1. Economics 172 Issues in African Economic Development Lecture 19 April 4, 2006

2. Economics 1722 Outline: (1)Bates (1981) on agricultural marketing policies (2)Easterly (2001) on structural adjustment

3. Economics 1723 Agricultural marketing policies In practice in colonial and postcolonial Africa marketing board prices were set far below world prices, leading to a massive transfer of income from African farmers to European empires, later to central governments

4. Economics 1724 High taxation rates on African farmers CountryCropYear% of World Price NigeriaPalm oil1971-7256 NigeriaCotton1972-7343 NigeriaCocoa1976-7766 GhanaCocoa196265 SenegalGroundnuts1972-7330 TanzaniaCotton1974-7541 TanzaniaCoffee1976-7746 KenyaCoffee1975-7693 (estates) KenyaCoffee1975-7664 (cooperatives)

5. Economics 1725 Who benefited from marketing boards? (1)Central government revenue could increase (2)Law enforcement and customs officials

6. Economics 1726 Who benefited from marketing boards? (1)Central government revenue could increase (2)Law enforcement and customs officials (3)Smugglers and organized crime (4)Bureaucrats working in the marketing boards

7. Economics 1727 Who benefited from marketing boards? (1)Central government revenue could increase (2)Law enforcement and customs officials (3)Smugglers and organized crime (4)Bureaucrats working in the marketing boards (5)Urban residents and other net agricultural consumers  The big losers from the policy: African farmers

8. Economics 1728 Urban versus rural politics There is a consensus that most African leaders focused on urban politics rather than rural control during the postcolonial period – a continuity from the precolonial and colonial periods (Herbst 2000)

9. Economics 1729 Urban versus rural politics There is a consensus that most African leaders focused on urban politics rather than rural control during the postcolonial period – a continuity from the precolonial and colonial periods (Herbst 2000) Imagine that the probability of a leader retaining power is increasing in both urban and rural income, but is more sensitive to urban incomes: Prob (Retain Power) = F(Y URBAN, Y RURAL ) where  F/  Y URBAN >  F/  Y RURAL > 0

10. Economics 17210 Economic crisis of the 1970s-1980s (1) Punitively high rates of taxation on agricultural production (Bates 1981)  falling production

11. Economics 17211 Economic crisis of the 1970s-1980s (1) Punitively high rates of taxation on agricultural production (Bates 1981)  falling production (2) Chronic budgetary deficits (3) Rising foreign debts (4) High rates of inflation

12. Economics 17212 Economic crisis of the 1970s-1980s (1) Punitively high rates of taxation on agricultural production (Bates 1981)  falling production (2) Chronic budgetary deficits (3) Rising foreign debts (4) High rates of inflation (5) Bloated state bureaucracy (6) Inefficient state industrial sector (7) High tariff rates, extensive foreign exchange controls

13. Economics 17213 International policy changes in the 1980s International donors, like the World Bank and International Monetary Fund (the “Bretton Woods Institutions”) began imposing conditionality on loans, in the form of economic reforms The package of reforms they advocated became known as structural adjustment

14. Economics 17214 International policy changes in the 1980s International donors, like the World Bank and International Monetary Fund (the “Bretton Woods Institutions”) began imposing conditionality on loans, in the form of economic reforms The package of reforms they advocated became known as structural adjustment The debate over structural adjustment and foreign aid policy more generally is the focus of the next lecture

15. Economics 17215 Whiteboard #1

16. Economics 17216 Whiteboard #2

17. Economics 17217 Whiteboard #3

18. Economics 17218 Whiteboard #4

19. Economics 17219 Whiteboard #5

20. Economics 17220 Map of Africa