The economics of exploitation, Part II: counterfactual history and the importance of strong institutions

“Europe is responsible before the human community for the highest heap of corpses in human history”

-Aimé Césaire, 1955

This is the second part of my series on the economic processes of slavery and colonialism. In the first part available here, I explored how the internal logic of European capitalist imperialist societies dictated the creation of systems of worldwide exploitation, namely the trans-Atlantic slave trade and 20th century colonialism as well as their gradual abolition. In this second part, we will explore a field of economic history called counterfactual history with the goal of evaluating what could have been formerly exploited societies if they had been left on their own. This will allow us to evaluate the damages caused by centuries of ruthless exploitation and highlight the role that strong institutions play in economic development and political stability.

The notion of underdevelopment

According to the UN, countries are classified in three categories: (i) developed economies (ii) economies in transition (iii) developing economies on the basis of income. The opposition of the terms “developed” versus “developing” tells something interesting about what is predicted to happen: “developing” countries will follow a path that will lead them closer to the economic state of “developed” countries. This purely economic view on development is however incomplete, as I demonstrate when I explore the relationship between GDP and well-being in another article. According to 1998 Nobel prize in Economics winner Amaryta Sen, development is not only the growth in per capita income, but a “removal of various types of unfreedoms that leave people with little choice and little opportunity of exercising their reasoned agency. The removal of substantial unfreedoms, it is argued here, is constitutive of development”. Development is thus not defined as income growth but as improvement in the various types of freedom that enables the type of life one has reason to value.

In his book “How Europe Underdeveloped Africa”, Walter Rodney seeks to redefine the notion of “developing countries” by renaming them “underdeveloped countries”. Rodney argues that underdevelopment is not the absence of development, but rather makes sense as a mean of direct comparison of the different levels of development between countries. That relationship of domination of one country by another will, according to Rodney, necessarily lead to the exploitation of the weaker country by the hand of the stronger. That exploitation has throughout history taken different forms such as slavery, but now takes a form similar to that of colonialism, namely when private entities located in richer countries take possession of the means of the resources and means of production in an underdeveloped country. We have seen in the previous part how the net foreign assets of France and the UK reached record levels during the colonial period due to a sophisticated legal system that facilitated the extraction of economic surplus. Although such levels of foreign assets are not observed anymore, the mechanism stays the same, as illustrated by the Belt and Road Chinese program of African investment.

Whenever differences in development arises, it is natural that some entity will try to highlight the causes of that difference, which will be on a basic level inferred by looking within the country. For example, one would argue that a country is underdeveloped because it lacks skilled workers, infrastructure and strong institutions. But that enquiry is limited precisely due to the fact that it considers a country in isolation and does not consider the country’s past and present interactions with the outside world. According to the author, one has to explore the interactions of an undeveloped country with the rest of the world in order to understand its state of backwardness;

The true explanation lies in seeking out the relationship between Africa and certain developed countries.”

In his analysis, Rodney will highlight two major causes of underdevelopment:

  1. The wealth created by African labor and from African resources was grabbed by capitalist countries of Europe.

As we have seen in the previous part, European colonial societies exported the economic surplus of the African continent in Europe, which widens the development gap in two ways; firstly, the African continent was robbed of their development opportunities and secondly, these development opportunities were transferred to European economies. As Rodney states: “What Africa experienced in the early centuries of trade was precisely a loss of development opportunity, and that is of the greatest importance.” In that sense, “Africa helped to develop Western Europe in the same proportion as Western Europe helped underdevelop Africa.

  1. Restrictions were placed upon African capacity to make the maximum use of its economic potential.

These restrictions have been enforced by European since the early 16th century but have been the most obvious during the colonial period. By barring access to education of all type to most Africans, whether it was the ability to write, read, learn sciences or learn a trade, European colons limited Africans to only the most basic types of labor, mainly working in fields of crops or in mines. This inability to transition to a more industrial economy (as European economies had done a long time ago) hindered the development of the African continent as a whole and allowed the continuation of colonial exploitation by widening the imbalance of forces between the two sides.

Counterfactual history and the importance of strong institutions

Counterfactual history seeks to answer the question “what if [that] never happened?”, with the objective to understand the impact of an event, which will allow us to better understand it and enrich us with new knowledge. It has also allowed various medias such as cinema, literature of video games to explore alternative realities, with the goal of either making us think or entertaining us. More recently, the study of various what-ifs has resurged in politics; during the 2020 US presidential race, several candidates called for reparations to American citizens of slave descent. The case, while heavily controversial, is not new; Germany has paid retributions to victims of Nazi persecution during the second World War and is still paying to this day. In the case of Germany, it is fairly straightforward to estimate the required amount because the events are relatively recent and have been precisely documented. In the case of the US or the African continent (and any other country victim of slavery and colonialism), the question gets more complicated; it requires considering the dynamics of human interactions (such as trade, wars, political alliances and rivalries, etc.) on a planetary scale over centuries with sometimes very limited data.

