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Economic Growth in the Democratic Republic of the Congo?  

This year on June 6-7 the World Bank is sponsoring the first Annual Kinshasa Conference on Economic Growth and Governance. The blurb for the conference starts:

In recent years the Democratic Republic of Congo (DRC) has put in place important foundations to move to a new stage of development. The consolidation of peace and stability, and the strengthening of the macroeconomic framework are major accomplishments, including lowering of the annual inflation rate from 500 percent (2001) to 10 percent (2012). Thanks to these advances, economic growth accelerated to an estimated 7.2 percent in 2012. Progress, though from a very low base, has been registered in the social sphere as well. The infant mortality rate has dropped significantly, several endemic diseases have been eradicated and school enrollment has risen sharply. In terms of infrastructure, rehabilitation of road infrastructure has been launched across the country, telecommunications have made considerable progress, and the energy sector is increasingly becoming a focus of investments.

You’ve got to admire their optimism. Many might have looked at the recent or more distant history of the Congo, a country trapped in desperate poverty despite its fabulous wealth in natural resources, and reached a gloomier conclusion.

The readers of Why Nations Fail will recall that we trace the long 500 year history of extractive institutions in the Congo. Should we be gloomy?

All that history notwithstanding, things do appear to have started changing, and the World Bank has been enrolled in this change, trying to find ideas for how to move forward recognizing the many institutional problems that exist in the country.

One thing they did was to engage in a massive data collection and analysis of many different aspects of the Congolese economy. The results of this came out in French in three thick volumes, but the findings were summarized in the 2012 book Resilience of an African Giant edited by Johannes Herderschee, Kai Kaiser and Daniel Mukoko.

Reflecting the huge potential of the country, the theme for the first conference is “Harnessing Natural Resources for Development”. The optimistic focus is on trying to propose better ways for the Congo to use it’s natural resource wealth in socially desirable ways.

The conference includes such luminaries as Paul Collier. Why Nations Fail’s own James Robinson will also be there addressing the issue of “Governing Natural Resources for Shared Prosperity: Getting beyond the Resource Curse.” Gulp!

But perhaps we should first ask: is there really a “curse of natural resources”? And if so, what is it and what can the Congo do about it?

We’ll try to think this through over the next few blogs in anticipation of the conference.


The Looting of Bogotá

Colombia is not a country known for good governance or institutions. Long the drug and murder capital of the world, it has been struggling back towards some sort of stability since the government of President Álvaro Uribe between 2002 and 2010 brought large improvements in security.

Yet even in the worst of days in the 1990s, the capital city Bogotá provided some small grounds for optimism. Starting with the election of Jaime Castro as mayor in 1992 and accelerating with the election of Antanas Mockus in 1995, Enrique Peñalosa in 1998 and the second Mockus administration between 2001 and 2003 big changes happened in Bogotá.

There were huge improvements in security and a large expansion in the supply of public goods. Bogotanos began to think about their city differently. They began to walk about on their streets again. In 1985 only 25% of Bogotá citizens believed the city to be a good place to live but 15 years later, 67% thought the same way. Mockus, a philosophy Professor at the National University of Colombia used many unorthodox but apparently highly effective tactics to change people’s behavior. For instance, to get people to inform the government about the anti-social behavior of others he went around with a toy frog pinned to his jacket – in Colombia someone who tells tales is called “un sapo,” a frog. He also hired mime artists to shame people into obeying the rules.

Here is one waving the banner “incorrecto” incorrect!

That Castro, Mockus and Peñalosa won was quite a surprise. To do so they had to defeat the machine politics of the traditional Liberal and Conservative parties. Research by Rafael Santos at the University of the Andes showed how this was caused by reforms to the structure of the voting procedure. In particular the 1991 Constitution introduced the tarjeton, a new more secret method of voting where voters were given a single unified ballot, instead of having separate party ballots. Santos showed that the introduction of the tarjeton coincided with a breakdown in the spatial relationship within Bogotá between votes for traditional political parties and where public sector workers lived. The tarjeton broke down the traditional mechanisms of patronage allowing people to vote on new issues, those raised by Mockus et al.

Yet in 2004 the sequence of reformist mayors came to a grinding halt. The new mayor was Luis Eduardo Garzón from the leftist Alternative Democratic Pole political party. To many it seemed that while the reformist independent mayors had been successful at defeating traditional clientelism, they were vulnerable to left wing clientelism.

