worst famine in 30 years with an estimated 18 million people requiring food aid.

Ethiopia is the largest recipient of Western aid in Sub-Saharan Africa. It is part of the globalization process. My argument in this paper is that, in the absence of good and empowering governance and a regulatory framework that is transparent, fair, just, empowering, pro-poor and the domestic private sector, increases in aid, FDI and remittances will not solve Ethiopia’s legendary structural poverty. Ethiopia’s priority is therefore to get its governance problem in order. The world’s obligation is not to grant more aid but unbridled commitment to human rights, the rule of law and democracy.

Introduction

With the permission of the publisher, I decided to republish this article included in a must-read book “Foreign Capital Flows and Economic Development in Africa: the impact of BRICS versus OECD,” 2017 as is with a setting added.

Today, we Ethiopians, especially those in the Diaspora are preoccupied with the tragedy inflicted on Ethiopia’s 116 million people, most of them poor. This unfolding, inexcusable and costly war triggered by the Tigray People’s Liberation Front (TPLF) is a huge set back in the transformation of the Ethiopian economy. It is important to imagine the untold human, financial and economic cost.

Equally important is to reflect on the lessons we must draw from this costly and inexcusable war. Ethiopian ethnic-elites cannot continue with same model of political competition and expect a transformative economy. There is no scenario I can think of under which Ethiopia can transform the structure of its agriculture-based economy without changing its governance drastically and boldly.

In this article written more than 3 years ago, I drew attention to the pitfalls of the developmental state led by the TPLF that had created favorable conditions for future ethnic conflicts. The financial, economic and resources elite capture issues embedded in the model foretold the explosive nature of conflict-prone governance in Ethiopia. Although the TPLF is on the run, the salient policy, institutional and structural hurdles that affect Ethiopia’s development remain intact.

“David Roth Kopf’s book “Superclass: The Global Power Elite and the World They Are Making” depicts the deepening gap in incomes and wealth between the few and the vast majority of the world’s poor. “The current global system seems, to many people, to be fundamentally unjust. The richest get much richer and the great majority of others struggle to remain in place,” 1/ Page 318, in Rothkopf, D. Superclass.

I subscribe to this thesis; and am weary that Africa has become a victim of globalization. I grew up in a world dominated by two superpowers: The United States and the Soviet Union. This global phenomenon changed with the collapse of the Soviet Union. For a brief period, we lived in a mono-super power world dominated by the United States. The world has changed dramatically since, with economic power shifting from West to East and South. The term BRICS (Brazil, Russia, India and China) became a vocabulary. The 21st century is increasingly governed by a multi-polar world with diverse economic and political actors. Although the evidence is not apparent yet, the so-called African Renaissance is taking place in a changing environment. This new form of globalization compels us to re-write and redefine an uncertain world in which each person is affected, with only a few controlling the levers of power; and dictating the rules of engagement. What we know is that they are not governed by democratic and inclusive governance. The Nobel Laureate Joseph Stieglitz, one of the staunchest critics of undemocratic globalization opined “Investments with high social returns were being starved” through misallocation of capital; and that the U.S. should “get out of the way and let us create an international architecture for a global economy that works for the poor.” 2/ In “America is on the wrong side of history,” paragraph 2, Joseph Stiglitz, August 7, 2015, www.ethimedia.org.

I agree with this narrative; and disagree with the Western ideology of continued hegemony that enables the rich and elites in poor countries to “get much richer; and the great majority of others remain in place. China’s efforts to establish the Asian Infrastructure Investment Bank is a promising alternative in leveling the playing field. In my estimation, giving a free ride to multinational corporations, sovereign and hedge funds and state and party owned enterprises to avoid taxes on profits in African economies is a form of robbery. Stieglitz points out that “Last year, the International Consortium of Investigative Journalists released information about Luxembourg’s tax rulings and exposed the scale of tax avoidance and evasion,” 3/ Paragraph 10, in “America is on the wrong side of history,” Joseph Stiglitz, August 7, 2015, www.ethimedia.org.

The poor in Ethiopia and other African countries have no say in holding their governments accountable for bribery, corruption, tax evasions and illicit outflow of capital. This suggests the need for new, democratic, and socially meaningful governance at the national and international levels. Globalization of financial capital is dictated by Western economies led by the United States; and Africa is squeezed in the process. It is not yet a full beneficiary of the evolving system. It suffered from slavery and colonialism. Africa’s 50 states are a result of the 1885 Berlin Conference designed for the benefit of colonizers; its legacy of ethnic-based economic and market fragmentation persists. In my estimation, the new system is best described as neocolonialism and Africans have minimal say.

Investments and growth are about improving peoples’ lives; and not about making the “rich and elites get richer.” Take the new country of South Sudan. It is natural resources rich; but beset by civil war. It is a prime example of the devastating effects of unfettered globalization—Bible carrying missionaries, UN Peacekeepers, American and Chinese oil, gold, uranium and farmland prospectors and investors as well as tons of NGOs and aid workers etc. South Sudan is part of the Nile Basin and its long-term importance to Egypt and North Sudan is well known. The agendas of these new “friends” do not necessarily converge with the interests of poverty-stricken black Africans. More than anything else, the poor want a better life. Ironically, immense natural resources wealth turns out to be a “curse” rather than a blessing.  The poor are exploited by elites and their foreign sponsors.

Millions of African lives have been turned upside down by internal colonial bosses or warlords or rent seekers who often partner with foreign profit seekers. In many cases, local bosses are trained and or supported by foreign sponsors. South Sudan has been transformed into a country of despair, with women being raped, children malnourished and tens of thousands in refugee camps. It is this desperate situation that leads many cynics, including African intellectuals, to conclude that Africa’s new leaders are no better than their former colonizers.