Cameron's Au Revoir

In threatening to pull Britain out of the EU, has the prime minister inadvertently opened Pandora's Box?

It's been said that Britain acquired its empire in a "fit of absent-mindedness," rather than through any coherent plan. Future historians may one day say the same about the "Brexit" -- as the potential scenario of a British exit from the European Union has been called. As Prime Minister David Cameron lifted his eyes to stare right into the camera during a Jan. 22 speech and promise that there "will be an in-out referendum" on his country staying linked to Europe, he opened a new chapter in the convoluted history of the relationship between the EU and its most ambivalent longtime member.

It's certainly a dramatic gambit -- the first offer by any European head of government to legislate for a plebiscite that could allow a vote to quit the European Union (the vote would be held in 2017). An opinion poll after Cameron's speech showed a narrow majority in favor of leaving Europe. But the British prime minister has left many of the details unexplained, including what happens between the day of the vote and the day when Britain says au revoir to Europe forever.

Unlike some senior ministers in his cabinet -- like the former Tory party leader Iain Duncan Smith, who openly talked about a future for Britain outside the EU -- Cameron often seems to want to have it both ways on the Brexit. He insists he wants to stay in the European Union, but one fashioned after his own desires. Austria's chancellor, Werner Faymann, noted that Cameron seems to have one language on Europe for domestic consumption and one in talks with European and other international leaders. In his referendum speech and again at Davos, he called for a Europe that was more competitive, more open, less centralized, and less bureaucratic. Who can disagree with that?

But his reassuring words were followed by the news on Jan. 25 that British growth had again gone negative in the last quarter -- under Cameron's stewardship. The British economy is now smaller than when he took office in May 2010. On the same day, the European Commission announced it was fining Cameron's government €300,000 ($404,280) a day because of its failure to liberalize the U.K. energy market, while consumers complain of oligarchic gas and electricity firms pushing prices way above U.S. or European levels as they gouge profits and pay their executives eye-watering salaries.

Cameron presents his story as leading a pack of vigorous and visionary London politicians who are beating up on Brussels bureaucrats to fashion an EU in Britain's image and likeness, but a no-growth, market-rigging Britain is hardly in a good position to lecture Europe on its failings. The prime minister's narrative faithfully reflects the anti-EU discourse that has dominated most of the British media -- especially the big offshore-owned tabloids -- for two decades. Cameron talks glibly about renegotiation but, unfortunately for him, neither the European Commission nor the European Council of heads of state has the legal authority to open unilateral negotiations or rewrite treaties in order to refashion the EU in the manner Cameron needs to appease his Euroskeptic party and Rupert Murdoch.

Cameron needs to persuade 26 other governments and parliaments that opening a major treaty revision to satisfy Britain is something to be desired. His own deputy prime minister, Nick Clegg, himself a former Brussels insider, says that such a "re-writing of the whole terms of" British membership is "wholly implausible." A new treaty would require a nightmarish ratification process involving referendums in countries like Denmark, France, and Ireland that would plunge Europe into years of inward-looking rows at a time when it still hasn't emerged from the worst economic crisis in its history.

That is why both Berlin and Paris have reacted negatively to Cameron's call for a referendum. While both French President François Hollande and German Chancellor Angela Merkel politely said they would listen to British ideas, they unleashed their foreign ministers to convey the real message. Germany's Guido Westerwelle said Britain could not indulge in "cherry-picking" bits of Europe it liked and opting out of obligations other nations signed up for. France's Laurent Fabius tried a sporting metaphor: "Say that Europe is a soccer club," he offered. "You join this soccer club, but you can't say you want to play rugby!" The European media was scathing. Headlines accused Cameron of "blackmail," taking a "risky gamble," and "demanding à la carte Europe."

Meanwhile, back home, Cameron faced 100 of his Tory MPs and the charismatic mayor of London, Boris Johnson, who pledged to campaign for a no vote on the referendum and withdrawal from Europe unless the prime minister managed to secure massive concessions that allowed Britain full access to the single market but an opt-out from EU rules disliked by British Euroskeptics.

