Paper - Initiative for Policy Dialogue

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governance, then the fault lies not in the economic policies or in the market, but the
public sector, and the remedy is either “fix” the state, or to make sure that it does not get
in the way of the market. Such an interpretation has been at the center of one of the main
approaches of the international community combined with a belief that government
failure almost always trumps market failure. Section V argues against that view in that
problems of governance are not always irredeemable and the right question to ask is in
what contexts what particular mix of measures to improve governance and markets and in
what ways would be appropriate. Section VI suggests, to the contrary, that it has been
policies that have over-relied on unfettered markets and excessively restricted the role of
the state, inhibiting it from fulfilling its core developmental responsibility, combined with
the neglect of the governance reforms needed to enable the state to fulfill those
responsibilities that may have played a role in Africa’s failures. Finally, section VII
discusses a few other aspects of public policy that are critical to Africa’s success, some of
which will be taken up in subsequent volumes.
Before beginning our analysis, there are two more preliminary notes: discussions
of policy, especially those from the international economic institutions (the World Bank
and the IMF) typically talk about “good policies” and “good institutions.” It is the failure
to have good policies and institutions that are usually given center stage in the
explanations of Africa’s failures. But the global financial crisis has shed new light on
these long standing platitudes: Before the crisis, while defining what is a “good”
institution or “good” policy might be difficult, if asked to give an example, a common
response would have cited those of the U.S. as exemplary—though, to be sure, its
persistent deficits would mean that it would not be given an A +. Indeed, in the East Asia
crisis, the countries of that region were told to adopt American style capitalism, with its
bankruptcy, corporate governance, and financial regulations. Now, most observers would
have to admit that there were major deficiencies in both its policies and institutions.
Critical institutions were captured by special interests. The policies adopted—and
advocated by the international financial institutions and many OECD governments,
notably the US Treasury—contributed to creating the crisis and its rapid spread around
the world. The faith in independent central banks has come under attack for lack of
transparency and conflicts of interest; the system of self-regulation is a model of what
should not be done, as public confidence has eroded. The lesson is that we should be less
confident about what we mean by good policies and institutions; and that we should be
even more modest in our belief that exact replicas of institutions and policies that may
have worked in one context would be as successful in another.
The second observation is that neither the recent growth rates nor the changes in
economic fundamentals and structures in Africa that have accompanied this higher
growth are adequate in relation to both what is needed and what has been achieved in
successful cases, including the African star, Botswana. And Africa remains too
dependent on what happens outside of its borders, as the recent slowdown resulting from
the global financial crisis illustrates.
This book suggests a set of policy reforms that we believe may be able to meet
these higher ambitions. It is based on the notion that long term success rests on societies’