Everyone agrees that Botswana has much better institutions than pretty much anywhere else in sub-Saharan Africa.
A decade ago we argued in a joint paper with Simon Johnson that these institutions are the reason why Botswana has succeeded economically while most around it have failed.
Yet despite this and the fact that diamonds are running it out, it has struggled to diversify out of diamonds, and it also has very high levels of inequality. There has not been a resource curse in terms of economic growth, but the economy has not diversified out of diamonds and into more modern sectors either.
Why not if its institutions are good?
There is no clear answer to that but one way to think about it is via the lens that Jonathan DiJohn and James Putzel (2009) apply in their paper “Political Settlements” to development problems.
DiJohn and Putzel characterize Botswana as an example of an “elite political settlement” which has built a consensus about building strong institutions since this was in the own interests of elites.
Post-independence politics in Botswana has been dominated by chiefs and a political party, the Botswana Democratic Party (BDP) started by chiefs.
That the BDP has been in office continually since independence would indicate, according to this analysis, the hegemony of these elites who initially were heavily invested in cattle and had a vested interest in strong property rights and a state which could expand market opportunities.
So dominant was their power that they were able to take the long view in the 1970s when diamonds came on stream and build institutions which were socially desirable but more importantly, in their own interests.
If this view is correct, it might explain the very high levels of inequality and why industrialization has been so stymied in Botswana.
To see why this might be, it is good to recall that as Tony Killick first brilliantly analyzed in his book Development Economics in Action, there has been a lot of animosity towards the private sector in post-independence Africa. In the Ghanaian case Killick argued that this was driven by the fact that the government of Nkrumah saw the emergence of an autonomous private sector as a threat to its political dominance and it therefore tried to stop this.
If a similar argument applied to Botswana it could help explain why economic growth has led to so little economic diversification – because in reality the BDP and the elites around it did saw this as a threat to their political dominance. It is the lack of diversification that has allowed the elites of the BDP to maintain their grip on the society for 50 years.