The economic growth of Botswana after it gained independence from British colonial rule has genuinely been incredible. From its independence in 1960 to the year 2015, Botswana was the fastest growing country in the world.
It has grown from one the poorest countries in the world to one of the richest in Africa.
In their fantastic book, Why Nations Fail, Acemoglu and Robinson make the claim that the cause of the Botswana’s rapid economic growth was its institutions – specifically the institutions inherited before colonialism.
Institutions
In his definition, Douglass North describes institutions as “rules, enforcement characteristics of rules, and norms of behaviour” that shape repeated human interaction. It can be understood as norms that structure societies and constrain the state, both economic and political. Political institutions relate to how “society chooses the rules that govern it” such as taking part in the democratic process including electing and replacing elected officials. While economic institutions relate to economic incentives, including the choice of occupation, to “become educated, to save and invest, to innovate and adopt new technologies, and so on”. It is the political process that determines what economic institutions people live under, and it is the political institutions that determine how this process works.
Acemoglu and Robinson further divide institutions into two types, extractive and inclusive. Extractive political institutions concentrate power in the hands of a narrow elite and have few constraints on the exercise of this power. While inclusive political institutions distribute power broadly in society such as a large coalition of interests.
There are risks of political power being too broadly distributed. The example of Somalia is used as a state in which power is broadly distributed; however, Somalia is dysfunctional due to a lack of a central state. Thus, inclusive political institutions need to be both pluralistic and sufficiently centralized.
Inclusive economic institutions include “private property, an unbiased system of law, and a provision of public services that provides a level playing field in which individuals can exchange and contract”. These economic institutions encourage investment and incentivises individuals to increase or maintain their own productivity. To be inclusive, property rights and economic opportunities need to be for a broad cross section of society and not only for the elite.
While extractive economic institutions are designed to extract incomes and wealth from one group of society to benefit another group, usually the elite. Extractive political and economic institutions tend to reinforce each other and persist over time. Therefore, the elite often benefit from establishing and maintaining extractive institutions. In contrast, inclusive economic institutions make it more difficult for the elite to extract incomes; theft and corruption become more challenging when property rights are secure, and the “rule of law” is established. Meanwhile, inclusive political institutions — in which power is broadly distributed — would make it harder for extractive economic institutions to persist.
As mentioned by my post on Schumpeter, economic growth driven by innovation is a disruptive process which Schumpeter termed creative destruction. This process creates winners and losers that can overthrow the existing elite.
“Fear of creative destruction is often the root of the opposition to inclusive economic and political institutions (Why Nations Fail p.84)”
Thus, economic institutions that encourages creative destruction and innovation might redistribute income and power in such a way that a predatory dictator and others with political power may become worse off.
Sometimes economic growth can occur when extractive political and economic institutions are in place. Acemoglu and Robinson use the example of the economic growth of the Soviet Union which I’ve already written about:
This is possible when elites can directly allocate resources to high productivity activities that they themselves control. As shown with the Soviet Union, there are limits this intensive growth model. Eventually growth will require some sort of innovation and creative destruction, this is less likely to occur when institutions are extractive.
Botswana
In the many theories of economic growth, such as the role of human capital and geography, Botswana was not expected to have grown at all. Botswana is mostly subtropical and landlocked. At independence in 1968, there were supposedly only 22 people with secondary education and 100 with university education. While Botswana is rich in natural resources, for many countries this has been a curse rather than an asset.
The country did have the benefit of relatively pluralistic indigenous institutions such as the kgotla — an assembly of adult males in which issues of public interest were discussed. Despite being structured in a more tribal way, these assemblies allowed commoners to debate and criticise tribal leaders and is a vital part of inclusive political institutions. While land was collectively owned, cattle were privately owned, and the chief and other tribal leaders were large owners. These incentivises relatively inclusive economic institutions of property rights and accumulation of capital.
