A Modest Proposal: Southern Africa and the World Bank

December 1, 1995 Topic: Global Governance

A Modest Proposal: Southern Africa and the World Bank

Mini Teaser: Given the dramatic turn-around South Africa has experienced in the last few years, it would be appropriate for the World Bank to choose the southern African development community as a privatization model.

by Author(s): Anthony Fleischer

Serendipity refers to unexpected benign coincidence, and the Summer 1995 issue of The National Interest exhibited it well. Taken together, remarks made by Nicholas Eberstadt and Clifford M. Lewis on one hand, and by Francis Fukuyama on the other, suggest a way to accelerate both economic development and regional political comity in southern Africa, to the benefit of all concerned.

In urging the privatization of the World Bank, under the new leadership of Mr. James D. Wolfensohn, Eberstadt and Lewis maintained that, "having outlived the problem it was designed to solve, this multinational institution has no defining purpose." They went on to argue that the World Bank should now abandon its "quasi-parasitic niche within the international financial community," and should instead "produce value-added services for its customers on behalf of its owners." This transition, they proposed, could be accomplished by an orderly and deliberate privatization of the World Bank and its subsidiary operations.

Some pages later, Mr. Fukuyama summarized the key element of his book, Trust: The Social Virtues and the Creation of Prosperity, this way: "We can think of neoclassical economics as being, say, 80 percent correct. . . . But there is a missing 20 percent of human behavior about which neoclassical economics can give only a poor account. As Adam Smith well understood, economic life is deeply embedded in social life, and it cannot be understood apart from the customs, morals, and habits of the society in which its occurs. In short, it cannot be divorced from culture. . . ."

People in traditional cultures will follow the dictates of tradition and act very differently from people in industrialized societies, but that is because traditional culture contains embedded rules of behavior that are rational for that culture [emphasis in original].

In short, Eberstadt and Lewis implore the World Bank to let market mechanisms take their natural, healthy course, while Fukuyama warns that, 20 percent of the time at least, that course might be neither natural nor healthy if the proper cultural preconditions are not present. Taken together they suggest an idea.

The "80 percent" of the neoclassical argument--the patterns of commercial conduct that generally govern economic activities--is still thoroughly valid for southern Africa. But rather little trust resides in such models in Africa today. This is because both the national and regional economies of Africa are the distorted results of foreign intervention and, in South Africa itself, the social and economic alienation caused by the terrible mistake of apartheid--as if economic growth theory applied to whites only. As to the region as a whole, throughout the apartheid years most of South Africa's neighbors tried to conduct their own development in a way that reduced dependence on such a host. The Southern African Development Coordinating Conference (SADCC), which had its genesis in Gaborone in May 1979 at the meeting of foreign ministers of the "Front Line States," purposefully excluded South Africa. Regional economic patterns are deeply distorted as a result.

Now, finally, the healing has begun, and Africa, led by the new South Africa, has an opportunity to raise itself up through its own efforts. Since the 1994 democratic election in South Africa, the Southern African Development Community (SADC) has arisen out of the old SADCC distortion. Now at least Botswana, Lesotho, Swaziland, Malawi, Mozambique, and South Africa can work together. In these countries, a specific economic mechanism that is already functional might well make a regional privatization of the World Bank particularly fruitful.

A new and privatized "World Bank of Southern Africa" could be successfully grafted on to an existing but relatively unknown institution called TEBA. Since 1908, the South African mining industry has depended on migrant labor from most of the SADC countries. A network of Native Recruiting Corporation (NRC) offices was maintained by the industry through which migrant workers passed from rural to mining areas, and through which deferred pay and remittances were returned to rural communities. In the 1930s the Xhosa--Nelson Mandela's people--called these offices Kwa TEBA, "The House of Taberer," after a Mr. Taberer who was then managing the recruiting effort.

In 1974 I was asked by the Chamber of Mines to reorganize the NRC. Looking for a way to utilize the familiar African word, I suggested the name "The Employment Bureau of Africa," hence retaining the acronym TEBA. By 1980, there were 135 TEBA Employment Bureau offices functioning throughout South Africa. An interest-bearing scheme, created at the same time as the introduction of the new name, flourished. The total amount distributed through this program during 1994 was 818 million South African RAND (about $227 million at today's exchange rate). A large proportion of this money was paid out to women and their families throughout the region.

Over the years, too, TEBA offices have possessed all the basic infrastructure services that any operating labor-management network required. Most essentially, it appointed local managers who were familiar with the needs of the communities they served, and who often spoke the language of that community. In some rare and admirable instances these managers became deeply familiar with the culture of their customers. Offices were built in remote areas, as were a few clinics to concentrate on primary health care. The offices were equipped with off-road vehicles, telephones, and, more recently, fax machines and computer links--in other words, a basic infrastructure framework so often absent in Africa. The industry even built roads and airfields in some remote places, and maintained several river ferries.

