The revival of Africa's economic fortunes has ushered in a new mood of optimism. 'Africa Rising' has become shorthand for describing emerging trends. It is a hopeful mood that is driven mostly by reference to aggregate figures. The most critical question is not whether Africa will sustain its growth or not. It is whether it can avoid the trap of unequal growth that is so vividly described in Thomas Piketty's bestselling book: Capital in the 21st Century.
Drawing from a large body of evidence throughout the last century, Piketty returns his readers to the fundamentals of political economy. Piketty argues that the main driver of inequality is the tendency of returns on capital to exceed the rate of economic growth. He argues that the arising extreme inequality undermines the very democratic values that allow for a capitalist system to thrive. He calls for political action to help curb the excesses of capitalism.
Piketty's argument builds on data collected in industrialised countries. However, the implications of his argument are even more poignant for African economies whose growth is starting off from a base of inequality, discontent and general distrust of public institutions. It took the western world centuries of slow accumulation of capital and the manifestation of inequalities. Latecomer economies such as African countries may have to contend with these challenges much sooner that it took industrialised countries to manifest them.
There are at least two important implications of Piketty's work for Africa. First, the continent does not have the kinds of social institutions that can help to reduce the social, economic and political impacts of widening inequalities. European nations experimented with a wide range of social programmes aimed at addressing the challenge. They could do so partly because they could build new political institutions to address observable changes in society. Africa is likely to be faced with a grimmer outlook because institutional innovation is likely to be much slower than economic growth.
The second, and more positive implication of the work for Africa, is the possibility of building new institutions from scratch. Unlike Europe or the US, which have more entrenched political institutions, Africa has greater scope for political innovation. The forces of incumbency are not as dominant and as entrenched as in the industrialised countries.
Piketty offers a convincing diagnosis of the problem. However, he says the magnitude of the challenge is so significant that the state cannot simply perform redistributive functions.
Implementing the kinds of measures that Piketty recommends to address inequality requires a more activist state than what is envisaged in the book. For example, he acknowledges that "if the supply of skills does not increase at the same pace as the needs of technology, then groups whose training is not sufficiently advanced will earn less and will be relegated to devalued lines of work".
In fact, technological advances are making it even harder for social groups relying on cheap labour to actually exist. In Piketty's own words, "the educational system must increase its supply of new types of training and its output of skills at a sufficiently rapid pace." He notes: "If inequality is to decrease, the supply of new skills must increase even more rapidly, especially for the least well-educated."
To address the challenges, especially under conditions of uncertainty, governments would need to take on new roles that require them to manage change. In other words, they will need to be entrepreneurial in creating opportunities, especially for the less well-off.
The book provides a broad basis upon which to look at this in relation to the critical roles of the state. Nascent economies in Africa, however, will find little in the book beyond the importance of taxation. They will have to complement the analysis with additional insights from other sources on how to create entrepreneurial states that are more suited the demands of contemporary African economies.
Professor Calestous Juma is faculty chair of Innovation for Economic Development Programme at Harvard Kennedy School. Follow @calestous on Twitter.
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