Problems in Africa

As noted by Collier and Gunning (1998), Africa is poor in social capital. The barriers to social interactions are ethno linguistic and also lie in the inequalities of income distribution. Easterly and Levine (1997) find that fractionalisation is responsible for 35% of the African growth shortfall (the average African country is twice as fractionalized as other developing regions). In rural regions, Africa’s traditional society evolved around institutions identified as the village and the kin group which lowered the costs of moral hazard (an unwillingness to repay) and adverse selection (being stuck with bad payers who inflate costs for everyone)[1]. The proximity reduced information costs, the inter-generational debt payments served as insurance while the management of common resources was assured by easy observation of others preventing free riding. With colonization determined country borders and economic systems, ethnic diversity destroyed collective action as there was no more general trust. These ethnic or language differences also allowed for growing inequalities between ethnic groups since there was no flow of information. As remarked by Greif (1994), strong intra ethnic trust in an ethnically heterogeneous society lead to repeated transactions excluding new entrants thus leading to segmented markets. This reduced exchanges, gains form specialization and from economies of scale. The better-off ethnic groups control the government and create policies to suit only their needs and not those of the population. To put it more simply, ethnic divisions and inequality are sources of slower growth through their impacts on trust, social cohesion, economic policy making and even violent conflict.

As we noted before, reciprocal social interactions require good communications technology such as phones. Mobile phones in Africa are today seen as a magical device, their indirect effect in building social capital is one of the reasons why. The point is there is a lack of such technologies in Africa. This lack further isolates people previously isolated by language or distance. Another point we made was that governments and institutions or even a strong private sector could provide alternative mechanisms for coordination and knowledge transfers. These are not present in Africa, suggesting that civil social capital should be even more important there.

To illustrate these problems, see the general equilibrium growth model developed by Zac and Knack (1998). Their measure of social capital is trust. They show how a high trust society exhibits better economic performance and how a sufficient amount of trust may be crucial to successful development. Douglas North[2] (1990) thought that “the inability of societies to develop effective, low cost enforcement of contracts is the most important source of both historical stagnation and contemporary underdevelopment in the Third World”. Such a low trust poverty trap exists in Africa because savings are insufficient to sustain positive output growth. Moreover, such a poverty trap will be more likely when institutions which punish cheaters are weak and when trust is very low, as in the African heterogeneous society.

[1] These parenthesis definitions are taken form The Economist print edition, November 5th 2005
[2] Quoted in Zac and Knack (1998)