In short, the existing system has assets that could be developed and expanded. At present the Employment Bureau of Africa does little new recruiting, and the current level of remittances may not be large in global terms. But it is a vital factor in rural sustenance in many areas. The interest-bearing TEBA savings system now boasts 640,000 individual accounts, all held by black people. These same people, with estimated assets of about 8 billion RAND per year, might constitute the first customer list for a privatized World Bank offering much needed micro-loans for rural development.

The now outdated and diminished infrastructure (only 79 of 135 offices remain) could also readily be restructured, enlarged, and improved, and local people could be trained to World Bank standards. In short, a newly-created Enterprise Bank of Africa--call it, why not, TEBA--could in a sense merge with an existing if somewhat dilapidated system, giving an old term new meaning, and new uses as well.

This is where another of TEBA's assets comes into play, that of Fukuyama's 20 percent: TEBA is trusted. The anti-apartheid struggle brought most of South Africa's institutions under siege, and few are fully trusted today--not the police, not the courts, not the business community. But TEBA savings grew by 17 percent during a year (1994) in which the mining industry reduced strength by one hundred thousand workers. It is trusted because it works, and it works because it is trusted. Moreover, both the chairman of the Constitutional Assembly, Mr. Cyril Ramaphosa, and minister for home affairs, Mangosuthu Buthelezi, are on record as supporting the idea of converting the TEBA network into a broader development resource.

With such assets in mind, the Enterprise Bank of Africa could be structured to coordinate all development efforts in the region. Any such effort would need to give careful consideration to Fukuyama's irreducible "cultural" 20 percent, and would need social capital in place. And that is precisely the point of building on the old but still-respected TEBA foundation. It can provide the nucleus of a regional network of local offices, appropriately staffed to build up the trust of the people of the diverse cultures of the region, that will be a condition of success.

Moreover, as noted in passing above, we know something about the scale on which such an enterprise is most likely to be most effective: small-scale micro-loans. The now well-known Grameen Bank experience with micro-loans to women in Bangladesh suggests that many local income-producing activities could be encouraged by micro-loans to African women engaged in animal husbandry, basket-making, egg production, fish culture, home crafts, market gardens, weaving, and other commercially viable activities as well. Mr. Wolfensohn has already spoken about the regionalization of World Bank services, which implies an understanding of the importance of working on the scale appropriate to the challenge, if not yet an actual capacity to do so.

There is a great deal to be done on all sides. At present the flow of remittances arises only from the savings of mineworkers; the flow of cash to rural communities could be much improved by including industrial and all other workers in the scheme. The key to the potential success of a new TEBA is that, echoing Fukuyama's general observation, the system be trusted by its current users, most of whom set out from home in the first place to save some money in order to continue living in their own communities, and to perpetuate the values and integrity of their threatened cultures.

In many cases those cultures are threatened. Southern Africa offers as diverse a cultural canvas as any other underdeveloped region on earth; one cannot even use a single brush to describe the detail. Namibia's roughly two million citizens speak eleven languages; so do South Africa's forty million people, though not the same eleven languages. (More of the forty million South Africans use Zulu than any other one language.) One can use bold strokes for grand projects such as dams in the Lesotho Highlands, Cahora Bassa, Kariba, or even high-tension grids and rail links; but finer brushes, more sensitive to detail, are required if there is to be sustained development of the filigree of rural variety in the southern African region.

A privatized World Bank, whether it is called TEBA or something else, could be an effective agent of change if it were equipped to assess the real requirements of regional development based on cultural diversity, and then deliver benefits selectively. It is not a foregone conclusion, of course, that a privatized bank would be culturally sensitive. And success would require creativity as well as sensitivity. For example, in some instances a private bank might be wise to promote development in the reverse direction of old migrant routes. The network, once in such close touch with the local population for a different purpose, could become a conduit for sending development resources into needy communities. More generally, the prospects of success for a privatized World Bank would be directly related to its willingness to take advantage of existing institutions attuned to local conditions and able to take the cultural pulse of the people they are hoping to help.

Africa is open to genuine messages of enterprise, and expectations are building up fast under South Africa's own Reconstruction and Development Programme. A South African banker of renown, Dr. Conrad Strauss, created a commission to look into the financial needs of rural communities in South Africa itself. The initial report, just signed in December, deals with all of South Africa's development problems and assets, and recognizes the need to integrate the various existing institutions into a new program. While South Africa's Reconstruction and Development Programme cannot encompass the entire region, Dr. Strauss and others with direct experience could suggest ownership structures for privatization in the region as a whole, and help lead local efforts toward it. They could also help identify the many existing private enterprise projects deserving of further support.

The habit of testing new ideas and products according to a model chosen in advance is a well-tried and time-honored methodology in many walks of life. Given the dramatic turn-around that South Africa has experienced in the last few years, it would surely be appropriate for the World Bank under Mr. Wolfensohn's direction to choose the southern African development community as a privatization model, and from the outset to include local Africans in the prodigious task.

Essay Types: Essay