The other main parties are also open to a referendum, though both Clegg -- leader of the Liberal Democrats -- and Labour Party leader Ed Miliband say it should not take priority over pressing domestic problems like low growth, increasing poverty, and the damage wrought by savage cuts to welfare and local services made as part of austerity policies that even the International Monetary Fund is now questioning.

Eight years ago, when Cameron was contemplating running for his party's leadership in the summer of 2005, he said to me, "I am much more Euroskeptic than you imagine, Denis." Between 2005 and becoming prime minister, he encouraged the growth of anti-Europeanism. He led the Conservatives out of their decades-long alliance with other center-right parties in Europe including Merkel's Christian Democratic Union. He ensured that only devout Euroskeptics were chosen as candidates to be Tory MPs. He mocked and scorned the EU as the source of British weakness. He promoted strident Euroskeptics to the cabinet.

He did all this pandering while still insisting that he ultimately wants Britain to stay in Europe. But now he has unleashed forces that may soon slip out of his control. As with free trade in the 19th century or the Irish question later on, there are some political issues that Britain takes years to come to terms with. Europe is one of them. But in deciding that a populist plebiscite is to be preferred to Parliament deciding the question, Cameron has opened a new era in British and European politics with consequences no one can foresee.


Democracy Lab

We Have No Idea if Africa Is Rising

The rise of African economies has been a big subject of debate for FP contributors. But where are they getting their numbers?

It's been fascinating to watch FP's recent debate on economic growth in Africa. Some commentators argue that African economies are destined to remain trapped in the bottom billion unless some sort of fundamental change occurs. Others beg to differ, speaking of a continent that's showing every indication of rapid progress. Yet, despite their wildly different interpretations, what's striking is that both camps base their arguments on the same set of numbers.

Let's start by taking a look at the GDP time series evidence (data collected regularly over time) available from the World Bank and other data sources. According to these numbers, African economies have been growing at a rapid pace for more than a decade. Nor is that a new trend, if we trust the numbers. The statistics suggest, indeed, that Africa has experienced recurring periods of growth throughout its recent history.

But what if we aren't sure about the GDP statistics? In fact, it turns out that these numbers are eminently debatable. Some recent statistical events remind us that African growth and income evidence doesn't tell us as much as we would like to think.

In November 2010, the statistics office of the government in Ghana announced that it was revising its GDP estimates upwards by over 60 percent, suggesting that previous estimates had left out economic activities worth about $13 billion. After the revision a range of new activities were accounted for, and as a result Ghana was suddenly upgraded from a low-income country to a (lower) middle-income country. In the fall of 2011 Nigeria also announced an upward revision of its GDP. This revision isn't complete yet, but once it is it's likely to cause a similarly large jump in growth figures. Several observers have raised the possibility that such a revision could actually double Nigeria's GDP -- which, given the size of Nigeria's economy, would bump up the size of Sub-Saharan Africa's economy by more than 15 percent. Just to give some perspective: The value of the increase would be roughly equivalent to 40 Malawi-sized economies.

The revisions have caused confusion and disbelief in the development community. If we know so little about growth and income in Ghana, one of the best studied economies in Africa, how are we supposed to interpret the data from other African economies? Shanta Devarajan, the World Bank's Chief Economist for Africa, refers to the current state of affairs as "Africa's statistical tragedy." 

In my book, Poor Numbers: How We Are Misled by African Development Statistics and What to Do about It, I studied the measurement problems in African economies. I conducted in-depth analysis of the methods and sources underlying the different GDP estimates that have been made since independence.

Upon achieving statehood, African states moved to expand their statistical capacity. They performed population censuses, business surveys, and agricultural censuses. But their ability to do this was hit hard by the economic crisis of the 1970s. The administrations faced large external imbalances, high rates of inflation and general shortage of funds which weakened government bureaucracies around the region, leaving many of them unable to measure their economies. Moreover, the statistical offices fell into further neglect during liberal policy reform that followed the economic crisis in the 1980s and 1990s (the period of "structural adjustment"). 

