At the G-20 meeting, an Ivorian journalist asked President Macron about the Marshall Plan and if Europe would do the same for Africa. Macron gave a long-winded response, including some deservedly-mocked zingers about Africa’s “civilizational” problems and how women have 7-8 children (see my own response here). But buried in that there was an interesting point I’d like to expound on, about the difference between the Marshall Plan and current aid:
I don’t believe in this reasoning, forgive me for my directness. We among the West have been discussing such Marshall plans for Africa for many years and have in fact given many such plans already. So if it was so simple it would be fixed already. The Marshall plan was a reconstruction plan, a material plan in a region that already had its equilibriums, its borders and its stability.
Jane Jacobs said something similar, in either The Economy of Cities or Cities and the Wealth of Nations, I forget which. Her argument was as follows: postwar Europe lay in ruin, but the business culture, social networks, and so on were still there, so rebuilding infrastructure could restore prewar prosperity and seed future growth. Even with the disruption caused by the mass carnage, there were enough skilled workers who knew the local business culture for the economy to recover. Thus, per Jacobs, and per Macron, Marshall Plan-type programs for developing countries, which are poor rather than in ruins, have no chance of succeeding.
And yet. There are some complexities in the above description. The first is that postwar reconstruction in South Korea, which had never been a developed or even middle-income country at that point, was useful. Literacy rates rose rapidly, after WW2 and again after the Korean War, going from 22% in 1945 to about 71% in 1960. The schools were often built not by the Korean government but by the US or by Christian missionaries (Korea was the cause celebre at the time, and the origin of the trend of Americans adopting children from poor countries).
The second complication is that in post-conflict situations, there is a role for reconstruction aid. Libya was never a developed country, but it was richer before the civil war than it is today, and could have used reconstruction before the war resumed in 2014. Niger and Mali (two of the few countries that are so poor Macron’s epithet about 7-8 children per woman might apply) in particular have had recent conflicts, dragging down growth, especially in Niger.
The third is the subject of this post: infrastructure. In theory, this is a one-time investment, which can be done with an outside infusion of cash plus some tech transfer. This means, first-world consultants helping design rail networks, water infrastructure, roads, subways, and power plants, and on the way training local workers in how to do maintenance and how to design and engineer future expansion. Europe and the US practically never do that anymore, but Japan still does and China has started doing so as well; Kenya is building intercity rail with Chinese money, buying Chinese equipment. In theory, this is worthwhile investment, since the recipient countries have very weak currencies and high expected growth rates, which depresses current-dollar construction costs while maintaining decent future current-dollar profits.
And yet. There’s a number of subway projects in developing countries built with foreign financing and technical expertise, chiefly Japanese. I singled out two for their high construction costs, in Dhaka and to a lesser extent Jakarta. Dhaka is setting world records for elevated construction costs – higher in absolute terms than in the US, and unimaginably higher relative to local incomes. Jakarta’s costs have risen further since I last wrote the post, and currently stand at $1.7 billion, or $5.4 billion after PPP adjustment, a total of $350 million per km for a line that’s only 60% underground.
There is a dearth of indigenous expertise in how to build rail infrastructure in developing countries. Unfortunately, the first world cannot supply this expertise, because the first world’s expertise is in how to build rail infrastructure in rich countries. As I noted a month ago, rapid transit construction in the third world needs to take into account the difference in relative costs of labor and capital between rich and poor countries; in comments, Ian Mitchell suggested resuscitating the methods of the 1910s, when American incomes were about the same as in the more functional third-world countries today, like India and Nigeria. There is no real expertise in how to do that, and it is unlikely that international consultants, who expect to do most of their work in rich countries, will bother to learn.
After the initial construction phase of the Delhi Metro, the system worked on indigenizing itself – that is, on using more local capital rather than relying on foreign consultants. The cost reduction, as far as I can tell from links that are now dead, was 15% – substantial, but not a game changer. India remains one of the highest-cost countries in the world. It’s possible that it learned all the wrong lessons – as it developed local expertise, it figured out how to build rapid transit using the construction methods of the first world.
