At last some serious scholarly attention is being paid to the role China is playing in the economies of Africa, getting past the cliches and myths. The Dragon's Gift: The real story of China in Africa by Deborah Brautigam is a detailed, thorough assessment of China's engagement around the continent and the impact of its investments and aid. It should be essential reading for anybody in the western aid community as well as other academics.

One of the key insights is that China's policies draw on their own recent experience as a recipient of aid and as a developing country. Chinese policymakers believe that their relationships with African governments can bring mutual benefits, an exchange of economic progress for natural resources, because that has been China's path. Their own economy has moved along a track from shipping coal and minerals abroad to basic manufacturing to higher value activities. With China's help and investment, they believe African economies can follow the same path. This is one reason so much of China's investment involves infrastructure projects. As a result, they see aid as a small part of a menu of means of engagement, extending through concessional loans to direct investment. All of these are aligned to the same mutually beneficial end. China's engagement in Africa is a strategic one, not an opportunistic resource-grab – at least in intention it is not remotely like the western colonial engagement with Africa.

Another lesson for me was the duration of China's relationships. It has been an aid donor and investor on a large scale since the 1970s. It's just that many of us have only noticed China in Africa recently. Between 1967 and 1976, aid accounted for 5% of Chinese government expenditure (although a large proportion of this went to Vietnam). (p41) But as long ago as 1984 China was the 8th largest donor in Sub-Saharan Africa, according to the OECD's DAC. (p54)

In addition to emphasising infrastructure, China has a heritage philosophy of non-interference in the internal affairs of other countries and – perhaps notoriously – is therefore less likely to impose conditions on its projects. Brautigam explains exceptions to this as linked to individual African countries' attitudes to Taiwan. She also points out that China is clear African economies need to industrialise to develop – whereas “an increase in manufacturing is not part of the Millennium Development Goals.” (p191) I think the Chinese are right; for all the negative aspects of early-stage industrialisation, African countries need to go through it.

The question is whether Chinese investment can help create a self-sustaining industrial base in Africa. There are many examples where Chinese investors have found, just like their western counterparts, that factories and facilities left to Africans to run founder in corruption and ineptitude. The book gives many examples of projects where the Chinese have built the plant, trained the managers, left it to run – and had to return later to rescue it with Chinese supervisors once again. The next few years will reveal whether that is changing in any African countries – the outlook seems variable.

The Dragon's Gift is a sign that received western wisdom about China's role – that it's merely cynical and exploitative – is being challenged. Peter Gill's Famine and Foreigners also took a more informed and nuanced perspective on China in Africa. Brautigam cites a debate on the Zambian Economist blog about a 2008 Newsnight report that raised the same question. I haven't yet watched the recent BBC documentary, The Chinese are Coming, on the same subject. However,  The Dragon's Gift is by far the most thorough look at this subject so far. Parts of it are very detailed but the author flags them up for readers. Highly recommended for anyone interested in this subject.

Friday morning brought my first speaking engagement on my new book, The Economics of Enough, at the Institute for Public Policy Research. Ann Pettifor of the New Economics Foundation had been invited to comment on my book before we opened up for the general discussion, and she was as thought-provoking and full of insight as ever.

At one point, Ann noted that this year is the 75th anniversary of the publication of The General Theory, and – as a firm Keynesian – bemoaned the lack of attention being paid to this milestone (although I blogged about it recently). However, she went on to say that one of Keynes's writings she most admires is a less well known essay, National Self Sufficiency. As an environmental and development campaigner, Ann argued that developing countries need to focus more on growing and processing food for their own consumption, at a time when agricultural commodity prices are rocketing, and less on shipping cash crops (often by air) to western markets. Britain should be growing its own green beans, and Kenya growing staples its own people can eat.

I haven't read the 1933 essay for years, possibly decades, although I know it was popular with the anti-globalisation crowd in the 1990s, so turned back to it. Keynes writes that he – like all economists – sees the case for free trade as a moral as well as logical truth. But he adds:

“Looking again to-day at the statements of these fundamental truths
which
I then gave, I do not find myself disputing them. Yet the orientation
of my
mind is changed; and I share this change of mind with many others.”

And the famous passage is:

“But let goods be homespun whenever it is reasonably and conveniently
possible,
and, above all, let finance be primarily national.”

No wonder these words strike a chord again. But the thrust of the essay is to argue that policies need to be right for their times. Free trade was important to improve living standards for workers in the mid-nineteenth century and – Keynes argued – less international entanglement appropriate for the fraught 1930s. At the time he wrote, Keynes did not foresee the scope for further international specialisation that would come about because of information and communication technologies, and he did not foresee the growth of trade in services. It's a magnificent essay and I agree with much of his argument – for example:

“We destroy the beauty of the countryside because the unappropriated
splendours of nature have no economic value. We are capable of shutting
off the
sun and the stars because they do not pay a dividend.”

The conclusion I draw is that the problems of our own times demand their own solutions. Let us make sure we do price the splendours of nature, and let a minimum carbon price make shipping green beans by air freight too expensive. Let the US regulators ban the inclusion of staple foods in heavily-traded commodity indices so rich American investors are not causing starvation as crop prices soar. But nobody else should tell Kenyans they can't engage in trade.

Just in case UK readers of this blog have failed to notice, my new book The Economics of Enough is now available. Amazon and other websites are selling it – I think it will be a day or two before it gets to the real world stores. I'm doing my first talk about it today and will post the podcast link when available. US readers have to wait until next week, it seems.

