EPAs is not a Panacea for Africa’s Economic and Social Crisis but deepen the Crisis!
Impacts of Free Trade & Globalization
Since 2002 the EU, African countries and including the Caribbean states have been conducting negotiations to reach Economic Partnership Agreements(EPAs) that might give opportunities for these states to get access for their products into the EU market. In turn the EU wants to get a free access to the African market. The negotiation has taken too long because of the nature and complexity of the issue and at the same time because of the intriguing approaches of the EU to make any kind of deal that favours more its own companies rather than bringing any tangible results that transform the African society in general, and the economy in particular.
As a matter of fact the negotiations have been conducted between two unequal partners, the EU that produces goods and services amounts to almost $ 16 trillion and have a share in the world GDP ca. 18%. On the other hand African countries south of the Sahara produce goods and services worth $1.o7 trillion only. The fact that the EU has such a big share in the World GDP shows also that its position in the world market is not only very strong, but also the level of its economic, political, social and cultural organization is very sophisticated and can outmaneuver weak countries by using its dominant position. On the other hand many African countries do not have integrated market structures from within that are based on vast manufacturing activities, division of labor and science and technology. Since the economic activities are concentrated in few cities and are not operating on high level of scientific organizational foundation, the social and intellectual foundation of many African countries are too weak. Therefore many African governments may not understand the intriguing approaches of the international and regional institutions that operate more on behalf of big industrial processing companies, agribusiness, banks and the like.
Therefore when African countries are taking part in any kinds of international or regional deals or negotiations it will be very difficult for them to go through the thousands of paragraphs and technocratic formulations which do not have any kinds of positive aspects, scientific foundation and real substances that will bring tangible results to the continent. Many knowledgeable persons question the relevance nature of such kinds of conferences and negotiations and ask whether they could bring any kind of positive results that could positively affect the social and economic structures of many African countries. It is by now clear that all kinds of negotiations concerning the economic and social situations of the African continent are simply a waste of time, and are deliberately organized by the capitalist countries to divert the attention away from the real situations that millions of Africans are facing.
As experiences over the last 60 years show that such kinds of partnership agreements of any kinds and economic programs that come from the West do not have the intention and the dynamism to bring workable economic and social order that could benefit the millions of people who have been dreaming of a decent life since time immemorial. This time too it is unlikely that such an economic partnership agreement will be different from the previous ones, and help African countries to build a coherent economy which is based on science and technology. Nor does it help them to build a democratic and just society. On the opposite, it aggravates the existing situations, and disfranchises the African people. Instead of the rule of law and transparency, dictatorship and militarization of the state apparatus in many African countries will be the rule.
In light of this, I will try to show in this article that in the social history of Western Europe and in those East Asian countries that are now leading in certain technological fields, they had never applied free trade economic policy or open their markets for foreign products to transform their society and build a homogenous and strong economy. They had rather practiced protectionism with other inward-looking instruments to develop first of all the home market on strong foundation.
The Great Confusion- Social reality and Theoretical construction!
In the economic history of Western Europe and especially in the economic development of capitalist society, and since the emergence of the Wealth of Nations of Adam Smith there is a widespread belief that the invisible hand and free trade are the dominant factors that are instrumental in shaping the economy of Western Europe which lead to capitalism as we see it today. Hence market economy and free trade doctrine as was analyzed by Adam Smith and other classical economists become the lingua franca of those policy makers that decide over the destiny of millions of people in their countries. Especially after the Second World War, and since the institutionalization of neo-classical economic thought as the uncontestable doctrine and policy which can lead all nations to market economy, almost all historical facts that are vital in shaping the capitalist economy of Western Europe, including the USA and Japan have been deliberately discarded from the school textbooks. After the Second World War, the emergence of the USA as a military, political and economic power gave it a unique position to shape the political, military and economic elite of Third World Countries according to its own interests. The organization of so-called international institutions, the IMF and the World Bank in the Bretton Woods agreement have the sole purpose of selling the ideology of free trade and market economy and fix it into the minds of the political elite of the Third World countries as the only way that can lead backward countries to a democratic society and market economy which can bring prosperity to all the people in each country. Following the Bretton Woods institutions, GATT, and now WTO and other diverse UN economic institutions are all organized on the principle of market economic ideology and free trade doctrine that deliberately and intriguingly advance the interests of the Western capitalist Countries.