It comes as no surprise that the African continent and by extension, any victim of exploitation, has ended up worse off that if they had been left alone. The claims that European societies have brought “civilization” or “progress” to exploited countries display at best ignorance and at worst racism, as Rodney says: “Colonialism had only one hand – it was a one-armed bandit.

In order to explain how the continent has been left worse off, we have to examine several channels:

  1. The hindering human capital development.

The notion of human capital primarily revolves around the value that human beings bring to society, mainly their capacity to work which can be enhanced through education. In any society, having more individuals capable of working should bring more capacity to produce and grow, admittedly up to a congestion point. Assuming that the society in question has not gone over the congestion point, removing individuals from that community will hinder its growth potential, which is exactly what happened in our case. According to estimations by Nathan Nunn, approximately 12 million African were shipped away from the continent during the trans-Atlantic slave trade, to which we have to add the non-negligible number of people who died during the voyage or those who perished in raids or conflicts provoked by European merchants. Because of this heavy number of casualties, it is estimated that by 1850, the African population was only half what it could have been if the continent had been left alone.

Side-by-side comparison of the evolution of World population, 1650-1900 (index 100 = 1650 Africa)

More precise estimations allow us to more precisely reconstruct how slave traders affected populations on the west African coasts; namely that slave traders were the most densely populated regions, which were also the most developed.

Map of the number of slaves exported during the trans-Atlantic slave trade

By crossing data on the number of slaves exported with their ethnicities and combining this with present data on per capita income in different regions, we are able to establish a causal link between the number of slaves captured in the past and long-term economic development of entire regions. Unsurprisingly, we find that regions from which more slaves were captured now have worse economic outcomes.

Relationship between slave exports (1514-1866) and per capita income in 2000

Human capital development was also slowed down during the colonial period by barring Africans the access to education. European colons understood that giving colonized populations some form of education or training them to become skilled laborers would be equivalent to giving them the key to emancipation. Education was thus reserved mostly to the white elite and to a few select Africans, supervised by Christian missionaries. As a response, Africans set up their own schools funded by the meager savings they gathered from their extremely low pay, which Rodney mentions: “The educational crumbs dropped were so small that individuals scrambled for them. They saved incredibly from small earnings and sent their children to school.” We saw in the previous part how European metropoles attempted to reform their colonies in an attempt to tone down the colonies’ desire for independence (attempts that were in the most part no more than symbolic) by reforming their representative structures in the case of France but also by giving a broader access to education to the population. What ended up happening in the next two decades was foreseen (and feared) by many in the European elite, namely that giving people access to education is equivalent to giving them the weapons needed to declare their independence. Restraining access to education went from being a necessity in order to keep control of the colonies to being too dangerous for public order, colonizing powers had no choice but to give up on that idea, which ultimately gave Africans the tools needed to regain their well-deserved freedom.

  1. The arbitrary drawing of new borders over pre-existing ones.

“Europe’s new colonial territories enclosed hundreds of diverse and independent groups, with no common history, culture, language or religion. […] Kingdoms that had been historically antagonistic to one another were linked into the same colony.

  • Martin Meredith, 2011

Take a look at any map of 16th century Europe and you will quickly realize that past borders have little in common with those of the 21st century.

Europe: 16th and 21st century borders, side-by-side

Repeating the exercise with the African continent would be difficult given the very fragmented political structure of the continent and the lack of reliable sources to draw precise border, but by taking a look at 21st century African borders, we notice a stark difference: a significant proportion of the borders are not natural.

21st century African borders

Indeed, during the Scramble for Africa (1860-1905) where European powers carved portions of the continent for one another, borders were drawn with a ruler without any knowledge of what the actual geography or the ethnic composition of the region looked like. This carving-up phenomenon is well summarized by former British Prime minister Lord Salisbury:

“We have engaged in drawing lines upon maps where no white man’s feet have ever trod. We have been giving away mountains and rivers and lakes to each other, only hindered by the small impediment that we never knew exactly where the mountains and rivers and lakes were.”

We have already explored how the stirring of ethnic conflicts was used to acquire slaves during the trans-Atlantic period, but the arbitrary drawing of borders enclosed different ethnicities hostile towards one another together and separated pre-existing groups, which had devastating effects and often resulted in conflicts or political discrimination. In addition, this arbitrary carving-up of the continent created many land-locked countries which limits access to maritime trade routes as well as countries of irregular shapes or sizes, which “limits the reach of a state beyond its capital, and thus weaken the enforcement of laws, which, in turn, impedes development.