A guest review of Exorbitant
Privilege: the rise and fall of the dollar, by Barry Eichengreen

Philip Thornton, Clarity Economics

From a
standing start in 1914, the US dollar overtook sterling as an international
currency within the space of less than a decade. When sterling finally fell off
its pedestal as the world’s reserve currency in the wake of the Suez crisis, it
was America that gave it the final shove.

Could
history be about to repeat itself? The dollar is going through a crisis of
confidence, weighed down by historically high deficits. Since its entry into
WTO in 2001, China has leapt to become the world’s second-largest economy. Meanwhile
the Chinese authorities have publicly raised the idea of alternatives to the
dollar and taken preliminary steps towards making the renminbi a more
international currency.

Anything is
possible and, as Barry Eichengreen points out, if history is any guide then a
collapse of the dollar would develop not gradually but abruptly. History
plays a significant role in this short but detailed and fast-moving analysis of
the rise of the greenback as an international currency. Readers eager for
Eichengreen’s forecast of how the tensions between China and the US over
currencies will pan out need to wait 150 pages for that action to begin.

Their
patience is rewarded, as Exorbitant Privilege is almost five books in
one. A history of the dawn of the dollar provides a long historical context;
the post-war battle of supremacy takes us to Bretton Woods; then the creation
of the euro; the 2008/09 financial crisis; and finally the denouement of the
dollar. Eichengreen,
a professor of economics and political science at the University of California,
Berkeley, mixes those two disciplines effortlessly to show how it is long term
shifts in economic and political power that determine the fate of currencies. Thus it
took a quarter of a century and a devastating world war before sterling’s
demise as a global reserve currency was clear. Incumbency gives currencies
significant advantages, as the author frequently points out.

The dollar
has had a remarkable run as sole reserve currency over the last half century.
This enabled the US to run deficits “without tears” as French economist Jacques
Rueff put it, by printing money and requiring its trading partners to buy its
currency in order to transact.

This is
what Valery Giscard d’Estaing, then France’s finance minister, bitterly
described as the dollar’s “exorbitant privilege”, the elegant phrase that gives
the book its title.

But despite
the sub-title of the book, Eichengreen does not believe that history will
repeat itself in the way that sterling really did experience a rise and fall. The author
carefully points out the weakness in what he described as ”sensationalist”
reporting of the dollar’s imminent decline. The first is that unlike the 1950s
when the US held relatively few pounds, the Chinese hold some $2 trillion in
their reserves. A decision
to engineer a crash in the dollar would leave Beijing nursing staggering paper
losses on its holdings. Secondly China’s export-driven economy depends on US
consumers continuing to “buy Chinese”. Massive dollar depreciation would send
import prices sky high and trigger painful retrenchment among Chinese
companies. Third,
other countries – users of the euro in particular – would suffer too as their
currencies appreciated and would be more than willing to work with the Federal
Reserve to stabilise the dollar. Finally
China would have to allow the renminbi to fluctuate within the liquid and open
financial markets that Beijing has to date resisted while it seeks to engineer
high levels of export-driven economic growth to fund its infrastructure needs.

For
Eichengreen, the threat to the dollar comes not from the Chinese but from
America itself, and particular “eye popping” US deficits. He blames the
ballooning of the deficit during the good times of the Bush era, the cost of
tackling the financial crisis and the ticking time-bomb as the baby boomers
reach retirement. He pins his
hopes on a bipartisan initiative by Congress to rebalance the nation’s finances
but is not optimistic, a view supported by the recent failure of the National
Commission on Fiscal responsibility to strike a deal. The best
outcome would be a gentle decline in the dollar combined with tough action to
reduce the fiscal deficit while investing in infrastructure to help deliver a more
balanced economic recovery based on high-skilled industrial activity.

The point
is that whatever action is taken – Eichengreen suggests tax reform, caps on
bankers’ bonuses and investment – the dollar’s fate still rests with America,
something he sees as “good news”.

While the
Sino-American aspect of the book will grab headlines in the US, European
readers should not skip over the sections on the euro. In fact the
book is as much about the euro and the dollar. The dollar’s turmoils could have
opened the way for the single currency but political compromises towards
national sovereignty that prevented fiscal union and a genuine eurobond market
hampered the euro’s emergence as a truly global currency. As Eichengreen
puts it, the euro is a “currency with no state” while the renminbi is a
“currency with too much state”. The lack of rivals means that reports of the
dollar’s demise as an international currency appear to be greatly exaggerated.

Here's a new book for aid practitioners and policy makers  – the pdf version is available for free download. Impact Evaluation in Practice is by Paul Gertler, an affiliate of the Abdul Latif Jameel Poverty Action Lab, J-PAL, and co-authors Sebastian Martinez, Patrick Premand, Laura Rawlings and Christel Vermeersch.

It's published by the World Bank, and “presents a non-technical overview of how to design and use impact evaluation to build more effective programs to alleviate poverty and improve people’s lives. The goal is to further the ability of policymakers and practitioners to use impact evaluations to help make policy decisions based on evidence of what works the most effectively.”

The book comes with training videos and power points. Sounds a terrific resource for people in the aid business. Effectiveness is a key aid issue – see Owen Barder's recent blog post on this point. As he says: “Most people don’t need to be convinced that development is
desirable; they need to be convinced that aid works.”