(June 11, 2016) I recently visited Algeria and Morocco. Like so many other developing countries, they are dealing with the sharp decline in global commodity prices that has taken place over the last few years. In meetings in Algiers and Casablanca, I offered four concrete ideas for policies to help commodity-exporting countries deal with global price volatility. Continue reading
On October 14, the Mo Ibrahim Prize Committee announced, for the second year in a row, that it had not found anyone to whom to award its Prize for Achievement in African Leadership.
The Prize is given to a recently-retired Executive Head of State or Government in Africa who satisfies the criteria of having been democratically elected, having left at the end of his or her constitutionally mandated term, and having demonstrated exceptional leadership. The winner receives $5 million paid over ten years, followed by $200,000 annually for life, which makes it the world’s most valuable annually awarded prize
The Mo Ibrahim Foundation supports other valuable activities as well, especially the annual rating and ranking of countries in the Index of African Governance, which was also released October 14. But I am especially intrigued by the Prize. For me the suspense doesn’t come from seeing who will win a $5 million lottery, but rather from seeing whether the existence of such a prize can sometimes influence behavior of leaders. It is a fascinating social policy experiment, which deserves to be more widely known.
Even such a noble venture as this receives some criticism. One argument goes, “Because the Ibrahim prize in many years is given to nobody, it makes Africa look bad.” It has also been argued, “Leaders shouldn’t have to be ‘bribed’ into being good. The good ones will be good and the bad ones will be bad, regardless of the prize.”
I don’t buy these criticisms. Yes, it is important to note that other parts of the world also suffer from governance problems, not just Africa. [Who would have thought that in the 2000 US election, the presidency would be awarded, to the candidate who had received fewer popular votes, by officials who had been appointed by the father and brother of that candidate, when they ruled that the re-counting of votes in Florida should be stopped?] More people should also be aware that many African countries have enjoyed substantial progress over the last decade, particularly with respect to economic growth, health, and education. But these are not arguments against the Prize, which helps to highlight the important role of leadership in those African countries that have made progress.
African leaders range from good to bad, as do leaders everywhere. It is useful to shine a spotlight on the good end of the spectrum of leaders, helping balance the abundant attention received by the truly awful ones, up to and including prosecutions by the International Criminal Court. But, further, the amount of money that comes with the Ibrahim Prize is enough that it might go beyond honoring virtue ex post, and actually affect behavior, ex ante.
The Ibrahim Prize was awarded in 2007, 2008 and 2011, respectively to Presidents Joaquim Chissano of Mozambique, Festus Mogae of Botswana, and Pedro Verona Pires of Cape Verde. Botswana and Cape Verde are two of the four small-population countries that have consistently ranked at the top in ratings of African governance, human development, and economic performance. [The other two are Indian Ocean countries, Mauritius and the Seychelles. It is intriguing that three of these four top performers are small island states.] Mozambique is different: larger and historically in much worse shape by all the criteria. It suffered a terrible civil war from 1977-1992. Even after two decades of strong political and economic improvement it still ranks far down in the indicator lists.
What defines good leadership is an interesting question. Even Harvard University’s Kennedy School of Government, where I teach, finds it hard to come up with an answer. Should leadership be evaluated by the criterion of successfully delivering good outcomes to the country, such as economic prosperity, health, human rights, personal security, and peace? Or are the proper criteria the quality of character and the competence of the leader, including his or her ability to inspire the country, to choose good people, to formulate good policies, and to get them put into place? In a word, is it outcomes, or inputs? Successful outcomes are obviously the ultimate objective; but in my view it is not useful to rely solely or primarily on outcomes to judge the quality of a leader.
Many factors beyond the control of the leader can prevent his country from climbing to the top of the rankings. His policies may be blocked by intransigent domestic political opposition or he may be overthrown by a coup. Or his country may be invaded by a neighbor. Even if one were to interpret good leadership as a demonstrated ability to prevail over political roadblocks no matter how strong or unfair they are, surely he should not be held responsible, for example, for the effects of droughts, floods, or other natural disasters. Too often we evaluate the performance of the ship’s captain solely by the smoothness of the ride, or even by the perceptions of the passengers in the hold, without paying sufficient attention to whether the waters are stormy and the captain steered skillfully.
