D+C Development and Cooperation (No. 1, January/february 2002, p. 12-15)

Prebendary Capitalism and Wealth Transfer
The Causes of Development and Underdevelopment in Africa

Gerhard Hauck

Most African countries entered the era of independence in the 1960s with great optimism. All the signs pointed to democracy and economic development for the whole of Africa. But the countries soon found things very difficult on both counts. Within a short time, military coups and change from parliamentary systems to one-party regimes were just as much on the agenda as economic stagnation. The 1980s were finally declared to be ‘Africa’s lost decade’. And although in a number of countries in the 1990s a transition to parliamentary and multi-party systems was enforced and economic decline slowed, on balance the results remained far below expectations.

The question of the causes is, of course, a complex one. However, it must be asked – if sociological research on Africa is not to declare itself bankrupt. My conclusion is that there are two key causes: the internal cause is a lack of separation of the spheres of politics and the economy in most African countries, and the external one is an outflow of assets or at least the lack of a net inflow from outside which in all cases of successful capitalistic development could be tapped.

Internal causes:
prebendary capitalism

Let us begin with the first problem. The establishment of a regulating authority that is kept out of the day-to-day economic contest, that is, in the shape of a civic state with its specific form of the separation of politics and the economy, is a prerequisite for the functioning of capitalistic commerce and industry. Its particular superiority in making production effective is due essentially to the generalisation of commodity production, which means that achieving legitimate profits is possible only by purchasing and selling goods, including the commodity of labour. A capitalist is one who makes a profit by buying or selling, not by forcibly taking something from others – be that by legal means (charges) or illegal (robbery).

The contrary pattern is depicted by the European feudalism of the Middle Ages with its serfdom, corvée labour and glebe bondage. The feudal lord was the political and economic ruler in one. Political, judicial and military compulsion were customary instruments for appropriating the surpluses produced by the serfs, and constituent elements of the day-to-day production process. It was mostly this arrangement which impeded effective production by way of optimising the allocation of resources. Serfdom and glebe bondage prevented the employment of labour at any time at the place and in the trade where it promised to deliver the greatest profit. The same went for the other production factors. Much of the soil had to remain reserved for the subsistence production of the serfs on their own parcels of land. And because that was where they produced most of their means of living they were largely not in the market for goods produced in the capitalistic sector.

It was only general freedom of association, the freedom of everyone to exchange goods with others, or not, without being hindered by the political authorities, that delivered the flexibility in resource allocation specific to capitalism.

The job of political authority in a capitalistic system therefore is inherently different. Not day-to-day intervention in the production process, but ensuring the framework conditions for achieving profits by means of buying and selling goods. A contract is not sufficient in itself, and the keeping of contracts in a market society based on freedom of association cannot be regulated by the contract parties at their own discretion. To guarantee contracts, civic society needs a relatively autonomous and calculable state machinery. The law must be as little a tradeable good as violence a means to accumulate profit.

But it is precisely this separation, these boundaries of the market, that most African societies find difficult. Almost everything is for sale, including law, sex and eternal salvation. Non-violent areas – above all a non-violent market – guaranteed by a state monopoly on authority can hardly be seen. To exaggerate, the service pistol is just as much a means to acquire goods as is money to acquire rights. The decisive point here is that both sides overstep the mark. It is not only political power-holders that use these methods to accumulate private assets. Possessors of private capital also do so to buy rights, privileges and favours from the state.

Privileged state

In 1984, based on the example of Nigeria and employing the term ‘prebendary capitalism’, I attempted to analyse the causes of this wrong situation. First of all, central to this approach is that the state has become the primary point of accumulation, standing far above all others. In Nigeria, this is due mainly to state oil revenue. Elsewhere, it stems from mining rents, such as from Zambian copper. In yet other places, revenue comes from state marketing boards via which all agricultural exports must be processed. And everywhere in Africa the state is the privileged recipient and distributor of development assistance funds.

Also decisive is that the state nowhere invests all its wealth, and hardly anywhere most of it, in state-owned production plants (which, even if they exist, are more or less going to seed). Rather, a large proportion – and in the onetime capitalistic paragon countries Nigeria, Kenya, Cameroon and Ivory Coast an outstanding one – was and is allocated to private sector entrepreneurs under countless ‘contracts‘ for scarcely coordinated projects. In other words, state rents for private capitalists. Government decisions on allocations determine the profit chances of individual capitalists like those of the bourgeoisie as a whole. This is how capitalistic accumulation certainly took and takes place. But it does not occur in competition-based markets, nor via the free movement of goods. It is done via the state. The inevitable consequence is that the bourgeoisie’s internal economic rivalry is first and foremost a fight for access to political decision-makers.

But this is only half the real story. It is true that in Africa the state is everywhere the main customer for industrial goods produced in the capitalistic economy, but nowhere is it the only one. There is also a private sector market. In general, however, this is characterised by extremely great inequality of income. Nigeria, Namibia and South Africa lead the field with Gini Index values of 0.7 to 0.8 indicating high inequality. But Kenya, Ivory Coast and the other former ‘star’ countries are not far behind them.

