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MOBILIZING DOMESTIC RESOURCES:ALTERNATIVEAPPROACH TO FINANCING AFRICA’S DEVELOPMENT IN A CAPITALIST WORLD OF CLOSE MINDS

Robert Kemepade MORUKU, PhD

Professor of Management

College of Management and Social Sciences

Novena University, Ogume

PMB 2, Kwale

Delta State, NIGERIA

Email:

Cellular: (+234) 70 62 57 29 60

Abstract

Drawing inspiration from White (1984) Hart (2001) and employing the lens of pretext and aspiration theory, this paper argued that Africa must begin to experiment with alternative approaches to development (financing) using a problem-driven iterative adaptation process. It examined the development financing experiences of countries of Africa and other developing regions of the world. It was found that Africa has been a net transferer of capital to the developed countries over the years. The developed countries extract this capital up-flow by colluding with corrupt African leaders to safe-keep money stolen from Africa in their banking systems; exacting rent on Trade-Related Intellectual Property Rights (TRIPs); and pushing unpayable loans on developing countries and extracting a flow of interest payments running in perpetuity. It was also found that Western ‘development’ finance institutions are not willing and even working to thwart the development of Africa, among others, by engineering debt crises, social unrest, political instability, and violent conflicts and profit from them by selling arms. Finally, it was also found that Africa has been experiencing development impasse while experiencing economic and environmental disasters after decades of UN declarations, and development advice and assistance, suggesting that Africa has been led astray and heading for a brick wall. All of these suggest or demonstrate a closed mind-set and seamless dynamic of pretext and aspiration to orchestrate development for Africa.Consequently, it was suggested that Africa delinks from the Western ‘development’ finance institutions and mobilize its internal or domestic resources to finance its socioeconomic development. It was also suggested that African countries embark on the development of their legal, institutional, and cultural capabilities to be able to orchestrate their socioeconomic development.

Keywords: Domestic Resources; Socioeconomic Developmentof Africa; Economic Globalization; Closing Minds; International Monetary Fund; World Bank; Pretense and Aspiration Theory

“If Europe knows the way to paradise, it will not show it to Africa.” Prof C. Iloba (personal discussion)

INTRODUCTION

This paper drew inspiration from White (1984) whose work centered ondevelopment critiques in the 1980s and partly drew on Hart (2001)to argue that Africa must begin to experiment with alternative approaches to development (financing)using a problem-driven iterative adaptation process. This is instructive in light of the failure of the monotonic monoeconomistic capitalists development model to deliver on its promise to Africa. Using the lens of the pretext and aspiration theory (Sumner, 2008) to view the African development impasse,it became clear that Western expertiseand development advicemay have led Africa astray into a cul de sacwhile producing economic disasters and may be heading for a brick wall. It is now manifest that the oligarchic neoliberal development establishment is unwilling to develop Africa but have disguised this unwillingness by pretext and aspiration through the rhetoric of development assistance to the Continent. No wonder that the World Bank which started as the International Bank for Reconstruction and Development (IBRD) and which succeeded in orchestrating development for war-ravaged Europehas been unableto do the same for Africa.The paper thus aligns with a new development thinking in the Continent that the way out for Africa seems to be to delink from the Breton Woods development finance institutions by mobilizing domestic resources to finance its socioeconomic development. To assure the success of the alternative development strategy, the paper strongly advocates the development of the legal, institutional, and cultural capabilities of African states.

The paper is structured to develop these arguments. After this introductory section, the rest of the paper is structured into six sections. In section two, I utilize the pretext and aspiration theory to ground the paper. Section three highlights the contents of the development that Africa needs to achieve. I discuss the legal, institutional, and cultural capabilities that Africa needs for development in Section four. In section five, I show the sources from African governments can mobilize domestic resources for financing socioeconomic development and examined the challenges that face their mobilization and ways of their amelioration. I then expose mechanisms which external development finance institutions employ to drain Africa of its domestic resources for the benefit of the developed countries. Section seven concludes the paper.

2. THOERETICAL FRAMEWORK

I ground this paper on the versatile Pretext and Aspiration Theory (PAT) as developed in Sumner (2008).Its versatility is suggested in the different contexts it had been applied in scholarly research. For example, Moruku (2012) had used it to unravel the inertia, dilemma, or ambivalence of the neoliberal state in its desire to deploy the university system for socioeconomic development in Nigeria. As he suggested the ambivalence arises because the theory explicates how the state sets in motion two coextensive and opposing dynamics (pretext and aspiration), for building human capital for socio-economic development of nation states but they ended up pulling or pushing in opposite directions, with equal force, and thus cancelledout one another, which led to a crisis in the university system.The same was observed in the education systems of the neoliberal state around the world in the era of economic globalization.

In the original application of the theory, Sumner (2008) argued that

By promoting the underfunding, marginalization, and vilification of the public sector, the hegemonic bloc is able to acquire control over the provision of vital life needs, thus replacing free or low-cost public support with private, priced services for sale on the open market. In this way, pretext and aspiration work together to form the pretensions we must learn to question if we are to have a sustainable society (emphasis in original).