Admittedly, the competence and integrity of the leader are more difficult to measure than outcomes (such as income per capita, life expectancy, infant mortality, literacy, crime, etc.) But some of the component indicators of the Ibrahim Index of African Governance (IIAG) are closer to policies that are more directly under the control of the government (such as rule of law, rights, red tape, and fiscal policy). And of course one would not expect the prize committee or historians to judge leaders solely by quantitative criteria in any case.
On the one hand, the Foundation says it looks for leaders “who deliver security, health, education and economic development to their constituents,” which sounds like it judges by outcomes. But on the other hand it says the award is based on “excellence in office.” Its senior officials confirm that what matters is not the level of the country’s ranking, but whether the leader has served honorably and worked to move things in the right direction. Past awards have been based on specific accomplishments on the part of the recipient, as opposed to high overall rankings for their countries per se. President Chissano was recognized for “bringing peace, reconciliation, stable democracy and economic progress to Mozambique following the civil war”; President Mogae for “his role in maintaining and consolidating Botswana’s stability and prosperity in the face of an HIV/AIDS pandemic”; and President Pires for “his role in transforming Cape Verde into a model of democracy, stability and increased prosperity.”
The list of eligible candidates each year begins with those who were democratically elected and who left office constitutionally within the preceding three years. In a typical year there may be as few as three candidates who meet these qualifications. The question is then whether any of them have demonstrated the necessary level of excellence in office. Often the Prize Committee decides that none have (2009, 2010, 2012, and now 2013).
The question is why. Mo Ibrahim is adamant that the paucity of winners does not mean that the Foundation should lower the bar. Good for him. But there might nonetheless be some way to modify the rules governing the prize.
Consider a ruler who comes to power with great intentions and great abilities. Assume that he in fact accomplishes much for his country during his first term, or his first two or three terms if the constitution allows it.
But then what happens? Often they stay too long. (Uganda’s Yoweri Museveni comes to mind.) They force through changes in the constitution to run for further terms in office. Next, they may start to rig elections and suppress opposition. They or members of their family may start fattening their overseas banking accounts. Their personalities may have changed. They may now regard themselves as indispensable. They have been corrupted by power, like the porcine leaders in Orwell’s Animal Farm. At this point, the ruler is unlikely to be influenced by the existence of the Ibrahim Prize.
But consider a leader, in his last lawful term in office, who would still prefer to do the right thing: continue to serve competently and honestly in his last term and then leave voluntarily at the end. This path might leave a retirement with few resources for him and his family, little in the way of prestige or a platform from which to speak, and perhaps persecution or even jailing by his successors. It is precisely such a leader for whom the Ibrahim Prize could make the difference, at the margin, influencing him to continue on the high road.
Why then doesn’t it work more often than it does? Surely $5 million is enough to make a difference for such a person.
Perhaps the problem is that he can’t be sure he would get the prize. I wonder if members of the Prize Committee ever communicate with final-term sitting leaders that they will be good candidates if they go the extra mile. If a leader’s candidacy were known among the public, the entire country might “raise its game” to help him win, in a patriotic campaign analogous to competing to host the Olympics.
The Ibrahim Foundation might consider extending the window of eligibility from 3 years to 5 or 10 years. I can think of three arguments for doing so.
1) Lengthening the window might help a bit with the problem that in a typical year, the committee can’t find a good enough candidate out of the pool of those who have left office in the last 3 years. In some periods there may be multiple good candidates and in other periods there may be none.
2) A leader in his last term in office might be more influenced by the prospects of getting the award, because if he did everything right it would be unlikely that he would subsequently lose out simply because there happened to be other good departing leaders who came along at the same time.
3) It is easier to judge who was or was not a good leader when more time has gone by. Famously, few Americans thought Harry Truman had been a good president immediately after his time in office, but history now rates him very highly. [Even Abraham Lincoln was widely despised in his own lifetime.] In Mexico, Carlos Salinas looked good at the time, but is now viewed poorly. Meanwhile, with the perspective of history, the accomplishments of his successor, Ernesto Zedillo, now look to have been bold, historic, innovative, and valuable. For analogous reasons, most of the scientists who receive the Nobel Prize [such as last week’s winners in Physics, Chemistry, and Medicine], did their award-winning research many years in the past.