Except for a few, who have been engaged in fierce debate about the transformation of Western economy from feudalism to capitalism, and those who have extensive knowledge about the shaping and organization of capitalist economy, there is an accepted belief that other factors, like science and technology, cultural transformation, handcraft activities and trade, city buildings and deliberate economic policies of the Monarchs have never played any role in laying the foundation for a capitalist economy. Since school economic textbooks are organized in this belief they exclude all other factors that are vital for the economic and social development of Western Europe. Therefore there is an accepted belief that the so-called invisible hand that is not historical by nature, and is not a result of cultural transformation but intrinsically exists in the minds of few gifted people, is the motor of the capitalist market economy in all West European countries. As classical economists teach us human beings are egoistic by nature, and when individuals are driven by this egoistic motive and maximize their utility, all the people in a given community will become virtuous in their lives.
This school of thought that is based on empiricist ideology becomes later on the foundation of neo-classical and neo-liberal ideology. Since the fierce debate of the 60s and 70s that came mostly from the side of Marxist economists and economic historians is not known to many students of Third World countries which have been shaping their societies over the last 40 or more years it has become as an accepted fact that there is no alternative than implementing the economic doctrine as is formulated by the neo-classical economists and later on by those monetarist economists who had formulated the Washington Consensus. Most neo-liberal economists think and believe that as the old generation of Marxists and well informed economic historians are dying away the field is totally free for them. Therefore they think that they can swim as they wish in every weak society and manipulate the political and economic elite to perpetuate poverty and underdevelopment. Fortunately there are new emerging and very challenging ideas from critical thinkers who oppose vehemently the existing dogma of a pure market ideology. Physical and quantum economic theories are the most promising ones which show the way how underdeveloped nations come out of poverty and underdevelopment. Both theories underline the importance of consciousness in transforming a given society through learning by doing. The problem of such kinds of path breaking ideas is that they are not known to many students and practitioners of development policy.
What makes it more problematic is then due to the dominant ideology of neo-classical thinking, and hence neo-liberalism economic policy implementation across the globe, it is practically impossible to challenge the existing dogma. Other alternative theories and economic policies are being discredited as ideologies and do not have any place in this world. Neo-classical theoreticians firmly believe that there is no such thing as real social situation which can be theoretically reflected and analyzed. Accordingly there are no social and political power relationships and ideologies that can dictate and influence the courses of historical, social, cultural and economic features in every country. Hence, people in each country have arrived at the present stage of development without having experienced cultural transformation, confrontation with nature and shaping their destiny sometimes dictated by the social and natural circumstance existing in their countries, and at another time by understanding their own historical roles and by awaking together and consciously changing their own environment for a better life. For neo-liberal theoreticians free market economy has been existed since immemorial, and all countries irrespective of their differences have the same aspirations, and as such all societies are being governed by the same laws.
If we examine the social history of Western Europe that has been accepted by all countries as a model of economic development, things are entirely different and not as neo-classical economists make us believe. Numerous empirical studies show us that before capitalism have become a dominant mode of production in many Western capitalist countries, starting from the 13th century onwards enlightened men had confronted the then rigid traditional way of life and ideology in order to bring a better life in accordance of certain laws that are compatible with cosmic laws. Intellectuals of that period had well understood that human beings have the intrinsic capacity to change their own circumstances and hence should not become the victim of natural habits that were responsible for repeated wars, hunger and diseases which had consumed the lives of millions of people across many Western European countries. The case of the Dark Ages is a vivid example of how certain political and social power relationships once they become accepted as ideologies can arrest the development of science and technology. It was therefore well understood that without clearing the mindset of the people from such kinds of backward attitudes and ideologies that favored the few and threw the majority of the people into abject poverty there cannot be real social emancipation and progress.
