Rational asymmetric development, Piketty and poverty in Africa.

• Author: Asongu, Simplice A.
• Position: Report

1. Introduction

   "Output may be growing, and yet the mass of the people may be becoming poorer" (Lewis, 1955). "Lewis led all developing countries to water, proverbially speaking, some African countries have so far chosen not to drink" (Amavilah, 2014). While Piketty's (2014) celebrated 'capital in the 21st century' is consistent with Lewis, it has taken only developed countries to the stream. The present study aims to correct this shortcoming by extending the implications of Piketty's findings to African countries. The relevance of Africa is also motivated by a recent World Bank report on the Millennium Development Goals (MDGs) poverty target which has revealed that extreme poverty has been decreasing in all regions of the world with the exception of Africa (Caulderwood, 2015; World Bank, 2015), despite the continent enjoying more than two decades of growth resurgence that began in the mid 1990s (Fosu, 2015a, p. 44) (1). In what follows, we show why it is important to extend Piketty's celebrated literature because the growing evidence of inequality as a challenge to 21st century capitalism extends beyond the scope of developed countries (Brada & Bah, 2014).

   Irrational policies are increasingly driving exclusive development (Li et al., 2011, p. 109) due to 'immiserizing growth' (2) (Bhagwati, 1958). According to some accounts (Asongu & De Moor, 2015), the Top 1 percent have gained most, if not all, of the revenue accruing from the recent economic recovery (Covert, 2015). Since income inequality has substantially increased over the past decade Milanovic, (2011) and Oxfam (2015) sustain that the income of the Top 1 percent in the World could exceed that of the Bottom 99 percent by the year 2016. Consistent with Joseph Stiglitz: "There has been no improvement in wellbeing for the typical American family for 20 years. On the other side, the top one percent of the population gets 40 percent more in one week than the bottom fifth receive in a full year"(Nabi, 2013, p.10). Therefore, there is an imperative "Need to design the right economic policies to enhance inclusiveness specially in the developing countries" (Nabi, 2013, p. 13). Reducing exclusive development would require, inter alia, improving how finance drives growth (Freeman, 2010). A position that is broadly shared by the World Hunger (2010) which has concluded that the principal cause of poverty and hunger in the globe today is a mainstream economic system that has encouraged the minority to grab most of the global wealth, such that the bottom billion is abandoned just to survive.

   As far as we have searched, responses to the work of Piketty have included reviews and commentaries of a diverse nature. These entail: cross-checking of facts (Branko, 2014: Krusell & Smith, 2014), data quality (Reynolds, 2014), reviews (Homburg, 2014; Allen, 2014), theoretical foundations (Morgan, 2015), a need for a more general approach to the global inequality problem (Rogoff, 2014a; Stiglitz, 2014). Among the above responses, those of Rogoff and Stiglitz are the closest to the present line of inquiry.

   According to Rogoff (2014a), Piketty's approach to the inequality problem should not have been limited to developed countries. The narrative argues that it should also have incorporated developing (especially African) nations because the poor in developed countries may be considered super-rich in relative terms when perceived from less developed countries' point of view. Moreover, the notion that inequality should be grounded exclusively in capitalism has some fundamental shortcomings when issues like colonialism and slavery, among others, are considered. Accordingly, the externalities of colonialism have substantially contributed to global inequality (Frankema, 2006). Stiglitz (2014) has claimed that institutions like democracy matter more in '21st century inequality' than does to capitalism. According to his narrative, "If we get the rules of the game right, we might even be able to restore the rapid and shared economic growth that characterized the middle-class societies of the mid-twentieth century". Two elements boldly standout from the above narratives: the need to integrate less developed countries and the imperative to get institutions rights from Rogoff and Stiglitz respectively. These elements have led to a growing stream of post-Washington Consensus (WC) development models. Hence, before we consider how the two elements underpin this study, it is worthwhile to briefly highlight the post-WC models in order to enhance readability and clarity. Hence, in what follows, for the purpose of consistency, the discussed post-WC paradigms are centred on institutions and the middle class.

