How Africa Works review by Josh

Several years ago I read and enjoyed How Asia Works, Joe Studwell’s previous book. It’s deeply informed but easy to read, and offers a plausible account of how Asia got rich.

Apparently Bill Gates enjoyed Studwell’s book too, and asked him whether he might take a similar approach to Africa. The obvious difference, of course, is that Africa still hasn’t gotten rich. There is no African equivalent yet to the economic miracles of South Korea or China.

In Studwell’s view - a view I largely agree with - this is mostly a matter of timing. Africa is not fundamentally different from Asia or Europe; it is simply at an earlier stage of economic development. In fact, much of the continent today resembles Asia roughly fifty years ago, just before the beginning of the fastest sustained economic climb in human history.

Studwell argues that there are three key elements for a country seeking to move from poverty to lower-middle-income status.

The first is increasing the productivity of smallholder agriculture. This remains the dominant form of production in most developing countries, and an even more dominant source of employment. Because smallholder agriculture is relatively unproductive, it may account for only 20 percent of GDP or exports while employing 60–70 percent of the labor force.

Smallholder agriculture is less productive than modern industrial farming because it lacks capital-intensive irrigation, fertilizer, machinery, and the technical knowledge needed to use them effectively. Some countries have tried to leap directly from small-scale premodern farming to industrial agriculture through collectivization, but the historical record here is poor. Large-scale industrial agriculture in advanced economies depends on enormous capital inputs, which poorer agrarian societies generally lack.

A better approach, Studwell argues, is to preserve small-scale farming while ensuring that farmers have secure legal title to their land and access to financing, equipment, and technical assistance. Such programs can often operate at relatively low cost to the state because farmers themselves provide much of the investment capital. The state, meanwhile, can focus on infrastructure such as roads and ports.

State agricultural marketing monopolies are often, in effect, a mechanism for extracting taxes from the poorest people in the country. Farmers are typically required to sell their output at fixed prices below world-market rates, with the state capturing the difference.

For some governments this may seem like a practical necessity, since they have few alternative sources of capital for industrial development. But these monopolies can also become sources of corruption and bureaucratic inefficiency, their failures masked by the large profits that monopsony buying power can generate.

The second key ingredient to growth is export-oriented manufacturing. Most countries begin industrialization with import-substitution industries - often protected by tariffs and focused on basic goods such as soap, processed foods, or beverages. These industries can provide an important foundation for later development, but subsidies and trade protections can also shelter inefficient producers.

Export-oriented firms, by contrast, must compete globally on both price and quality. Once they prove capable of doing so, they can often scale rapidly and profitably. Inefficient tariff-protected industries, meanwhile, frequently collapse once their protections are removed.

The final factor Studwell identifies in Asia’s rise is disciplined state finance. Successful states pursued policies that encouraged savings and investment, discouraged capital flight, and attracted foreign capital while gradually reducing long-term dependence on it.

Much of Studwell’s survey of Africa consists of detailed case studies of individual countries and the extent to which they have followed, or failed to follow, this developmental path.

I was particularly impressed by his description of Ethiopia, whose leadership, he argues, brought unusual academic rigor to economic development. Policy decisions were supported by meticulously researched position papers that ministers were expected to write and defend themselves. Unfortunately, the country also suffered from recurring conflict with Eritrea, as well as poor vendor selection - at one point choosing a North Korean firm for a major engineering project that was never completed.

Studwell also disputes the oft-repeated claim that Africa is uniquely resource-rich. The continent’s resource density is not especially high; Africa is simply very large, so the aggregate quantity of resources is enormous. Moreover, resource extraction can function in economies with weak manufacturing and service sectors, meaning it often represents a disproportionate share of economic activity in underdeveloped countries.

The best-known resource success story - perhaps aside from South Africa - is Botswana, which experienced one of the fastest growth