The primary question at that time was therefore to read the minds of those leaders and priests that were the causes of war, disease, poverty on a large scale and social degradation. Philosophical discourse and later on natural science, especially reading cosmic laws were the two important instruments that become effective to fight against the rigid ideology of the Catholic religion. City building on larger scales that began as early as the 12th century, handicraft activities and far trade had contributed to create a suitable atmosphere for philosophical discourse and natural observation. All scientists that appeared starting the 14th centuries are the products of this kind of the changing atmosphere. Renaissance or the rebirth of the Greek Civilization could become a reality when the people get the advantage to see the improvements of their own lives beyond the existing social realities. The originators of Renaissance idea in Italy clearly observed and studied that what until the 13th century existed and arrested the human mind was a false ideology that was deliberately produced and organized by certain people in order to maintain the economic and social relationship that had existed until then. Like the present day free trade doctrine and market ideology, the Catholic ideology had deliberately darkened the minds of millions of people until it was challenged and shattered by philosophy, science, art and slowly expanding intellectual activity.
Starting from Renaissance time onwards, European societies must undergo several stages in order to understand their own roles as human beings and define their own fates. Without major breakthrough in the areas of philosophical discourse and dialectical questioning and reasoning other successive ideas like reformation and enlightenment movements could not have been possible. These things have slowly opened the way for liberal thinking. Liberal ideas, though they seem very progressive at that time by those intellectuals that advance this ideology, their main aim is to interpret nature and social realities in the ways not what early philosophers did but to revise and stick at certain phenomenal aspects in order to construct a new social and economic order that favors the then emerging class. Therefore the ideology of market economy is this kind of revisionism that opposes holistic approaches and social transformation on real philosophical bases that can bring at the end social harmony and way of life that is congruent to nature and cosmic laws. On the other hand there are other liberal thinking philosophers, especially the German philosophers who vehemently rejected the reduction of human beings to a mere economic activity, and see in economics as a normative aspect which must be integrated into the entire social process in a civil society.1 In other words, economic process and development should not negate political, ethical, moral, and religious processes, and must be organized in a just manner to hold a given society harmoniously. Other prominent classical German philosophers of the 19th century accused Adam Smith and other British economists of the 18th century for neglecting the human spirit and power of thinking and propagating a pure economic exchange activity and production for the sake of production. 2
What I am trying to show here is that the idea of a market economy and the so-called invisible hand are products of the changing social and political power relationship and not as such as liberals teach us that they have existed since immemorial. People in different countries knew various kinds of market mechanisms which have developed as social and economic necessities without becoming ideologies. Before classical economists have begun writing on this issue different societies have developed division of labor, exchange activities, and organized market places in order to exchange not only their own goods but also to discuss about social and other aspects. What classical economists have done is that they have observed and studied all these processes and tried to interpret them in their own ways. As such there is no one idea, but different approaches to read the then existing social realities and economic mechanisms. The books and numerous articles by Prof. Karl Polanyi prove that there is a completely different interpretation of social and economic realities.3 Karl Marx has also interpreted and analyzed the evolution and inner logic of capitalism through a different theoretical prism by using the methodology of dialectics for his analysis.4 Unfortunately Adam Smith is accepted as the only authoritative writer on this issue and founder of market economy, though since classical times Socrates, Plato, even before them some poets had dealt in depth on the issue of economic progress, division of labor and the necessity of exchange activities.5
The economic literature that is deliberately organized as teaching material to narrow the minds of the youth by ignoring all these and other philosophical literatures that brought so many things into light that are very useful for the development of human society has reduced everything to market economy by making it a mere ideology. Though market economy as it is being taught at the universities does not exist in reality many have accepted it as a fact that social realities in capitalist countries are happening in a way how economic textbooks teach us. It has become a simple truth that the so-called market forces are the real agents that create miracles. How such market forces have become a reality in all capitalist countries the economic literature cannot tell us.
