Empirical examples of economic theory are always useful to challenge that theory or confirm it in practical terms. And although economists like discussing abstract ideas, it is obviously easier for non-economists to grasp theory through examples.
Even for economists, who like to present their subject is more science than art, empirical analysis is vital--it stops us kidding ourselves that our pet theories are correct, when available evidence contradicts our hopes. Hernando De Soto (relevant for the work under discussion today of Craig Richardson), has done a great job of pointing out the importance of land title in aspiring nations--and why without it growth is stifled. Perhaps more than anyone else, however, Noble Laureate Ronald Coase, demonstrated the vital importance of actually testing our most cherished assumptions. With his work on lighthouses, social costs and firms, he showed the power of empiricism.
But even Coase didn’t actually witness an empirical ‘experiment’ as large as the collapse of a country.
So from my perspective, having just been in Southern Africa, and quite recently in Zimbabwe, Craig Richardson’s analysis of the cause of the collapse of Zimbabwe is spot on. When I was last there a bank collapsed the day I arrived in Bulawayo, which enabled me to garner an even better black market exchange rate than would have been possible. The currency has dropped 2,000 fold in the past decade against the US dollar. Currency is printed on one side only, with not-so-far enforced sell by dates, which increases the level of uncertainty even further (which seems almost impossible)--so much so that services are bartered (dentistry for haircuts).
Richardson’s research work is not only accurate but marvelously brief. Brevity is easier when the evidence speaks for itself so obviously that it’s not necessary to embellish it with overlong flowery rhetoric. And concise prose and a great economic story make his study compelling indeed.
His research should be read by development specialists, and advisors to all developing countries, but I doubt it will be since his thesis, that property right destruction is the most important determinant of economic collapse, won’t come as music to their ears. They focus on aid, wanting more of it, rather than worrying about how it is used--unfortunately the approach they push is so in vogue at the moment.
But that does at least means that its a good time to be working on development policy.
Obviously there is the interesting and probably excellent choice of Paul Wolfowitz for the World Bank, which has grabbed many headlines here (and I might say more vitriolically so in Europe and Africa than anywhere else). But there have also been the amusing and somewhat blasphemous language of activist pop-star Sir Bob Geldof--who swore his way through the opening of the Blair Commission Report on Africa at the British Museum earlier in the month. While Sir Bob was vying for foulest mouth, Tony Blair and his Chancellor Gordon Brown have been fighting to demonstrate who was the biggest friend of African Governments by loan write-offs and promotion of aid. Then there is Jacque Chirac’s revised Tobin/energy global tax lunacy, and Jeff Sachs’ modest proposal to end world hunger and disease. And the more robust, if potentially and ultimately dangerous, President’s Emergency Plan for AIDS relief. And of course all the various Millennium Goals, and UN pronouncements--all unattainable, feel-good funding devices.
So with minor and good exceptions the development agenda is nearly all about aid, and in practical terms largely uncritical about aid. But as before, much of that aid is likely to be counterproductive. Ultimately that is why Richardson’s work is vital--it reminds us of the key institution of a free society which is a necessary condition for growth--protection of private property. Without it trust in government and belief in the rule of law collapses.
I’ll have to take his word that Nicaragua is a good news story and fair parallel to Zimbabwe--but it seems plausible and does offer hope for Zimbabwe--once the current regime ends.
To end on a positive note with 3 days to go before Thursdays election. I am hearing more and more positive stories coming out from there--perhaps it is after all possible that the pre-election assumptions, mine included, that the MDC had no chance in the election, will prove to be wrong. That doesn’t mean that the victory will be honored by the ruling party should MDC miraculously win the popular vote--but prepare for widespread unrest if that happens.
Change is most urgently required, for without political change, the rule of law and property right protection will not return to the country. And that is when it will be most important that Morgan Tsvangiral, or whomever the next leader of Zimbabwe is, reads Richardson’s work.
Roger Bate is a resident fellow at AEI.