The Ibrahim Prize was established only in 2007. This means that, so far, the candidates have served most of their terms in office when the Prize did not yet exist and so could not have influenced their behavior. A leader elected in 2007 would not complete two five-year terms until 2017. If the experiment works, the main fruits will lie in the future.
Libyans have a new lease on life, a feeling that, at long last, they are the masters of their own fate. Perhaps Iraqis, after a decade of warfare, feel the same way. Both countries are oil producers, and there is widespread expectation among their citizens that that wealth will be a big advantage in rebuilding their societies.
Meanwhile, in Africa, Ghana has begun pumping oil for the first time, and Uganda is about to do so as well. Indeed, from West Africa to Mongolia, countries are experiencing windfalls from new sources of oil and mineral wealth. Adding to the euphoria are the historic highs that oil and mineral prices have reached on world markets over the last four years.
Many countries have been in this position before, exhilarated by natural-resource bonanzas, only to see the boom end in disappointment and the opportunity squandered with little payoff in terms of a better quality of life for their people. But, whether in Libya or Ghana, these countries’ current leaders have an advantage: most are well aware of history, and want to know how to avoid the infamous natural-resource “curse.”
To prescribe a cure, one must first diagnose the illness. Why do oil riches turn out to be a curse as often as they are a blessing?
Economists have identified six pitfalls that can afflict natural-resource exporters: commodity-price volatility, crowding out of manufacturing, “Dutch disease” (a booming export industry causes rapid currency appreciation , which undermines other exporters’ competitiveness), excessively rapid resource depletion, inhibition of institutional development, and civil war.
Oil prices are especially volatile, as the large swings over the last five years remind us. The recent oil boom could easily turn to bust, especially if global economic activity slows.
Volatility itself is costly, leaving economies unable to respond effectively to price signals. Temporary commodity booms typically pull workers, capital, and land away from fledgling manufacturing sectors and production of other internationally traded goods. This reallocation can damage long-term economic development if those sectors are the ones that nurture learning by doing and fuel broader productivity gains.
The problem is not just that workers, capital, and land are sucked into the booming commodity sector. They also are frequently lured away from manufacturing by booms in construction and other non-tradable goods and services. The pattern also includes an exuberant expansion of government spending, which can result in bloated public payrolls and large infrastructure projects, both of which are found to be unsustainable when oil prices fall. If the manufacturing sector has been “hollowed out” in the meantime, so much the worse.
Another pitfall is excessively rapid depletion of oil or mineral deposits, in violation of optimal rates of saving, let alone preservation of the environment.
Even if high oil revenues turn out to be permanent, pitfalls nonetheless abound. Governments that can finance themselves simply by retaining physical control over the oil or mineral deposits located within their borders often fail in the long run to develop institutions that are conducive to economic development. Such countries evolve a hierarchical authoritarian society where the only incentive is to compete for privileged access to commodity rents. In the extreme case, this competition can take the form of civil war. In a country without resource wealth, by contrast, elites have little alternative but to nurture a decentralized economy in which individuals have incentives to work and save. These are the economies that industrialize.
What can countries do to ensure that natural resources are a blessing rather than a curse? Some policies and institutions have been tried and failed. These include, in particular, attempts to suppress artificially the fluctuations of the global marketplace by imposing price controls, export controls, marketing boards, and cartels.
But some countries have succeeded, and their strategies could be useful models for Libya, Iraq, Ghana, Mongolia, and others to emulate. These include: hedging export earnings – for example, via the oil options market, as Mexico does; ensuring countercyclical fiscal policy – for example via Chile’s kind of structural budget rule; and delegating sovereign wealth funds to professional managers, as Botswana’s Pula Fund does.
Finally, some promising ideas have virtually never been tried at all: linking bonds to oil prices instead of dollars, to protect against the risk of a price decline; choosing Product Price Targeting as an alternative to either inflation targeting or exchange-rate targeting, to play the role of anchor for monetary policy; and distributing oil revenues on a nationwide per capita basis, to ensure that they do not wind up in elites’ Swiss bank accounts.
Leaders have free will. Oil exporters need not be prisoners of a curse that has befallen others. Countries can choose to use their resource bonanzas for the long-term economic advancement of their peoples.
[This column originally appeared at Project Syndicate. Comments can be posted there.]