The economic and social history of Western Europe teaches us that before market forces have become as forces that could shape the economy governments in each Western European country had intervened on a larger scale to make suitable the situation for further economic development. Governments from the 16th century until the end of the 19th century did not blindly practice a certain economic policy, but there were intense debates and discussions which economic policy was appropriate that can create social wealth and make a given country strong. From the physiocratic school of thought through Mercantilism and to classical economists there are divergent ideas of how to create social wealth. All schools of thought are reflections of the then existing social realities and the then prevailing Zeitgeist.
Irrespective of the controversies that existed that time, the social and economic history of Western Europe teach us that without Mercantilism or state interventionist economic policy the development of market capitalism could have been delayed for generations. It is also true that without prior intellectual movements, trade and handicraft activities, such kinds of sophisticated ideas could not have developed. In other words, not as liberal economists teach us that the so-called market forces are the true engine of economic development at the earlier times but conscious economic policies of the Monarchs in each European country that are by themselves products of the then existing cultural and intellectual movements are mostly responsible for the economic and social developments of most Western European countries. That is why the Monarchs of that time are called enlightened Monarchs.
Though these are the facts, and are well documented those who have been brought by a pure market economic ideology, what nowadays called macroeconomic policy, starting the 1950s have turned it into a pure ideology. Because macroeconomic policy is the only accepted policy instrument, and is being practiced worldwide, as the only economic policy that lead countries to a market economy, the elite in each country is compelled to speak the same language without understanding whether this could produce real social wealth based on science and technology. Although facts on the ground prove that in every African country south of the Sahara that such a policy could not produce social wealth for the majority of the masses, and cannot lay the foundation for nation building the political and economic elite could not pose questions why things go into the wrong direction year after year, after one has implemented such macroeconomic policies? In this way the political and economic elite in each African country by becoming the victim of this kind of wrong ideology de facto hinders the development of market capitalism in many African countries. The belief in a pure market ideology and lack of historical and social consciousness compel many African governments to practice the same policy under different names over many decades.
When many African countries got their independence in the beginning of the 60s of the last century they did not have the chance to develop the intellectual capacity to formulate their own economic policies in accordance with the wishes of their people. Due to this factor and weak institutions that exist in many African countries economic experts from the west seize the opportunity to manipulate the economic policy of these countries in a way that favors more of the capitalist west. Hence, many African countries become pure suppliers of mineral resources and some agricultural products which become the basis of capitalist accumulation. Though some African intellectuals that are not part of the political establishment have tried to show the fallacy and impracticability of such an ideology, political leaders do not want to hear critical and better ideas. They think and believe that what western experts tell them is correct, though the advices are producing damaging results that create social and economic chaos. The end result of this kind of intellectual annexation is poverty, hunger, mass unemployment and disillusion on a higher scale in many African countries. Those African elite which are intimately integrated within the international hierarchical system by parroting the same ideology they have caused great confusion and make millions of people in their countries powerless. Millions of people in each African country by being deprived of all their natural rights become simply the victim of this kind of unholy alliance of development experts of the West and the political elite from within. From this vantage point let’s examine the intention of those forces that propagate free trade as the true engine of economic development. At the same time we will see that most capitalist countries have never applied free trade policy to develop a strong home market based on manufacturing activities.
Free Trade or Protectionism as Engine of Economic Development!
When the ideology of free trade was developed in the 18th century, it has a clear mission and intention during that time. Those who had developed and advanced this idea clearly understood that the fate of the English manufacture and the market for its products were intimately linked with continuous supplies of raw materials from overseas.6 Therefore classical economists which advanced the interest of the then emerging economic class vehemently advocated to control certain areas in Third World countries in order to get supply of raw materials. They had at the same time introduced new laws to protect the British manufacture from products which come from overseas and eventually compete with home produced goods. They even went further to destroy the manufacturing industries in India and other countries and converted these countries to suppliers of raw materials and markets for their products.