Moreno came from an interesting family. His grandfather, Gustavo Rojas Pinilla was Colombia’s only real military dictator of the 20th century between 1953 and 1958. Yet this was a mild dictatorship and Rojas Pinilla had wide support when he overthrew the Conservative government of Laureano Gómez in 1953 in the midst of an inter-party civil war known simply in Colombia as The Violence (La Violencia). Rojas Pinilla had actually developed an infrastructure, such as building the national airport, El Dorado, and the broad avenue that leads out to it known as “the twenty six” (la veinte seis). He gave women the vote. In 1970 he’d made a political comeback with Samuel’s mother, María Eugenia as his running mate and only lost the presidential election because the incumbent Liberal party committed fraud. In 1974 María Eugenia ran for president.

Thus Moreno was the heir to an interesting alternative political tradition in Colombia. Many had high hopes that his control of the capital city would be the launching pad for a new type of politics.

Things turned out quite different. Moreno, it turns out, had spent all these years climbing the ladders of power to get the chance to loot. He did this along with his brother and former national senator, Ivan Moreno. Moreno was stripped of his position in May 2011 before his term was up and by September was in prison. The whole story is only just coming out (see this article in Spanish in the Colombian Newsweek Semana.

Here is Semana’s map of the Carousel.

After taking power Moreno set up a “shadow government” for the city, headed by his brother Ivan. This ran the “contract carousel” which basically handed out all the valuable contracts for the city in exchange for kickbacks and bribes. In particular the Morenos took a percentage for themselves from each contract.

The brothers hired Emilio Tapia to run the shadow government that had a “board” and was based in a luxurious suite of offices in the north of Bogotá. It also had a private plane and used to meet regularly in Miami. The brothers developed a cute slang, if they had an interest in a contract they called it “un mordida” a bite. The jewel in the crown of bites was the contract to run the integrated public transport system in Bogotá. This carries about 7 million people per day. The Morenos cut was 8 pesos per passenger, implying 56 million pesos per day. This works out at around US$30,000 per day, for 16 years. Part of the irony here was the contracts for the extension of the “Transmilenio” bus system along the “26” out to the airport, the road to the airport built by his grandfather.

The brothers did not stop there. They looted everything. Existing hospitals were very lucrative, but building new ones created even better opportunities for stealing. They took between 25 and 30% for themselves. They handed out the ambulance contract, but of this only half went to the firm that ran the ambulances, the rest was for the brothers and their cronies. Companies which refused to offer “the bite” lost out being told they were “too cheap”. Roads and bridges were also lucrative and some were 100% lucrative. 45 million pesos (US $25,000) were allocated to start on a bridge linking Carrera 9 to Calle 94 to alleviate traffic jams. It was never started. The story goes on and on.

Where is all the money? The Colombian government is trying to find out. Much was invested in real estate in the US, stashed away in the Virgin Islands, Switzerland, and all the usual suspects. Nobody really knows how much was stolen in three years; one estimate is US$500 million!

What is so depressing about this story is that Mockus and Peñalosa failed to institutionalize the gains that they had made for a decade.

All of the rules and procedures that they had established were quickly subverted and Moreno apparently faced no checks and balances or mechanisms that stopped the orgy of looting. That this also happened in Bogotá, supposedly the most functional part of Colombia, is a salutary lesson. Other Colombian reformers will need to carefully study what lessons can be learned.

In Medellín, for example, a city with much worse initial conditions than Bogotá, a series of reformist mayors initiated by Sergio Fajardo in 2003 made even more progress than the mayors of Bogotá did. Fajardo, now governor of the Department of Antioquia, and in the midst of a radical plan to transform the education system of the department, must be asking himself what will happen when he is term limited. How does he institutionalize all of the improvements he managed to implement?

Perhaps Bogotanos should have known what was coming. Before the election in a line TV debate Moreno was asked by Antanas Mockus if he would buy 50 votes if that prevented someone who had already bought 50,000 votes from winning, thus “saving Bogotá”.

His response was “Yes, without doubt!”.

It was a premonition of what was to come. You can even watch it on YouTube.


The Persistence of Institutions in Mexico?  

Last week we pointed out that one hypothesis about why Why Nations Fail was unavailable in Mexican bookshops is that Carlos Slim owns the biggest book retailer in the country.

