Africans Need Capitalism

by Don Boudreaux on April 25, 2007

in Foreign Aid

Karol has a superb letter published in today’s edition of the New York Times:

To the Editor:

In “‘Patient’ Capital for an Africa That Can’t Wait” (column, April 20), Thomas L. Friedman is spot-on in his diagnosis of Africa’s poverty as rooted in a lack of capitalism.

If this diagnosis is correct, what is the prescription?

Africa’s leaders have the power to encourage patient capitalism (where returns are 5 to 10 percent and payback is over a longer period of time) by reducing barriers to businesses, by improving tenure security for both men and women, and by respecting indigenous institutions and customs.

Policies that push entrepreneurs into the informal sector, promote tenure insecurity, limit women’s property rights and are based on central planning rather than decentralized experimentation will only stymie progress.

The examples that Mr. Friedman cites are not aberrations. Africans are as entrepreneurial as any people. With some basic legal reforms, they can be empowered to capitalize on their talents.

Karol Boudreaux
Arlington, Va., April 20, 2007

The writer is a senior research fellow at George Mason University and research director of Enterprise Africa.

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REW April 25, 2007 at 7:39 am

Probably the biggest hurdle that the African governments place in front of entrepreneurs is the tax code. Jude Wanniski often pleaded with politicians of both U.S. political parties to fix the problems of the African continent by promoting tax reform there. He noted in 2004, during the sad refugee crisis impacting Sudan, the top marginal tax rate there is imposed at $54 a year of income. It is the African tax code that ensures low standards of living.

Dennis Mangan April 25, 2007 at 11:38 am

" Africans are as entrepreneurial as any people."

I'd like to believe that. However, not very long ago we were being told that Iraqis were as democratic as any people, which is obviously not the case. Democracy requires a certain culture; while everyone seems capable of looking out for his self-interest, maybe capitalism requires more than just a free market and rule of law.

Objectivist April 25, 2007 at 2:04 pm

Africa's woes are many; corrupt governments, no rule of law, epidemics among the masses of people, lack of sustinance, and the need of high capital inputs for making use of the natural resources of the continent.

Although it is true that establishing property rights is a step in the right direction, as is making the environment more favorable for capitalism, if these other problems, in particular the lack of health among most of the people there, is not taken care of, then prosperity will not be able to take root.

mtlibertyproject April 25, 2007 at 5:24 pm

If it's a mixture of symptoms, what is the common denominator? Taxes, property rights, corruption, or healthcare?

Any papers that point to a solution leader?

Acad Ronin April 25, 2007 at 7:07 pm

I have no problem with most of Dr. Boudreaux's recommendations but am puzzled by the reference to tenure security. Is the issue tenure in the job, or property rights generally. As far as tenure in the job is concerned, looking at the World Bank's data on Doing Business, my impression is that many African countries have quite draconian labor laws. I realize that these probably apply only to government employees and indigenes working for foreign multinationals, but they appear sufficiently onerous as to discourage much foreign direct investment.

M. Hodak April 25, 2007 at 9:19 pm

Botswana has the most liberal economy in Africa. Botswana has the fastest growing economy in the world (over the last several decades). Coincidence?

True_Liberal April 26, 2007 at 1:09 pm

"American Idol" last night split the charitable take 50-50 between American poverty pockets and African plight.

Did "A.I." address the root causes of African poverty? Are you kidding?

And who'll take bets on where the money will do the most good?

Will C. May 4, 2007 at 7:43 pm

India is a good contemporary example of a country that is getting out of the way of business and the results are dramatic. Pity they couldn't have started 50 years ago.

Yuman Peng May 5, 2007 at 4:22 pm

I am not sure whether Africa will bloom if it is a capital country. That's not a simple question. Now, Africa suffers of corrupt governments, no rule of law, diseases epidemics among people. So, I believe Africa needs property rights, healthcare, basic laws and so on; however, I do not know whether it will bloom if Africa will become a capital country.

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