The Marshall Plan was fundamentally different from the aid that Africa has received over the past four decades. The Marshall Plan made loans to European businesses, which repaid them to their local governments, which in turn used that revenue for commercial infrastructure — ports, roads, railways — to serve those same businesses. Aid to Africa has instead funded government and NGO development projects, without any involvement of the local business sector. The Marshall Plan worked. Aid to Africa has not. An African Marshall Plan is long, long overdue.
I’m intrigued. In my mind, the difference between low and middle-income status is large-scale industrialization. And sustainable education, health care and social security are only possible with a business and employment tax base. Hubbard is right to note that microfinance is not enough to bring about this transformation.
But can U.S. aid build a private sector in Africa? Here are four questions I’d like answered before deciding.
1. Aren’t we doing this already? And can’t we check if it’s working? The World Bank and USAID provide enormous commercial sector support–loans, incentives, tax breaks, you name it. Do these generate more growth than public sector aid? Or does Hubbard have something different in mind?
2. Is cheap credit the big constraint? B.E.T. founder Robert Johnson has made millions in cheap loans available to Liberian businesses the past year. The result I’ve heard? No one’s taking it up. I’ve heard this anecdote repeated in many countries.
3. Could context matter? World War II decimated Europe’s labor and capital, but its political and financial institutions remained strong, and its stablity assured by decisive defeat of the Axis and the presence of American troops. Injections of capital thrived in that environment–in a simple growth model, we might say that the Marshall Plan sped Europe’s return to its equilibrium growth rate. Can the same be said of Africa today?
4. Did the Marshall Plan ignite European growth? One of my favorite economic history papers of all time, by Brad Delong and Barry Eichengreen, answers “yes, but not the way you think.” Overall flows were small, as were the effects on private investment. And infrastructure was mostly rebuilt by the time funds arrived. The Plan mattered because its conditions tipped governments towards a market rather than a planned economy. Western Europe quickly pushed beyond simple recovery to unprecedented growth.
In the 1960s, aid to Africa was not so conditional, and Africa tipped the other way: towards exchange rate, price, and trade controls that enriched corrupt elites and destroyed the economy. Crisis and conditional aid in the 80s and 90s helped tip Africa back to more sustainble policies, and growth resumed. Today’s policies are much improved. Has “Africa’s Marshall Plan” already happened?
Hubbard’s short piece feels like a teaser for a new book. I certainly hope so–I would like to see the nuts and bolts.
Hat tip to Andy Mack.
Update: Yes, a commenter confirmed it is a teaser for an upcoming book.