In a 2015 study, Greek economists Stelios Michalopoulos and Elias Papaioannou illustrate that in countries in which ethnicities have been partitioned, we observe a higher occurrence of ethnic conflicts and higher instances of political discrimination. This tendency to resort to violence or discrimination has obviously devastating consequences for the survival and well-being of any inhabitant of such countries, mainly for those part of minorities.

  1. The implementation of extractive institutions.

From the colonial era, the major legacy Europe left to Africa was not democracy as it is practiced today in countries like England, France, and Belgium; it was authoritarian rule and plunder.”

  • Adam Hochschild, King Leopold’s ghost

The term “extractive institutions” is here used in opposition to the term “inclusive institutions”, both are borrowed from Daron Acemoğlu and James Robinson’s book “Why Nations Fail”. In it, they explore the reasons for the success or failure of some countries or societies, such as explaining why North and South Korea have taken such drastically different paths. According to them, the main factor of success in the development of a society is its institutions. The Extractive type of societies are characterized by a high concentration of power at the top and serve the interest of the few. In contrast, the Inclusive type have more broadly distributed political powers and serve the interest of the public. Inclusive societies are more successful because they are able to apply the rule of law to everyone equally (primarily the protection of private property) and create the correct incentives to foster economic development and political stability. For real-life examples, think of modern European democracies as inclusive and the United States or China as extractive.

In other studies, Acemoğlu and Robinson attempt to understand why colonial powers implemented different institutions. By comparing two colonial societies, pre-independence USA and Africa, the authors demonstrate that the presence of a local population incentivized the Europeans to implement extractive institutions in order to exploit the pre-existing means of production. In various African countries, the population was high enough to supply sufficient labor and be exploited, while the indigenous population had been wiped in the now-US, which incentivized colons to implement inclusive institutions in order to attract labor from Europe. The effects of colonialism on the African continent were however not homogeneous; in regions where the mortality rate of colons was high, extractive institutions were more likely to be put in place since the Europeans had a harder time settling there permanently. These same institutions have persisted to this day and are responsible for 33% of income inequality in the world today.

The most extreme case of such exploitative institutions is that of the Congo Free State (CFS) later renamed the Belgian Congo, then Zaire and now known as the Democratic Republic of the Congo (DRC). Most former colonies (African or otherwise) usually belonged and were attached to entire countries, but the CFS differed from that: the country as a whole was, from 1885 to 1908 the personal property of King Leopold II of Belgium.

Starting in 1892, Leopold granted permits to private companies to extract rubber from the country, with the support of the local police and private militias. The atrocities perpetrated during this time period are now seen as the worst human rights violations ever recorded in history. By undermining village chiefs with violence and replacing them, militias seized control of rubber-rich regions and reduced the local population to labor coercion. It is estimated that about 10 million Congolese died during this period, or half the population at that time.

The effects of this coercion are still observable today: in their 2018 study, Lowes and al. illustrate that individuals who live today in villages hit by labour coercion where local authorities have been replaced are less educated, own less wealth and have worse health indicators compared to villages not hit by labour coercion. A 14 years period that happened more than a hundred years ago is still relevant in our understanding of the heterogeneity of outcomes for the Congolese population.

Final remarks

These three explanatory channels have likely reinforced each other; the drawing of arbitrary borders that fueled ethnic conflicts put a further strain on African population growth for example, so considering them in isolation does not explain the whole story.

More ambitious economists have attempted to put precise number on the effects of African exploitation, such as Nathan Nunn, who estimates that the slave trade accounts for 72% of the gap in average income between the continent and the rest of the world and virtually the entirety of the gap between Africa and other developing countries. While these numbers are the best possible estimates we can provide, they might not be accurate. But what is important here is not the exact numbers, but their order of magnitude, they are the important take-away of this investigation. They might seem exaggeratedly large, but we have to understand that the slave and colonial era coincided with times during which modern societies grew the fastest, something that Rodney accurately points out:

The colonization of Africa lasted for just over seventy years in most parts of the continent. That is an extremely short period within the context of universal historical development. Yet, it was precisely in those years that, in other parts of the world, the rate of change was greater than ever before.

While worldwide systems of exploitation such as those observed in this series do not exist anymore, their effects are still observable. Investigating them is of primary importance if our objective as a specie is to progress together in harmony; it raises difficult questions of responsibility towards one another, justice and retribution.

This conclude the second and final part of my series; I hope you enjoyed it. I’ve learnt a lot during the research phase and still have a lot more to learn. I’d like to conclude this series with a final (excessively long) quote:

“The world we live in—its divisions and conflicts, its widening gap between rich and poor, its seemingly inexplicable outbursts of violence—is shaped far less by what we celebrate and mythologize than by the painful events we try to forget.”

-Adam Hochschild, Kind Leopold’s Ghost

Thank you for reading.

Michaël Wegmüller
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