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Economic Impacts of Ghana's Political Settlement DIIS working paper DIIS workingDIIS WORKING PAPER 2011:28 paper Growth without Economic Transformation: Economic Impacts of Ghana’s Political Settlement Lindsay Whitfield DIIS Working Paper 2011:28 WORKING PAPER 1 DIIS WORKING PAPER 2011:28 LINDSAY WHITFIELD is Associate Professor in Global Studies at Roskilde University, Denmark e-mail: [email protected] ACKNOWLEDGEMENTS The author wishes to thank Adam Moe Fejerskov for research assistance, as well as the African Center for Economic Transformation for assistance in accessing data from the Bank of Ghana used in Figure 3 DIIS Working Papers make available DIIS researchers’ and DIIS project partners’ work in progress towards proper publishing. They may include important documentation which is not necessarily published elsewhere. DIIS Working Papers are published under the responsibility of the author alone. DIIS Working Papers should not be quoted without the express permission of the author. DIIS WORKING PAPER 2011:28 © The author and DIIS, Copenhagen 2011 Danish Institute for International Studies, DIIS Strandgade 56, DK-1401 Copenhagen, Denmark Ph: +45 32 69 87 87 Fax: +45 32 69 87 00 E-mail: [email protected] Web: www.diis.dk Cover Design: Carsten Schiøler Layout: Ellen-Marie Bentsen Printed in Denmark by Vesterkopi AS ISBN: 978-87-7605-477-9 Price: DKK 25.00 (VAT included) DIIS publications can be downloaded free of charge from www.diis.dk 2 DIIS WORKING PAPER 2011:28 DIIS WORKING PAPER SUB-SERIES ON ELITES, PRODUCTION AND POVERTY This working paper sub-series includes papers generated in relation to the research programme ‘Elites, Production and Poverty’. This collaborative research programme, launched in 2008, brings together research institutions and universities in Bangladesh, Denmark, Ghana, Mozambique, Tanzania and Uganda and is funded by the Danish Consultative Research Committee for Development Research. The Elites programme is coordinated by the Danish Institute for International Studies, Copenhagen, and runs until the end of 2011. More information about the research and access to publications can be found on the website www.diis.dk/EPP. Earlier papers in this subseries: Rweyemamu, Dennis: “Strategies for Growth and Poverty Reduction: Has Tanzania’s Second PRSP Influenced implementation?” DIIS Working Paper 2009:13. Kjaer, Anne Mette, and Fred Muhumuza: “The New Poverty Agenda in Uganda”, DIIS Work- ing Paper 2009:14. Whitfield, Lindsay: “The new ‘New Powerty Agenda’ in Ghana: what impact?”, DIIS Working Paper 2009:15. Webster, Neil, Zarina Rahman Khan, Abu Hossain Muhammad Ahsan, Akhter Hussain and Mahbubur Rahman: “State Elites and the New Poverty Agenda in Bangladesh”, DIIS Working Paper 2009:22. Buur, Lars, with Obede Suarte Baloi: “The Mozambican PRSP Initiative: Moorings, usage and future”, DIIS Working Paper 2009:35. Whitfield, Lindsay: “Developing Technological Capabilities in Agro-Industry: Ghana’s experi- ence with fresh pineapple exports in comparative perspective”, DIIS Working Paper 2010:28. Whitfield, Lindsay: “How countries become rich and reduce poverty: A review of heterodox explanations of economic development”, DIIS Working Paper 2011:13. Whitfield, Lindsay and Ole Therkildsen: “What Drives States to Support the Development of Productive Sectors?”, DIIS Working Paper 2011:15. Buur, Lars and Lindsay Whitfield: “Engaging in productive sector development: Comparisons between Mozambique and Ghana, DIIS Working Paper 2011:22. Lindsay Whitfield: “Competitive Clientelism, Easy Financing and Weak Capitalists: The Contemporary Political Settlement in Ghana”, DIIS Working Paper 2011:27. DIIS WORKING PAPER 2011:28 DIIS WORKING PAPER 2011:28 CONTENTS Abstract 6 1. Introduction 7 2. Growth without transformation: An overview 8 3. Economic reform under the PNDC Ruling Coalition 11 4. NDC Ruling Coalition and the (re)turn to Competitive Clientelism 16 4.1. Cyclical macroeconomic problems and short-term solutions 17 4.2. Continued focus on the mining and cocoa sectors 18 4.3. Failure to assert control over other productive sector policies 19 5. NPP Ruling Coalition facing Competitive Clientelism 23 5.1. Supporting domestic capitalists: Lots of talk but little action 25 5.2. The Holy Cow of Cocoa 29 5.3. Little effort to modernize agriculture and support agribusiness outside of cocoa 30 6. Conclusions 35 7. References 38 DIIS WORKING PAPER 2011:28 ABSTRACT Since the Fourth Republic was inaugurated in 1993, politics in Ghana has been increasingly char- acterized by competitive clientelism. Ruling coalitions are characterized by a high degree of vulner- ability in power due to a strong opposition party, by strong lower-level factions within the ruling coalition due to their importance in winning elections, and by a high degree