Africa's new financial apartheid, by R. Glenn Hubbard

The Aid TrapYesterday, R. Glenn Hubbard, author of The Aid Trap: Hard Truths About Ending Poverty contributed an op-ed on the Web site for Fortune.

In the essay, Hubbard argues that while African nations have opened up to foreign trade and investment, local businesses continue suffer.

Governments such as that in Angola have restricted local businesses “mak[ing] for a new kind of apartheid: the business community of Angola is European and Asian, not African. That might not be the intent, but it certainly is the result.”

In particular, China, whose trade with Africa is continuing to grow, has turned a blind eye to suppression of local African business. Hubbard concludes the essay writing:

Chinese leaders will argue that they do so to respect the sovereignty of national governments: if Angola wants to suppress the local Angolan business sector, China has no right to make them change.

But how is that different from South Africa under apartheid? In those days, the South African government put up enormous obstacles to prevent black Africans from starting and owning their own businesses. China joined the rest of the world in condemning South African apartheid, and rightly so. But today, China joins the rest of the world in turning a blind eye to the ongoing apartheid of the local business sector throughout most of Sub-Saharan Africa.

But of course, the western powers are no better than China. They continue to lavish foreign aid on countries that suppress their local business sectors.

There is a collective amnesia among prosperous countries about how they themselves rose from poverty: their local business sectors. They have forgotten their liberal roots—the term “liberal” first referred to pro-business Europeans struggling against feudal “conservatives.”

China and the western powers today are only half-liberal: they foster their own domestic business sectors but tolerate the suppression of the domestic business sectors in the poor countries of the world.

There is an alternative, but it requires political will and leadership among China and other prosperous countries. They can redirect their foreign aid to help foster the local business sector in poor countries.

And there’s a powerful precedent: the Marshall Plan of post-war Europe. It made loans to local European businesses, which repaid them to their governments, which used the money for commercial infrastructure like ports and railways. That same model can work today.

Two decades ago, outside pressure helped overturn apartheid in South Africa. Tomorrow, outside pressure can help overturn business apartheid in most of Sub-Saharan Africa. It’s time for worldwide solidarity with the struggling local businesses in poor countries around the world. The new apartheid calls for a new movement against it. Who will lead the way?

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