Excerpt from George Ayittey’s interview for the 2021 Cátedra Joseph Keckeissen. Interview by Carroll Rios de Rodríguez.

🇪🇸 Leer en español.

It is a huge honor to have you as our speaker.

Thank you very much for inviting me. I’m honored to be coming here to speak to you.

Let us start with a sort of a general question that unites our continents, because many countries in Africa share in common with Guatemala the fact that they have very large informal sectors of the economy. In addition, they still rely heavily on a traditional agrarian and rural based economy. Many of the poorest people in Africa and Guatemala live in rural areas or work in the informal sector. What is the relationship between informality and poverty? Are people poor because they are informal? Or is it the other way around?

Well, as you said, Africa and Latin America, and Guatemala in particular, share a lot of things in common. If you take the average economy on both continents, it can be characterized as having three sectors. There’s the rural sector, which is the home base of agrarian production, and then you have the formal sector. But the formal sector is concentrated around the urban areas. 

By the formal sector we mean where you go and buy, let’s say, any commodity: it might be bread, it might be milk, it might be sugar… But, you know, you get a receipt for purchasing it. The formal sector is also where you have all these labor laws, you are paid wages, you pay taxes, you have government subsidies and so forth. That is the modern sector. The modern sector is the abode of the elite, the educated, the teachers, the civil servants. It’s sort of concentrated around the urban areas, the cities and towns.

Now, the informal sector is the transitional sector between the rural and the modern sector. The informal sector, together with the rural sector, constitutes the way you can find the poor people. In Africa, for example, in Ghana and in South Africa, the informal sector is almost 80% of the total economy. In Nigeria it’s almost 90%.

The informal sector is very dynamic. This is where you find not only the poor people, but also de entrepreneurs. The markets, for example, are always bustling with economic activity and entrepreneurship. So those are the two sectors that we have in common in Africa.

Now here’s the problem: the poor people are there because after independence in Africa, the informal and the rural sectors were the two crucial sectors that were neglected. We didn’t develop them. In fact, if you want to lift the poor out of poverty, you go to the rural and informal sectors. But African leaders and elites never went there. In fact, they channeled much of the economic development resources in the sector where they lived. They channeled it into the modern sector. 

Take the Ivory Coast, for example. 70% of the resources was channeled into Abidjan and the capital, and the rural and informal sectors were neglected. You find this repeated in country after country after country in Africa. The informal sector lacks many things like electricity, education, sanitation, hospitals, healthcare, roads, and so forth. Because it was neglected, it didn’t have the basic infrastructure that you need, that entrepreneurs need, to grow up the class sector out of poverty.

Yes. My second question had to do with informality’s costs, and you started talking about this. Informality really poses very heavy costs on its participants, some of which remain hidden to them. The most important cost, I think, is that informal businesses do not enjoy juridical or legal protection of their property rights. Since many businesses do not complete the complex and rigorous red tape required by governments, they can’t get loans from commercial banks or purchase expensive equipment, so their investments are very precarious.

You were also talking about not having access to electricity and other services that are provided to the formal sector. So, how might economic freedom, how might freedom, help create an institutional framework that favors informal and rural workers?

Well, number one, I was kind of involved in a project in Burundi, where, to register a company, for example, you have to go through so many loops. In fact, not only in Burundi, but also in Egypt, you have to go through 38 government agencies just to get a permit to build a house, let alone a factory. So, I was working with an NGO in Burundi to get the parliament to come up with legislation which would make it a lot easier for young cheetahs (I call them Cheetah Generation) to be able to get permits to set up businesses. But the informal sector lacks capital and basic social amenities like electricity, clean water, roads by which you can ship your goods, for example. All of these things are lacking in the informal sector.

Nigeria is a very typical example. If you want to set up a business in Nigeria, in the informal sector, you have to provide your own electricity, your own water, your own security. You can’t rely upon the government. And the reason why the governments in Africa didn’t provide these basic amenities is because many of the elites wanted to develop their countries, but they wanted to develop them in the image of their former colonial countries. 

I mean, you cannot develop Lagos, for example, in the image of London. That’s what the Nigerian elites tried to do. In fact, they even started importing double decker buses into Lagos, which is totally ridiculous. They should’ve developed Africa according to Africa’s own image, but they didn’t. Many of them didn’t even like Lagos because it was filthy, so  they wanted to shutter them out of their sight and wanted to add full types of developments like in London.

I think that in Africa, as well as in Latin America, in the 1950s and 60s it became very popular to think that you had to industrialize, that industry was the key, and government started investing in industry. That also created, I think, the idea that governments have to do a lot to develop countries, and that they have a role to play in redistributing wealth and economic growth.

I think that socialism and socialist economic policies have been implemented in many countries in Africa. And the promise that socialists make is that they will end poverty by redistributing wealth, so it’s attractive. You have stated in the past that these systems really don’t help the poor. That, in fact, they hurt the poor. As a Ghanian and as an economist, why do you think that socialism does not work well?

Well, you know, there’s a little bit of a history behind socialism. After we gained our independence in the 1960s, our leaders sat down and said, “Okay, we have won our independence. Now what kind of model should we take to develop Africa?” And then they said capitalism was out of the question because the colonialists came—You know, what they did was they made what I call a syllogistic error. The colonialists said they were capitalists, and it meant that capitalism was evil and exploitative too. They didn’t want to have anything to do with capitalism, so many of them adopted socialism, the antithesis of capitalism. 

But then, the socialism that they practiced in Africa was a peculiar form of socialism which allowed the head of state and his cohorts to rip and plunder wealth and deposit it in Switzerland. So, many of us called them Swiss bank socialists because in the 1970s, almost all the rich people in Africa were African heads of state, and they adopted policies which helped them, not the poor people.

For example, Zimbabwe was one of those countries which turned to Marxism-Leninism, and it led to—As an economist, I would tell you that if you impose price controls, what you create are commodity shortages. Commodity shortages became rampant in Africa, and African leaders and governments discovered that the commodity shortages could be means by which they could enrich themselves through illicit black markets. So that was what happened with a lot of commodity shortages in Africa. In country after country, the socialist experiment was a disaster, a miserable fiasco. 

In fact, nearly all of those governments that implemented socialism—in Tanzania, Ghana, Ethiopia, Burundi, Benin—all of them had agriculture. The way it worked was this: the government dictated prices to farmers, and farmers had to sell their produce to governments. And the farmers decided that they weren’t going to sell their produce at government control prices. So, many of them cut back on production and the result was commodity shortages. 

In Ethiopia, the commodity shortages resulted in famine. In the 1980s, you may remember that, during that famine, rockstars came together to hold Live Aid to raise money. In fact, they raised more than 400 million dollars, but half of it was sort of diverted or stolen. I mean, it’s one of those sad stories about African development. 

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