Capitalism may challenge the poor, but it gives them hope

THROUGHOUT human history, the road out of poverty has been built not by aid from developed states but by economic growth, and yet in Africa there is a prevailing logic that the rich have a responsibility to lift the poor.
Post-colonial Africa has largely emerged from the womb of a race-based capitalist construction to make capitalism a contested ideology for nation building.
In evaluating whether capitalism is good for Africa to the extent that poverty and Africa seem to be great friends, therefore, the question to be answered is whether the institutions that characterise capitalist economies are effective in promoting economic growth.
To begin a systematic analysis of whether capitalism is good for Africa requires a working agreement on precisely what capitalism is. Capitalism is an abused term universally and the prevailing image of a capitalist may be an Anglo-Saxon protestant.
Like poverty, capitalism has many faces but typically an American face has come to symbolise what a capitalist is. The standard definition of capitalism is “a market economy in which the means of production are privately owned” in contrast to communist, socialist or fascists systems and yet even in countries that are perceived to be capitalist, not all the means of production are under private hands.
The traditional conception of systems that incorporate the political and governmental characteristics of nation states does not address the economic institutional framework that is more relevant in addressing the question of whether capitalism as an economic model is good for Africa.
For the purpose of this article, I will use an institutional definition of capitalism so as to avoid the problems of a one-size-fits-all definition. Capitalist economic models share an identifying set of institutions whose different manifestations in practice have a similar foundation. The cornerstone of any capitalist system is the existence of a particular set of institutions governing the production and exchange of goods and services.
Is there a relationship between capitalism and poverty? There is a prevailing belief that capitalism oppresses the poor and packs its benefits for the rich. Equally, there are many who believe that you can strengthen the weak by weakening the strong. Using this construction, it is then argued that Africa, with a majority poor, cannot afford to pursue capitalist policies. Instead, the state is also then generally perceived to be a more acceptable face of capitalism than non-state actors.
After the demise of communist/socialist models in Eastern Europe and the emergence of an ideologically ambiguous China, the evidence informed by the economic growth in non-socialist/communist nations suggests that there may be a causal and direct relationship between capitalism and economic progress.
All progressive nations promote economic growth by incorporating incentives and not threats or blackmail that encourages production, exchange and creativity. Such economies operate through an institutional framework underpinned by the rule of law and not rule by law, secure property rights and open and transparent markets in which competition is encouraged.
The economic growth that raises standards of living results from investment, the foregoing of current consumption in anticipation of future benefit. Investment is generally risky and, therefore, the importance of clearly defined property rights, secured by the rule of law, in reducing risk and encouraging investment cannot be overstated. Even the poor who may want to ascend the economic ladder of opportunities, secure property rights is one of the most fundamental foundational institution.
The lack of secure property rights condemns Africa’s poor to a nightmare existence in which hard work brings more of the same or less. The majority of Africans, notwithstanding the promise of independence, are still enslaved to a system in which they trade their time for money. Even in countries where they boast of transferring land to the poor, the poor end up being condemned to own land without any rights to assign, transfer or sell to third parties. In such countries where land has been nationalised, the institutional framework created in which state actors decide who should own what land, poverty is entrenched not by the actions of the rich by the design of state bureaucrats.
Someone who is a beneficiary of a 99 year lease is not going to see the lease through and there will come a time when the land will have to be transferred to another party and yet the construction of land reform programs is such that land cannot be freely transferred. Whose land is it after a person has been granted a lease? Many African governments would like to believe that the land belongs to the state. In such an environment, is it reasonable to expect that poverty can be meaningfully reduced when current owners of land have no clue about what will happen when they die?
Any system that ignores the human spirit and enlightened self interest is bound to fail. How many of Africa’s state actors think that they know better than their citizens? Imagine a country where nobody can identify who owns what, addresses cannot easily be verified, people cannot be made to pay their debts, resources cannot be turned into money, ownership cannot be divided into shares, descriptions of assets are not standardised and cannot be easily compared, and the rules that govern property vary from village to village. This is the environment that the people in many African states have been condemned to, in the name of nationalism and sovereignty.
In many countries laws of inheritance are not clear and wealth cannot be easily transferred from one generation to the next. In such an atmosphere, investment dwindles, and the probability of eradicating poverty diminishes. As Africans, we have no choice but to critically examine how property rights can affect the ability of the poor to allocate their labour and how they can shape incentives for investments in human and physical capital.
How many of us are engaged in conversations that are frank and focused on the real prize for Africa? Case studies in Chindia illustrate how policies that target institutions tend to be more successful in reducing poverty than policies that target people.
Africa is continent whose time is yet to come. Rule of law is one of the much said but little understood concepts in popular press and daily conversations in Africa today. What is rule of law? What is its significance in advancing the African agenda? What is the cultural content and context of the rule of law in Africa? What are the institutional conditions required for a constitutional order that supports the rule of law in Africa? How does Africa achieve the rule of law? I intend to tackle these questions in future articles.
However, I close this one by suggesting that Africa may not need to look backwards to go forwards. In the absence of any better system, capitalism may offer a better and less risky roadmap for Africa than any other model known to mankind. Even the poor can take comfort from the fact that the rich cannot take their wealth to their graves. Capitalism may challenge the poor but at least it gives them hope that the sky is the limit.