The PAT has the explanatory power to unravel the inertia, dilemma, or ambivalence in the role foreign capital has promoted or given birth to what Banerjee (2008) called “disaster capitalism” in the pretext of financing the socioeconomic development of Africa. Drawing on Banerjee (2008), I elaborate on the character of disaster capitalism.

Poor countries faced harsh economic crisis in the early 1980s and many experienced natural disasters. In Africa, there were pervasive droughts, crop failures, wars and so on. Natural and economic disasters necessitated reconstructions. These came with the usual coterie of corporations, construction companies, government aid agencies, UN agencies, and international financial institutions. Wars and natural disasters left several countries with little power to govern their economies, as they destroy the response capabilities of the affected countries; even the all-powerful US was helpless when Hurricane Katrina struck.But these poor countries and whole regions ended up being de facto subjects of the International Monetary Fund, the World Bank and private construction companies. They took over the treasuries of indebted countries; dictating what percentage of the funds was to be used for debt repayment, interest payment and so on. Structural adjustment loans that came with conditionalities to reduce government spending ended up reducing the services available to the poor, and exacerbated or aggravated poverty and produced ‘anaemic economic growth’ (Kohli, 2006: 581 as cited in Turner et al., 2013; Moruku and Obeleagu-Nzelibe, 2012). All loans to impoverished countries, including African countries, came attached with neoliberal strings. These included privatization of state-owned enterprises, commercialization of public services (such as education), and liberalization or opening up of their economies to the penetration of transnational corporations.These are the elements of the so-called “Washington Consensus”. This was the way economic globalization and opening up the economies of poor countries were achieved. The poor countries were commanded to accept these conditionalities or reject them but lose the loans and die or even accept the conditionalities and die. Thus developing countries have no choice but accept those death-dealing loans. This callousness in the face of human suffering is an indication of close-mindedness. Another aspect of close mindedness is the denial of pharmaceutical companies in developing or poor countries from producing generic drugs for treating HIV/AIDS and other diseases ravaging the poor countries and decimating their populations, doing so on the pretext of protecting intellectual property rights (IPRs) and using their patents and copyrights to create state-protected monopolies to extract arbitrary and supernormal rents from the developing countries (Evans, 2008).

Cycles of financial crises, such as the debt crisis, result from financial dependence on external sources of finance. It has been observed that the hike in interest rates in the United States forced the reversion of capital flows, led to massive capital flight, and resulted in the Mexican default of August 1982, which had a contagion effect on the rest of Latin America (Vernengo, 2006)

Privatization was a pretext to expropriate publicly-owned national assets for capitalist accumulation by dispossession. For example citing Grandin (2006), Banerjee (2008) informs us that an estimated number of more than 2,000 government industries were sold off, between 1985 and 1992 in Latin America, many of them below their market value, to private buyers with connections to the military and US corporate and government interests(Banerjee, 2008; see full critique inTurner et al., 2013) leading to the de-industrializantion of Latin America.

At the same time, the penetration of transnational corporations into the developing countries has resulted in a setback in gains on health care and education (technology and skills sector); produced environmental disasters, created poverty in many ways including the destruction of local subsistence economies. So women in Nigeria embarked on the well-publicized nudity marched to the offices of Chevron and Shell Petroleum Development Company in Warri.The Nigerian soldiers violently broke up the march (Turner and Brownhill 2004;). The protest of the Ogoni people in Rivers State of Nigeria against the destruction of the farmlands escalated into the execution of Ken Saro-Wiwa by the Gen. Sani Abacha government of Nigeria (Osha, 2006). They got justice at The Hague. It also illustrates the cohabitation of proclaimed verbalized aspirations with pretext of aid agencies working for economic recovery in Africa. This is justification for perceiving neoliberal capitalism as creative destruction (see also Harvey, 2007)

Thus, Immanuel Wallerstein, an American Marxist economisthas keenly observed that the developing countries are trapped in the capitalist world and would never develop unless through revolution.There is a subtle theory that development comes only from external sources. However, the successful industrialization of the periphery showed the weakness of the American-Marxist tradition of dependency theorization (Vernengo, 2006).Despite this weakness, it is a useful wake-up call.In fact, several futile attempts have been made to escape from the clutches of the capitalist world system (in the political, economic, and financial spheres).I here make a short but illustrative listing: The demand for the negotiation for installing the New International Economic Order (NIEO) at Cancun, Mexico; the Non-aligned Movement (NAM); the South-South Cooperation movement; the Cuban Revolution; the Bolivarian Revolution; the BRICS (Brazil, Russia, India, China, and South Africa) financial initiative; and similar autonomous financial experiments (Salazar, 2009).