In their famous paper “The colonial origins of comparative development”, Acemoglu and Robinson use settler mortality as a proxy for present day institutions as it captures the level of European settlement in a colony. The idea is that the settlers would demand inclusive institutions for themselves, thus colonies with a large amount of European settlement would have relatively good institutions. While other colonies would have extractive institutions to extract as much wealth and income. Think of British colonialism in New Zealand or Canada compared to that of Nigeria or India.
The 19th century was a tumultuous time in Southern Africa, involving the movement of both Dutch settlers and the Mfecane — wars as result of the rising Zulu empire. These wars forced the various tribes in Botswana to cooperate to defeat a common enemy and laid the foundations for a centralized state — vital for inclusive institutions. This cooperation continued with the creation of the colony and protectorate of Bechuanaland which Tswana chiefs combined help to create. Part of the tribal land was incorporated into the Cape Colony and is now a part of South Africa. However, the protectorate of Bechuanaland was administered from Mafikeng in South Africa, hinting at relatively ‘light touch’ administration. Thus, Botswana avoided the extractive institutions that were set up in colonies with a low level of European settlement.
There was genuine opposition to this “light touch” colonialisation. Cecil John Rhodes who was the prime minister of the Cape Colony and controlled the extractive Rhodesia colony attempted to take full control of Botswana and control the land between Rhodesia and the Cape. However, the various tribes again cooperated to ensure the relative independence of the Botswana colony:
“In 1895 three Tswana chiefs, Khama III of the Bangwato, Batheon of the Bangwaketse, and Sebele of the Bakwena went to Britain to see Queen Victoria and pled with her for Britain and not Rhodes to control the Protectorate.”
Before full independence, Seretse Khama — a tribal chief — and others founded the Botswana Democratic Party (BDP) — a coalition of traditional chiefs, teachers, and civil servants. The BDP would win the first elections in 1965 and every single one after. Despite this dominance, every election had no clear electoral fraud and Botswana has had free media which has openly criticised the government. The BDP has also been responsive to a decline in support, such as the increased investment in rural infrastructure after the 1969 election.
The key to the success of the BDP has been the leadership of Khama and those that have followed him. Even though he was a traditional chief, Khama seems to have been intent on constructing a strong central state that would not be impeded by the powers of traditional rulers, with chiefs having no real power over legislation. The BDP has also slowly passed legislation that stripped the chiefs of their powers such as over the allocation of lands. Khama transferred rights of minerals away from chiefs to the national government. This was interesting as Khama was the chief of the tribe with the most mineral resources.
At independence Botswana’s economy was focused on cattle, and government investment was focused on improving infrastructure to support this sector. This was in line with the interests of BDP elites who tended to own large amounts of cattle and had a clear interest to ensure strong property rights and investments in infrastructure. These investments included:
“…heavily subsidized veterinary services, the distribution of vaccines and extension services and built over 5,000 km of cattle fences to maintain the health of the stock”.
Thus, Botswana had relatively inclusive political and economic institutions before large scale diamond production increased in the 1970s. Although diamonds have driven Botswana’s growth, these resources rents have been invested in infrastructure and human capital rather than squandered.
Acemoglu, Johnson and Robinson define the five key features of understanding Botswana economic performance:
Botswana is very rich in natural resource wealth.
It had unusual pre-colonial political institutions allowing commoners to make suggestions and criticize chiefs. The institutions therefore enabled an unusual degree of participation in the political process, and placed restrictions on the political power of the elites.
British colonial rule in Botswana was limited. This allowed the pre-colonial institutions to survive to the independence era.
Exploiting the comparative advantage of the nation after 1966 directly increased the incomes of the members of the elite.
The political leadership of the BDP, and particularly of Seretse Khama, inherited the legitimacy of these institutions, and this gave them a broad political base.
Overall, there probably wasn’t a single factor that drove Botswana’s rapid economic growth. Unlike most of the rest of Africa, it was fortunate to have post-independence leaders who chose the democratic path and focused on increasing the capacity of the state rather than on their own wealth. However, the institutional constraints helped to guide the leaders to this choice.