This is unlikely to have been an accident. Poor countries, and even middle-income ones, are full of cultural cringe, in which acting like the rich world is a positive status marker; ex-colonies frequently act this way toward their former colonizers. The political system within the countries in question encourages elites to show that they can be just like the Europeans or Americans or high-income Asians. Those elites are fervently nationalistic, but this often means showing the world that India can have what Britain and the US have. Thus there is an internal political bias toward solutions that do not work. Ironically, first-world consultants are the best-placed people to recommend using different construction techniques, suitable for low labor costs, but they are unlikely to suggest them, again since their expertise is in high-labor cost environments.
So having a Marshall Plan-style program in which rich countries build infrastructure in poor countries is a recipe for high construction costs. Can it at least result in good projects? The answer is, again, mixed, for two reasons.
The first reason is that it isn’t easy to realize profits from infrastructure investment in foreign countries. The poorest ones have a high risk of relapse into civil war. The next tier of countries – the Kenyas, the Bangladeshes, the Vietnams – are more stable, and in theory offer a good investment, with reduced risk of economic collapse. The problem is that as they get richer, they will necessarily be more nationalistic and more capable of asserting themselves. The same xenophobia that leads people in expensive British, American, and Canadian cities to scapegoat foreign investors, often Chinese, for high housing costs, applies just as well to poor countries. A richer Kenya is a Kenya that is more likely to find it offensive that it depends on China for its railroad network. If there is significant profit extraction from Kenya to China, then it’s because Kenya’s economy has grown, allowing it to threaten to impose capital controls or nationalize the railroad. This means that a strategy of spending money in a poor country now to make profits later as it gets richer has too much political risk, regardless of how much the country signals commitment to letting foreigners make a profit in it today.
The second reason is that the projects themselves may not be optimal. This is the same problem as the construction cost problem. International consultants are used to principles that are true in the cases they have the most experience in, which are usually in rich countries and occasionally in middle-income ones. I’ve had trouble drawing good fantasy maps in Israel, a borderline rich country, purely because its ethnic divisions are so different from those of any other rich country: in comments here and at Sandy Johnston’s place, Shlomo reminds us that the ultra-Orthodox use transit profoundly differently from everyone else. With my knowledge of European mores, I can confidently say that even in European countries I don’t know well, like Spain, this is at most an edge case. Can I say this of Nigeria? Maybe not. Can I say this of Niger? Lol.
This lack of local knowledge is compounded by the fact that, as with the construction cost problem, local elites want the appearance of a Western- or high-income-Asian-looking system. This does not mean they want to build subways, rail networks, modern sewage systems, household electrification, etc. just for show. On the contrary, in the better-functioning third-world countries even very corrupt leaders genuinely want their respective countries to be more successful. The problem is that they are unlikely to be experts on what a good subway, sewage, etc. system should look like, and base their ideas of what works on what they have seen work in the first world. Third-world adaptations are often creatively different, for example an NGO is installing elevated water pipes in Kibera, to avoid expensive underground engineering required to eliminate seepage, and to deter metal and water theft (Kibera is notorious for both).
There is no way around painstakingly developing local expertise in infrastructure construction and operations. It’s something that engineers in poor countries can learn from rich countries, but they would need a good understanding of first principles in order to adapt to local situations. It’s not something that a consultancy could trivially do.
So, is there room for a Marshall Plan? The poor countries in question could certainly use the money. The problem is that the sum total of what they need to invest in – physical infrastructure, schools, public health, legal institutions – stretches not just their tax capacity but also the generosity (some would say guilt) of any first-world country. What I think Lagos needs to spend on building a metro system is on the order of $200 billion in PPP terms; in exchange rate terms that’s $60 billion, compared with $90 billion in annual aid given by EU members, in total. Lagos needs more investment than just the subway, Nigeria is more than just Lagos, and the total population of countries poorer than Nigeria is more than a billion. Even counting foreign investments that the donor country intends to recoup but probably will not, this is not nearly enough. So what we’re discussing is not really a Marshall Plan equivalent in which the donors help rebuild infrastructure in the recipient countries, but usual foreign aid politics, in which (from the perspective of the recipients) foreign aid is one additional revenue stream with its own strings attached.