Berhanu Abegaz

Escaping Ethiopia's poverty trap: the case for a second agrarian reform

Growth-friendly egalitarian distribution of land and smallholder farming notwithstanding, rural Ethiopia continues to face an ever-deepening livelihoods crisis. This paper synthesises the theoretical and empirical literature on Ethiopian and other comparable land institutions, in search of a coherent economic framework for pinpointing the roots of the problem and a menu for sensible policy options. It argues that land privatisation, as an integral part of a second agrarian reform, is necessary for attaining optimal farm sizes, thicker markets and robust industrialisation. A sordid history of political marginalisation of the peasantry makes freehold a superior alternative to more secure state leasehold. For a thoroughgoing agricultural transformation, however, sufficiency entails substantial increases in public investment that are designed to crowd-in private investment. Ethiopias market-led agricultural development strategy must focus on boosting sustainable growth while ensuring subsistence for all.

The diversified business group as an innovative organisational model for large state-enterprise reform in China and Vietnam

The diversified business group (DBG) is a ubiquitous institution in developing economies. It is a formal inter-firm network that typically involves financial institutions, distributors and manufacturers. Groupwise diversification is viewed by some as a novel form of organisational innovation by entrepreneurial tycoons while others see it as an instrument for rent seeking. Inspired by Korean chaebols but chastened by Russian financial-industrial groups, China and Vietnam are creating business groups out of State enterprises. After reviewing the theory and cross-country experience, this paper concludes that selective economic grouping can be an efficient transitional organisation. DBGs can facilitate government monitoring, exploitation of scale economies for scarce managerial talent, better risk management, and realisation of network and scope economies. Success in incubating national champions is, however, predicated on a high technocratic capability for restraining abuse of market power, nurturing competitive market institutions, properly sequencing large-scale privatisation, and crafting WTO-compatible industrial and technology policies.

Political Parties in Business: Rent Seekers, Developmentalists, or Both?

Ruling party-owned conglomerates (Parbus) are emerging in some post-conflict African economies following state capture by ethnic parties. We offer an analytical framework, buttressed by four country case studies of ‘developmental ethnocracies’ in Africa and Asia to identify when Parbus dominance can be redistributive wealth-seeking and when wealth-creating. Four regime characteristics underpin the prospects for wealth creation over rent-seeking: legitimation angst, organisational capacity, ideology, and degree of state centralisation. Three evolutionary paths (perhaps stages) suggest themselves: paragonist that is inclusive and growth friendly, parasitic engendering a poverty-tyranny trap and mutualist exemplified by a destabilising contest among party, state and private interests.

The Elusive Productivity Effect of Trade Liberalization in the Manufacturing Industries of Emerging Economies

Using a model that admits variable returns and imperfect competition, we investigate the impact on total factor productivity of trade liberalization in six emerging economies. Regressions based on panel data for twenty-eight three-digit manufacturing industries show that productivity growth is insensitive to tariff reduction. These results are at variance with country-specific studies that, using firm-level data, generally find a positive association between liberalization and productivity growth. While aggregation effects may matter, our results can also be explained as follows: significant productivity gains by latecomers via technological assimilation do take time and require appropriate sequencing of reforms of trade and industrial policies.

Structural Convergence in Manufacturing Industries between Leaders and Latecomers

This article uses cross-country panel data on three-digit manufacturing to test for progressive structural convergence in industrial output mix between industrialising and industrialised economies. Regressions based on Logistic and Almost-Ideal models show that industrial deepening entails share losses for light and selected heavy manufacturing, and share gains for engineering and consumer durables. While semi-industrial economies manage to shift into petrochemical and engineering industries, the least industrialised nurture a broad spectrum of non-traditional manufacturing. Diversity in factor endowments and policy notwithstanding, growing similarity in demand and technological diffusion appear to produce weak convergence of industrial structures between developing and developed countries.

Aid, accountability and institution building in Ethiopia: the self-limiting nature of technocratic aid

Forty billion dollars of ODA over the past two decades has reduced destitution in post-socialist and post-conflict Ethiopia. It has also boosted the technocratic capacity of exclusionary state institutions, while doubly enfeebling the fledgling private sector and independent political and civic organisations. This aid–institution paradox is a product of an alignment of donor–recipient strategic interests. The five major donors pursued geopolitical and poverty reduction objectives; and the narrowly based ruling elite sought total capture of the state, ownership of the development agenda and use of pro-poor growth to leverage large aid inflows and to seek domestic political legitimacy. By coupling poverty reduction with adequate space for inclusive market, civic and political engagement, a farsighted coalition of donors could have complemented capacity building with the promotion of state resilience. Scaled-up aid can still be delivered, as in Eastern Europe, conditional on meaningful mutual accountability and the rule of law.

The economics of surplus squeeze under peripheral socialism: An Ethiopian illustration

The article explores the question of appropriate development strategy for the so-called peripheral socialist countries using Ethiopia as an example. Based on the economics of surplus and the nature of industrialization in late-socializing countries, the Ethiopian regimes “surplus squeeze” strategy is critically examined. It is shown that such a strategy, whatever its short-term goals, is detrimental to the long-term generation of sizable economic surplus and the provisioning of basic needs. It is then argued that a viable alternative is the New Economic Policy (NEP) model of a mixed economy where the state, cooperative, and private sectors grow side by side for a while on the basis of labor accumulation. NEP will eventually have to be phased out as it exhausts its economic potential and threatens the goal of building a self-reliant, egalitarian society.

The Gondarine Tributary-Military State

This chapter provides a critical analysis of the suggestive but largely descriptive literature on Ethiopian agrarian history in search of an explanation for why war makes and then unmakes the tributary state. Using a theoretical framework developed in Chap. 1 for thinking about the dynamics of transition from a civilizational-state to a territorial state, we explore the self-limiting but functional rist and gult land institution of Ethiopia. This politico-economic institution and the hostile external climate together conspired against the metamorphosis of the Gondarine state (GS) into a territorially-defined tax state (Table 3.1 for a comparative summary). However, Gondar provided a template for a modern Ethiopian state which compares quite favorably with its Afroasian peers.

The Ethiopian Revolutionary State

This chapter explores how the twin forces of post-war globalization and the imperatives of modernization changed the terms of power play between Ethiopian state elites and non-state actors to produce radical institutional changes. The Revolutionary State (RS) upstaged the old order but failed in many important respects to devise enduring institution that resonate with societal norms and changing needs. One consequence of the changes in the material basis of the state is the hyper-centralization of the state and the other is the institutionalization of a mixed bag of inclusion and exclusion, both of which undermined many laudable gains in the project of nation-state building during 1855–1974 in exchange for largely symbolic victories.

Implications for Reforming the Postcolonial State

This chapter distills the central lessons from the positive analysis for the normative task of rebuilding a postcolonial state that is capable, legitimate, bound by the rule of law, and subject to accountability mechanisms that resonate with enduring African core values. There is much to preserve from the colonial and postcolonial legacies, but there is also much room for new ideas and institutions. One lesson is the need to ensure secure property (especially land) rights to families and corporate groups. Another is decentralized self-governance either in a unitary form or a federal form. A third is the anchoring of state revenues, the types of taxes collected from citizens as well as resource rent from the domestic economy, to cement the nexus between public financing and government accountability to citizens.