of fragmentation among the ruling elite. These characteristics, combined with a weak domestic capitalist class and high inflows of foreign aid, have led the ruling elites across political parties to pursue and imple- ment policies that have a short time horizon, that do not significantly shift the allocation of resourc- es towards building productive sectors, and which are often plagued by problems of enforcement. The results have led to growth without economic transformation. In particular, the country has witnessed recurrent macroeconomic instability, a haphazard process of privatization of state-owned enterprises, and no serious attempt to build up productive sectors outside of cocoa and gold. DIIS WORKING PAPER 2011:28 1. INTRODUCTION and implement policies that have a short time horizon, that do not significantly shift the al- This paper is the second in a four part series location of resources towards building produc- examining why Ghanaian politicians, across tive sectors, and which are often plagued by different governments, talk about econom- problems of enforcement. ic transformation but seemingly do little to The results have led to growth without eco- achieve it. It provides detailed evidence to sup- nomic transformation. In particular, the coun- port the argument advanced in the first paper try has witnessed recurrent macroeconomic regarding how the characteristics of the ruling instability due to the use of ‘side payments’ to coalitions in Ghana affected economic policy- lower-level factions of the ruling coalition and making and implementation in particular, and to woo ‘swing voters’, as well as to rent-seeking the limited achievements in transforming the by high-level factions of the ruling coalition. economy in general (see Whitfield 2011a). The In both processes, resources generally were not paper gives an overview of the kinds of eco- put to productive uses or their productive im- nomic policies that the ruling elites pursued, or pact was minimal. Ruling elites presided over negotiated with donors, and their implemen- a haphazard process of privatization of state- tation under the three governments discussed owned enterprises, focusing more on bridg- in the first paper. These governments include ing fiscal deficits and financing their ruling the Provisional National Defence Council coalition and neglected the potential to use the (PNDC) under the leadership of J.J. Rawlings process to rehabilitate old or build new produc- from 1982 to 1992, the National Democratic tive sectors. Outside of cocoa and gold sectors, Congress (NDC) government under President the ruling elite across political parties did not J.J. Rawlings from 1993 to 2000, and the New seriously attempt to build up productive sec- Patriotic Party (NPP) government under Presi- tors, especially in terms of increasing agricul- dent J.A. Kufuor from 2001 to 2008. tural productivity or facilitating the creation In sum, after implementing major reforms of competitive industries in agro-processing or in the 1980s to halt economic decline and re- manufacturing. Gold and cocoa were already habilitate the traditionally dominant produc- economically important, and just supporting tive sectors of the economy (cocoa and gold), them allowed the ruling elite to sustain eco- the PNDC ruling coalition agreed to return to nomic growth, in combination with large for- multiparty democratic rule. The Fourth Re- eign aid inflows. public was inaugurated in January 1993. Since The paper begins by giving an overview of then, politics in Ghana has been increasingly the country’s economic performance during characterized by competitive clientelism. Rul- this period, showing that while Ghana expe- ing coalitions are characterized by a high de- rienced increasingly good growth rates, this gree of vulnerability in power due to a strong growth has been accompanied by little eco- opposition party, by strong lower-level factions nomic transformation. Economic outcomes within the ruling coalition due to their impor- are affected by many factors, but the policies tance in winning elections, and by a high de- and their implementation are a crucial one. gree of fragmentation among the ruling elite. The core of the paper is divided into the three These characteristics, combined with a weak sections corresponding to the three govern- domestic capitalist class which is not well net- ments. In each section, it describes the policies worked into the ruling coalitions, has led the and practices of the government, and explains ruling elites across political parties to pursue how the characteristics of the ruling coalition DIIS WORKING PAPER 2011:28 affected them and thus economic outcomes was created. Increased growth rates in the sec- and trends. It focuses on the three areas of ond half of the 2000s
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