I am tempted to see the present movement for reliance on domestic resources led by the African Training and Research Centre in Administration for Development (CAFRAD) as a part of the development of alternative financing paradigm for Africa and an effort to achieve development through delinking with the hegemonic capitalist financial system. It is,in fact, a soft revolution. And why not? Rosero and Erten (2010) point to recent history,which provides examples of alternative approaches to finance that reached often-neglected sectors of the population. Since the establishment of the Grameen Bank in 1983 in Bangladesh, microfinance has become a viable banking alternative for the poorinall regions of the developing and developed world. As such, alternative financing initiatives have sprouted.

3. WHAT IS DEVELOPMENT?

Development is a complex and multidimensional variable. We can see this from theextended description of development in Rodney (1972);capabilities expansion in Amatya Sen (as cited in Qizilbash, 1996); and minimum pluralist conception of development as articulated in Qizilbash (1996), particularly, his prudentialvaluetheory supporting his minimum pluralist conception.

Fortunately, the agenda-setting conceptual paper for this conference has helpfully given an operational,illustrative definitionof the development parameters for Africa.It is given in terms of basic infrastructures.These include“transportation, housing, health, education, potable water for all, energy, food sufficiency, and telecommunications”. Although they have some challenges, (see Scambler, 2012), these are taken for granted in the developed countries. Africa certainly needs these items of development. Without them human development would be impossible. But I desire to add that Africa needs freedom and good governance as measures of development. Theyare so important that their absence is a threat to development in Africa. It consists of the freedom of expression and thought. I discuss it at length in the section tagged “cultural capability and development”.

4. CAPABILITIES FOR SOCIOECONOMIC DEVELOPMENT

I support the idea of mobilizing domestic resources for realizing development in Africa. From my perception of the content of the concept paper, the emphasis on domestic resources is that of money of financial capital as a critical factor of development. This aligns with the Latin American Marxist analysis which considers financial capital as more critical to development than technology (Vernengo, 2006). Of course money is the medium of exchange. It is used to buy everything: machinery, equipment, pay workers, build infrastructures. It is among the factors of production.

However, I also desire to draw attention to the current understanding of thefactors in development. Finance is certainly important but it accounts for far less to development than one would ordinarily expect. For example, Abramowitz, who studied the growth of the US economy between 1870 and 1950, found that growth of inputs (labour, finance) accounted for 15% of the growth of output. Solow (1957, as cited in Lerner, 2010), among many leading economists, discovered that technology (innovation, better ways of doing things, new scientific discoveries), in the residual term of the development regression model, accounted for about 85 percent of the growth of the US economy. Even as late as 1978, Galbraith (1978, as cited in Vanderburg, 2009) suggested how most economists fail to realize that highly specialized knowledge (technology) is now the most decisive in the mix of factors of production, largely determining the yield from the other factors (land, labor, and capital). Now, as Warsh (in Peters and Besley, 2008) suggests, the economics of knowledge has replaced “land, labour, and capital” with “people, ideas, and things” as factors of production. A new (economic) growth theory has been developed on the primacy of ideas (as technology) in the development process and effort. From this understanding, the current effort is being geared toward the provision for things (basic infrastructure).

With respect to the present concern for development, and in line with the new development theory, the capabilities or factors for development are “things”. There is also a concern for legality, institution, and culture, which correspond, in the new development theory perspective to “people” because these are created by people. They are capabilities. As suggested before, development involves capabilities expansion (Amatya Sen, as cited in Qizilbash, 1996). In this context, they are legal capability, institution capability, and culture capability. In what follows, I try to develop their link to development, taking them in that order.

Legal Capability and Development

In terms of finance, transparency and accountability requires establishing a legal framework to guide the deployment of resources. The framework is constituted by the annual Finance and Appropriation Acts of Parliament (the National Assembly); the General Financial Regulations of government; and Public Procurement Act guiding the award of contracts in line with international best practices; installing internal auditing of transactions and the auditing of the nation’s accounts and publishing of the audit report.

For the annual finance and appropriation Acts, the process starts with a presentation of the national annual budgets as bills from the executive arm of government for scrutiny and debate. This is a transparent or open process. Once an appropriation bill has been passed by parliament and assented to by the president or prime minister, it becomes a legal blueprint of development and implemented as such. It specifies the sources of government revenue and how it is allocated or appropriated.

African countries have this capacity. But the democratic failure in many states is a failure or weakening of legal capability because the self-selected members of parliament and the president lack the mandate of the electorates, which is tantamount to illegal or violent seizure power. Thus, there is no legitimacy in the exercise of power and governance. The duty of government,where there is legitimacy, is to strictly implement these to their letter and intent.But the problem is that they are not so implemented because of institutional weakness.

Institutional Capability and Development

It is well accepted that the quality of institutions matter in orchestrating development (Turner et al., 2013).I am aware that there are debates about the distinction among “organization”, “institution, and “institutionalization” (Moroni, 2010). I am here concerned simply with the state as an institution.

Given the abstract “social contract”, individual sovereignty has been surrendered to the state in exchange for social responsibility of the state for the protection and well-being of the citizen. The power of the state is enormous. It has the power to make laws, extract obedience from the citizenry, conduct war, initiate development programmes, and so on.