Looking back, it seems odd that the International Monetary Fund (IMF) and the World Bank would have embarked on growth-oriented reforms without ensuring that governments had the tools to reliably determine whether their economies were growing or stagnating. For statistical offices, structural adjustment meant having to account for more with less: Informal and unrecorded markets were growing at the same time as the same reforms curtailed public spending. As a result, our knowledge about the economic effects of structural adjustment is extremely limited. The cumulative record of annual economic growth between 1960 and today, for African economies does not realistically show what happened with economic development. 

First, the official data overstated the decline in the 1980s. Second, for many economies, such as Tanzania and Zambia, the same data overstates the upward swing in the 1990s. The marked improvement we see in the GDP time series in the mid-1990s in these countries is caused by expanding the estimates for the informal sector. In other words, the growth recorded was statistical, not real. 

Today, due to the uneven application of methods and poor availability of data, any ranking of countries by GDP is misleading. The basic problem is that many countries have been using outmoded data and methods. Nigeria's astonishing upward revision is due to the fact that, until quite recently, the authorities there were still using data and methods from 1990, and have only recently decided to update them. The new methods are capturing a whole range of fresh numbers, such as data from telecommunications (mobile phones) and the service sector. Needless to say, while we wait for the new figures, any comparison between Nigeria's GDP and another country's are meaningless. 

In research conducted for Poor Numbers I surveyed methods and data in use in national statistical offices in Sub-Saharan Africa. For many countries no official information was obtainable. The IMF Statistics Department periodically reminds authorities to update their baseline statistics every five years (in accordance with international best practice). But within the past seven years, limited resources and data availability have meant that only seven countries (Burundi, Ghana, Malawi, Mauritius, Niger, Rwanda, and Seychelles) were able to follow suit. Of the 34 countries for which information was available, 21 reported having a base year that is within the last decade, while 13 countries have base years from the 1980s and 1990s. This means that our last reasonably accurate picture of these economies is more than a decade old. By comparison, most Western economies update their base years on an annual basis. 

Yet the available figures do suggest one likely finding: Many economies in Africa today may be richer than we think. Some of them, like Nigeria, probably are. That's the good news. The bad news is that we don't really know for sure. The African growth and income evidence does not tell us as much as we would like to think -- and for some countries it's seriously misleading. It's disturbing to think that, as recently as last year, we were still working under the assumption that Ghana was a poor country. Now we've discovered that we have to re-examine all our ideas. 

For both Nigeria and Ghana, the implications are that a large amount of economic activity has gone missing since the 1990s, making it impossible to write the history of those countries based on the official statistics. Were the estimates made in the 1990s exhaustive? When did the economy grow and at what rate? What policies caused the growth? 

A lot of the recent rapid growth we see is, in fact, statistical growth deriving from adding the informal sector and the service sector to the old estimates. Certainly, a great part of the recent growth derives from appropriately recorded growth in external trade, but exactly how this growth relates to the domestic economy, and to economic development more generally (including poverty reduction), remains pure speculation

Some scholars have suggested looking at alternative measures. We could, for example, compile new estimates based on the ownership of goods such as television sets, fridges, and automobiles -- which imply that African economies have been growing three times faster than the official figures. We could even resort to proxy indicators, such as measuring growth from outer space. This entails using satellite imagery to capture changes in the intensity of artificial light over a country at night (measuring electricity consumption directly is not possible because of lack of data). The problem is that such corrections are inconclusive. Competing measures of the same phenomena yield contradictory results.

One of the most urgent challenges in African economic development is thus to devise a strategy for improving statistical capacity. The system currently causes more confusion than enlightenment, yet governments, international organizations, and independent analysts do need development statistics to track and monitor efforts at improving living conditions on the continent. It's unwise to proclaim that African economies are growing without better insight into the quality of the numbers.

In short, any evaluation of Africa's rise must begin and end with a careful evaluation of the growth and income evidence. Without such analysis, one runs the risk of reporting statistical fiction.

Photo by EMMANUEL AREWA/AFP/Getty Images