Now our point about Carlos Slim is not that he is a “bad guy”. Quite the contrary, he’s just behaving like a normal rational person would, responding to incentives and trying to further his interests.

Slim is in fact just the most recent incarnation of a long history of monopolization in Mexico that stretches far back into the colonial period. His monopolization of media is nothing new. Only the monopolizers and the strategies change.

To see this, ask yourself whether our book would have sold better under the long one-party rule of the PRI? Probably not. It certainly would have gone against the interests of the PRI elites — if they had noticed it. Probably it would have gotten even less media coverage.

To see why, let us turn to the most compelling account of the origins of the PRI and the way it worked is the 2008 book Mexico Since 1980 by Stephen Haber, Herbert Klein, Noel Maurer and Kevin Middlebrook. Though this looks like it is a commentary on contemporary Mexico, in fact it is a penetrating model of the political economy of the PRI and how it collapsed to usher in democracy.

The context for the creation of the party is the Mexican Revolution between 1910 and 1919. After the full-blown revolution stopped, intense violence continued. In 1920 the President Venustiano Carranza was overthrown and assassinated. His successors Álvaro Obregón and Plutarco Calles faced major revolts by the military and their own cabinet ministers in 1923, 1927 and 1929, and a civil war between 1926 and 1929, the Cristero War. In 1928 Obregón was assassinated after being re-elected president.

In response to the potential chaos, Calles crafted in 1929 the Revolutionary National Party (the PNR) that would eventually become the PRI in 1946. The PRI was an institution for incorporating and sharing power between the factious and violent elites who were endlessly scheming to overthrow the system. It also used agrarian reform as a way of consolidating peace in the countryside and creating a vast rural patronage machine to make sure it would win elections.

This new party program was implemented by President Lázaro Cárdenas between 1934 and 1940. In 1938 Cárdenas moved to exert control over the media with a simple strategy. He nationalized the production of newsprint which could not be imported. If you wrote something too critical of the PRI, you wouldn’t get any newsprint to publish on, and that was that.

Hence our guess that Why Nations Fail wouldn’t have sold well under the one-party state of the PRI either.


Why Regions Fail in Mexico  

James was asked by Mexican Senator Zoé Robledo of the political party the PRD how to apply the ideas from our book to explain within country variation. Senator Robledo is from Chiapas, the poorest and most unequal state in Mexico.

Why, Senator Robledo wanted to know? Reasonable question.

We do talk quite a bit about regional inequality in the book, for example about how the US South was poorer than the North because the South had more extractive institutions. We also examine regional inequality in Argentina pointing out that the northwest, where in contract to Buenos Aires and the Pampas there we dense populations of indigenous peoples at the time of the conquest of the Americas.

In consequence such states as Salta and Tucumán had many of the extractive institutions of colonial Spanish America like the encomienda. Today these parts of Argentina are much poorer than Buenos Aires and the places which were neglected during the colonial period (until the Bourbon reforms of the 18th century the Spanish actually made it illegal to export anything from Buenos Aires, instead, if anyone was crazy enough to want to do this, they had to ship it over the Andes and export it from Perú!).

But in Why Nations Fail we don’t talk about this issue in Mexico. So how might we explain why Chiapas other Southern states like Oaxaca and Guerrero are much poorer and more unequal than the Mexican average?

Here is a link to the speech that James Robinson gave at the Mexican Senate last Tuesday in Mexico City trying to tackle this question.

Though we don’t want to spoil the suspense, it turns out that it is because these states have more extractive institutions than the rest of Mexico (a bit like the US South really).


Reading Why Nations Fail in Mexico  

With all this discussion of Slim, monopolies and well, let’s face it, extractive institutions in the air in Mexico, you might have conjectured that Why Nations Fail was selling like hot cakes. Not quite hotcakes but the Spanish Translation has actually done quite well in a number of places. It was even the 5th best selling book in Colombia last year after the autobiography of President Álvaro Uribe and the Fifty Shades of Grey trilogy (…well you couldn’t really have expected us to outsell them!).

Not in Mexico. In fact the leading bookseller in Mexico, Sanborns, does not stock it (James checked recently at the branch in the Centro Histórico next to Porfirio Díaz’s wonderful Palacio de Bellas Artes – they didn’t have it and hadn’t heard of it).


But then someone suggested a simple explanation: Sanborns is owned by Carlos Slim.