So there is both extreme poverty and extreme wealth. This results almost inevitably in strong buying power focusing on luxury consumer goods, particularly on high-quality, durable products produced with an intensive use of capital, ranging from refrigerators and cars to hi-fi rigs and computers. But this market, and also that of some short life-cycle luxury goods, is firmly in the hands of foreign companies such as Mercedes-Benz, Nissan, IBM, Sony, Nestlé and Unilever. Any local entrepreneur who tried to compete with them would be committing commercial suicide. That is why local capital has hardly anywhere to go other than into trade, distribution of imported or domestically-produced foreign goods, the real estate market, or nominal stakes in the equity of multinationals operating in the country. The African bourgeoisie are virtually excluded from control and management functions in the production sector. They can scarcely develop anywhere their own fields of accumulation or markets worth mentioning, not only because of state dominance but also due to the transnational corporations. So it is not surprising that they have also developed little interest in establishing a civic state that is kept out of economic rivalries.

What changes would
be necessary?

To be sure, all the structural obstacles to development mentioned are man-made and therefore can be removed. But eliminating them would presuppose revolutionary changes in at least three areas:

• n the state apparatus a bureaucracy would have to be established which would take decisions without political and financial self-interests solely according to impersonal, legal regulations;
• in regard to income and property patterns, inequality would have to be reduced rigorously; and
• in relation to the foreign companies, whose sphere of operations would have to be restricted drastically.

Given that the thoughts put forward here are right, they can explain most of the obvious instability of the parliamentary systems and the lamentable lack of economic dynamism in Africa. If government allocation decisions decide the success of the bourgeoisie in local business rivalry, the greatest economic payoff quite simply does not lie in making production more effective by means of investment, but in securing political influence.

And if access to political decision-making power delivers the most important instrument for accumulating capital, then it is a question of economic survival for those who have once reached that point to remain there. On pain of their economic downfall they must seek to avoid a change of government by elections – if necessary with force, the specific means of confrontation in the political sphere.

External causes: the influence
of the global market

This explanation, however, does not go far enough. It suffers from excessive focus on single countries as units of analysis. One does not have to be a disciple of Wallerstein’s world system perspective to see that the development of the African countries – like others – is determined much more strongly by the dynamism of the present global system than they, in reverse, can determine it. The current debates on ‘globalisation’ and ‘world society’ say nothing different.

Since the dimming of the star of the political theory of dependencia, however, it has become more the fashion in development theory to play down the significance of external factors or even dispute it entirely. Usually, this argument leans on the World Bank model (1989) which seeks to establish the irrelevance of external factors by proving that the development of the terms of trade cannot explain Africa’s economic decline in the 1980s.

As far as the terms of trade are concerned, this line of argument is largely correct. Their deterioration appeared to observers to be so disastrous only because their starting point was the extremely favourable base year of 1981. The World Bank said that if 1961 had been chosen as the base year the terms of trade-related profits and losses would largely have balanced each other, although with the important exception of Africa’s poorest countries. (That 1961 was a rather unfavourable year qualifies the argument somewhat, but does not invalidate it.)

But that far from settles the question. Reducing the debate over external factors to the terms of trade issue would be an extreme curtailment. A great number of other factors can be responsible for transfer of wealth from the poor to the rich world. The most obvious one is most frequently overlooked: the open or concealed ‘repatriation’ of profits by metropolitan corporations. When they invest on the periphery (developing countries)
they do so, of course, with the intention of making a profit. And the profit is theirs, not that of the countries involved. The companies can either invest it in these countries or transfer it to metropolitan countries – directly and openly, or concealed by way of patent and licence fees, ‘transfer pricing’, ‘managerial, technical and consulting charges’, and so on. The companies have always transferred part of their profits, which were then available back home for ‘development’ and lacking in the developing countries, although they were earned there by using local labour and raw materials. There is a decisive difference here from, say, Britain’s early capitalist days in which such transfers played no role – and in which the wealth extracted from the colonies was also available.

The benefits which the North draws from oligopolistic or quasi-monopolistic structures on the world market on the one hand, and from the tariff and subsidies policies of the EU, USA and Japan on the other, are at least of equally great significance.

When tens of thousands of African smallholders face a single international food concern (or two or three) – as in the old days of Unilever in West Africa and Brooke Bond Liebig in Kenya – the latter can cut the prices of their products far below the free market level and make monopolistic profits compared with correspondingly reduced profits on the African side.

Similarly, the agricultural subsidies policies of the EU and USA have for decades faced the farmers on the periphery with competitive disadvantages that are impossible to overcome – and allowed the agricultural product prices that are decisive for their competitiveness fall worldwide. To cite a particularly drastic example, the EU subsidies for sugar beet cultivation harm cane sugar production in the Third World more than all the inefficiency, carelessness, corruption and currency manipulation of the local producers and exporters. But if an African country was on the point of pursuing a similar subsidy policy the IMF would jump in immediately and compel ‘liberalisation’.

The interplay of external
and internal causes

Thus, there are many mechanisms for the transfer of wealth from the poor world to the rich. The question remains: is this transfer of decisive significance for development and underdevelopment? The unanimous answer of the new modernisation orthodoxy (from Zapf and Berger to Senghaas and Menzel) is no. “Modernisation is an internal input of the societies engaged in this process.” (Berger 1996).

