Jobs for Africa?

Jul 12, 2010

At least since 2004, the African Union has made employment generation a rhetorical priority.  At a summit that year, the AU adopted the so-called Ouagadougou Plan of Action, meant to commit African countries to employment generation strategies.  In 2007, the Millenium Development Goals were altered to add an explicit focus on employment (Target 1B of MDG1 now reads: Achieve full and productive employment and decent work for all, including women and young people). Immediately following this, African governments began to refer more explicitly to employment generation in their Poverty Reduction Strategy Papers.   This year’s Economic Report on Africa, a joint publication of the UN and the AU, focuses on “promoting high-level growth to reduce unemployment in Africa.” The report is accompanied by a recent issue paper that attempts to assess how employment and employment policy in Africa have evolved since the 2004 Ouagadougou summit.

This increased attention to the issue of employment over the last 5-10 years overlaps with a renewed interest in industrial policy.  After two decades of focused attention to macroeconomic stabilization, African countries (like their counterparts in other regions) have seen their economies begin to grow again.  But there are concerns about the development model, which appears to be overly reliant on commodity exports, heavily capital rather than labor dependent, and with insufficient economy-wide linkages to initiate longer-term structural transformation.  While there is widespread consensus around the failures of past state intervention, there is also a growing recognition of the need for some kind of state-led development planning in order to ensure that economic growth is sustained, labor-intensive, and transformative.  The African Union has, therefore, also taken up the issue of industrial policy recently. The 2008 African Union summit focused on industrialization and produced an Action Plan for the Accelerated Industrial Development of Africa.  The Plan envisions a set of policies that will lead Africa toward greater economic diversification.

The pace may be plodding, but the call for a new industrial policy, and the pleas to “mainstream” employment policy, are groping toward a similar set of policy recommendations.  A rough sketch of the common premises of these views looks like this: “Getting the institutions right” is important, but insufficient.  Governments need pro-active strategies for economic diversification and job growth, neither of which is likely to materialize simply by creating an attractive investment climate and waiting for the fruits of comparative advantage to grow on their own.  The UN issue paper mentioned above refers to this as the distinction between a “capable state” (one that creates conditions for markets, but leaves entrepreneurs to their own devices) and a “developmental” state (one that goes beyond setting up a healthy environment for market exchange to encourage entrepreneurship).  The developmental state relies on plans and agencies that set the direction for and help to finance the country’s development path.

Economic growth and job growth both require substantial investments in key public goods areas that can raise factor productivity, such as infrastructure, electricity, research and development, and education.  But, they also require governments to work more directly to influence and nurture private entrepreneurs, identify bottlenecks to private sector development, and promote discovery and construction of local comparative advantages.

The key question for this agenda moving forward is how African countries can create the institutional capacity to run effective industrial and employment policies, without these policies deteriorating into vehicles for patronage and corruption.  There were many reasons that the import substitution industrialization policies of the past ultimately fell out of fashion, but not the least of these was the degree to which they promoted inefficient and kleptocratic behavior that ultimately undermined rather than promoted the development process.  Because “developmental” states must use interventionist tools like regulation, tariff policy, subsidies and taxes to promote private sector development, industrial and employment policies create considerable space for corruption.

There is no easy solution to this problem, but an important safeguard will be improved transparency regarding the direction of policy and the criteria for state support (compared with the past).  A higher bar for openness and participation needs to be set, and governments more rigorously held accountable, for their adventures in industrial and employment policy.   This view is consistent with that of economist Dani Rodrik, who has been a champion for a refined version of industrial policy.  As he wrote in 2004:

“Industrial policies need to be viewed by society at large as part of a growth strategy that is geared to expand opportunities for all, rather than as giveaways to already privileged sections of the economy.  This is particularly important since pro-active policies… can sometimes be partial to bigger firms and entrepreneurs (unlike microcredit programs, say, or support for small and medium-sized enterprises).  Hence promotion activities need to be undertaken in a transparent and accountable manner.  The operation of deliberation/coordination councils should be published and the decisions reached announced.  There should be full accounting of public resources spent in support of new [industrial support] activities.”

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