   A recent critical comment by Asongu and Kodila-Tedika (2014) on institutions and poverty clearly articulates the importance of the middle class and inequality in the post-WC development agenda. These include, Liberal Institutional Pluralism (LIP), New Structural Economics (NSE) and the Moyo Conjecture reconciling the WC with the Beijing Model (BM). In essence, China's outstanding economic development has led to a new stream of studies clearly articulating the middle class and institutions as prime factors in the post-WC development agenda. These include: debunking the myths surrounding Sino-African relations (Asongu & Aminkeng, 2013), convergence between the BM and WC in a new development paradigm (Asongu, 2014a, 2016; Asongu & Ssozi, 2015), greater need for self-reliance by African countries in charting their course to development (Fofack, 2014), the false economics of pre-conditions (Monga, 2014), development strategies based on a mixture of successful development models with the WC (Fosu, 2013a), the NSE (Lin & Monga, 2011; Norman & Stiglitz, 2012; Stiglitz et al., 2013ab; Stiglitz & Lin, 2013) advancing a synthesis between liberalism and structuralism, the LIP (3) based on quality and types of institutions in public service delivery (Acemoglu et al., 2005; Rodrik, 2008; Brett, 2009; 2014, pp. 5-9) and the Moyo Conjecture which has been partially confirmed in Africa (Asongu, 2014b) and a broad sample of developing counties (Lalountas et al., 2011) (4).

   As we shall substantiate in latter sections, it is important to articulate how post-WC models are linked to the extension of Piketty's findings to developing countries. For instance, while the Moyo conjecture emphasises that political rights should be prioritised because they mitigate inequality in the long-run (Moyo, 2013; Asongu, 2014a), Stiglitz (2014) in responding to Piketty, has sustained that democracy is the principal cause of inequality in the 21st century. A logical implication of this contradiction is that the issues at play may revolve beyond the underlying debates to more in-depth realities that limit both democracy and economic rights in developing countries, even in the presence of burgeoning economic growth.

   In light of the above, less developed countries, the middle class and institutions are necessary to extend the implications of Piketty in the context of post-WC development models. Therefore, building on responses from Rogoff (2014a) and Stiglitz (2014), we argue that the inequality problem between developed nations and African countries is at the centre of rational asymmetric development. Piketty has shown that inequality increases when the return on capital is higher than the growth rate. We argue that when the return on political economy (or capitalism-fuelled illicit capital flight) is higher than the growth rate in African countries, inequality in development increases. The intuition for the parallel analysis is fundamentally based on high levels of illicit capital flight from African countries, far outweighing economic growth rates (OECD, 2014) (5). Moreover, it is important to involve less developed countries in the inequality agenda because Piketty's literature has been celebrated on the prime basis that it has debunked the Kuznets' conjectures. But the conjectures of the latter were based on a comparison between developed and developing countries. Hence, the comparative scope of the present line of inquiry is granted and relevant to providing a more complete perspective of the implications of Piketty's study.

   To the best of our knowledge, the study in African development literature closest to the current line of inquiry is Fofack (2014, p. 13) which reviewed different ideas proposed for African development over the past decades and on a development path based on self-reliance. This study consolidates the view of more self-reliance by extending the conclusions of Piketty's celebrated literature to African countries. Hence, the present paper steers clear of past models of African development. These include, among others: the Lagos Plan of Action for Economic Development (LPA, 1980-2000); Africa's Priority for Economic Recovery (APPER, 1986-1990); the African Charter for Popular Participation for Development (1990); the African Alternative Framework to Structural Adjustment Programme for Socioeconomic Recovery and Transformation (AAFSAP, 1989) and the 2001 New Partnership for African Development: NEPAD (OAU, 1980, 2001; Adedeji, 2002; Bujra, 2004).

   The rest of the paper is organised as follows. Section 2 relates Piketty's work to post- WC models. In Section 3, we ask why Kuznets and developing countries are important elements in the 21st century inequality agenda. Underpinnings for 'rational asymmetric development' and 'the spirit of poverty' are discussed in Section 4. In Section 5, we extend the Piketty's conclusions by building on responses from Rogoff (2014a) and Stiglitz (2014) and underpinnings from Solow-Swan and Boyce-Fofack-Ndikumana. This section also discusses implications for an upward bias in the endogenous development and catch-up literature. Section 6 concludes.

2. Piketty and post-Washington Consensus (WC) models

   This section links Piketty's work to post-WC models. The discussion follows...