I oppose this thesis by arguing that both factors are necessary conditions of capitalistic development: the internal one of generalising the production of goods and its concomitant, specifically capitalistic separation of the spheres of politics and the economy, and equally the external factor of a net contribution from outside.

The changes effected by general freedom of association and a state-guaranteed absence of violence in business processes can in fact explain that making production instruments more effective and optimising allocation of resources from the viewpoint of maximising profit is more feasible in the capitalistic way of production than otherwise. But it does not yet follow that production will rise in macroeconomic terms.

This will occur only if the accumulated quantity of goods can also be sold, that is, if demand can be increased. The conventional wisdom here is the under-consumption theory. This says the decisive obstacle to autocentric development is mass income that is too low. By increasing it – particularly real wages – capitalism, in the cases where it was successful, has solved the demand problem.

This answer overlooks the fact that for capital owners, mass income – wages as well as the income of small agricultural producers who export to the world market – is not only a demand factor but also a cost factor. The cyclical slumps in demand during periods of recession would not prompt a single capitalistic entrepreneur to increase the wages he pays in order to cure the overall economy. Rather, every one of them would attempt to lower wages to cut their production costs and maintain their profits. In a capitalist environment real wage increases are limited by the profit margins of entrepreneurs. As soon as wages exceed these margins long-term, capital-owners limit their investment, accumulation flags, demand for labour declines and wages drop further. So real wage increases cannot be viewed as a durable (extra-cyclical) engine of accumulation.

The picture is very different if an external input in the shape of a wealth transfer from peripheral regions or sectors can be fallen back upon during periods of bottlenecks in cyclical demand. By that means the demand problem resolves itself. In the early stages of Europe’s capitalistic development, demand was boosted by colonial looting, the inflow of riches from Central and South America, Indonesia, India and, indirectly, from Africa (the transatlantic slave trade), which gave an enormous lift to the purchasing power of the ruling classes. The counter-argument that this inflow of wealth had only inflationary impacts and thus harmed economic growth does not hold water. The inflation the inflow triggered was not abrupt and sweeping, but gradual, involving price rises of about 4 per cent per year. Later, the directly violent methods of looting were replaced more and more by ‘economic’ forms of wealth transfer, in the stricter sense of the term, as described above. But wealth transfer has not gone away; it has merely changed its outward form.

The newly industrialising countries (NICs), the ‘mini-Asian tigers’ of the 1980s, also benefited from wealth transfer, although not in the form of exploitation of poorer economies. Over decades and for strategic reasons, Korea and Taiwan received US aid to a quite extraordinary extent. And whatever else one might say about this assistance, it delivered additional strong demand for goods.

To date, however, these are the only real NICs. As city-states, Hong Kong and Singapore are special cases. Due to the Asian financial crisis, Malaysia and Thailand have fallen far behind, and no-one talks anymore about Indonesia, the Philippines and Brazil. The “large poor remainder” of which Menzel spoke in 1992 are still the same as they were then. There is a raft of internal problems, and all of them revolve around the lack of separation of politics and the economy. The argument that none of the countries affected can fall back on external inputs like those enjoyed by Korea and Taiwan also lives on.

What is the upshot? It is that even in the case of favourable socio-economic conditions, internal forms of capitalistic development in the “poor remainder” countries appears inconceivable without much greater and effective development assistance, going far beyond the UN target for ODA. Such demands can be justified, for instance, by Wole Soyinka’s reflections (2001) on an “ethic of compensation” (which, he emphasises, addresses not only the misdeeds of the Europeans but also those of Arabs and Africans). The transatlantic slave trade must continue to stir the world’s memory, he says, not only because it leads to “inescapable criticism of European humanism” but also because it robbed Africa of enormous human potential and destroyed functioning economic systems. Without compensation there will also be no healing of the relationship between the former colonisers and colonised.

Closing observations

Finally, a qualification. My thoughts so far relate to conditions for capitalistic development in general, meaning for growth by capital accumulation. That says nothing about distribution or sustainability. Growth by capital accumulation is also possible without sustainability and a rise in mass income, and in empirical terms this is more the usual case.

But if the factor of wealth transfer from outside is taken into account, somewhat different prospects arise. The theoretical under-consumption model is, indeed, not absurd per se. The counter-arguments presented above become invalid if the strong demand of the lower classes can be boosted by a value inflow from outside, just like the demand of the ruling classes in early-capitalistic Europe. That would also improve the chances of overcoming the prebendary capitalistic syndrome and establishing an independent field of accumulation for the African bourgeoisie. If such a value transfer were brought about by much greater development assistance, modalities and conditionality which would guarantee less inequality, sustainability and observance of human rights would in theory be entirely feasible. In view of the existing power hierarchies – both in the centres and the peripheries – such a scenario is not, of course, realistic in the sense of ‘realpolitik’. However, for good reasons it appears to me to be tenable as a vision oriented on action in the long term. It need not fail due to internal frictions or to some inherent characteristics of the economy, but due only to power structures – and power structures can be changed.