In England the idea of free trade doctrine is developed within the context of a market economy. The market economic philosophy as has been developed by Adam Smith was not confined to free trade alone. In his Wealth of Nations Adam Smith clearly stated different elements which are very important for the growth of a market economy in general. The division of labor, market size, the issue of manufacture, the aspect of labor as the source of value and numerous other things.8 When he comes to foreign trade he raises the issue of international division of labor and free trade doctrine, and defended the Corn Law, which allows Great Britain to import cereal products from abroad.
Undoubtedly Adam Smith and co. were the defenders of British interests, especially the then emerging capitalist class. The Wealth of Nations was written from the perspective of England as a country how she could develop a home market by focusing on the division of labor and manufacturing activities. Though Adam Smith and others had rejected the idea of colonialism9, on the other hand they strongly advanced free trade doctrine because free trade is more advantageous than colonizing other countries. The international division of labor that first developed by Adam Smith and refined by David Ricardo was written from the point of view of bringing so-called backward countries under the influence of the British Empire. As such free trade was understood as a mechanism of imperialism10 to hold backward countries down so that they could remain only as suppliers of raw materials and agricultural products. Accordingly, countries which have not yet developed a manufacturing sector and do not have an expanded division of labor should focus primarily on agricultural production and raw material extraction since these are more advantageous than industrial activities. By developing a model of international division of labor countries that have abundant natural resources, should focus only on extracting the mineral resources and agricultural products which could not be found and grow in England and leave manufacturing activities to England. According to the theory with this kind of division of labor Third World countries could effectively save costs and transform resources to those areas that they are endowed by nature. This kind of specialization and exchanging the raw materials and certain agricultural products with industrially produced goods will help backward countries to develop economically and culturally. On the other side Adam Smith and other classical economists propagated and insisted that the division of labor from within must be based on machinery11 and expanded internal division of labor, since this will ultimately guarantee England to develop as a nation-state. A strong nation-state will ultimately extend its influence on other nations, control their resources and will define the direction of their developments. Those countries that had followed the advices of Adam Smith and Ricardo by concentrating on only agricultural products thought that this could be alone a source of continuous income and economic growth had to pay heavy prices later on. Portugal that was compelled to adopt this policy transformed her entire resources to the production of wine, and even abandoned cereal production that became the cause of hunger and mass starvation in the 19th century.12 Since farmers had focused on wine production and totally abandoned cereal production, when prices for wine fell on the world market the peasants could not earn enough money to buy food. As a result of such kind of wrong advices not only hunger hit Portugal but also deindustrialization became a common phenomenon. In countries where British and other colonial masters had a direct control had deliberately destroyed the division of labor and manufacturing activities that had hitherto existed and compelled the colonized people to specialize in planation economy like sugar cane, cacao, tobacco and other agricultural products which were planned for export.
Intellectuals in certain European countries like Germany, who had understood the intriguing aspects of the free trade doctrine and its damaging impacts, vehemently opposed this idea. According to Friedrich List who was a German intellectual, free trade doctrine as it was developed and propagated by Adam Smith and David Ricardo will destroy infant industries in countries where the division of labor has not yet developed and the market is very narrow. Friedrich List was convinced that before any country engages itself in free trade activities she must first of all develop her internal market on the basis of manufacturing activities. When a given nation is mature and has intact industries she can compete with products that come from abroad. Similarly there was also a strong opposition from the side of those intellectuals with republican idea in the USA around the same period as in Germany. These too had opposed the idea of free trade as was forcibly propagated by the English liberals because it could not help a country that does not have bigger market structures and expanded manufacturing activities to develop as a nation-state. Friedrich List from Germany and Alexander Hamilton from the USA were among others who had rejected the idea of free trade and specialization as they were advanced by the English classical economists. Friedrich List demonstrates the fallacy of this theory like this. “A mere agricultural nation can never develop to any considerable extent its home and foreign commerce, its inland means of transport, and its foreign navigation, increase its population in due proportion to their wellbeing, or make notable progress in its moral, intellectual, social, and political development[…]13 Friedrich List shows again his opposition to a one-sided specialization like this: A mere agricultural state is an infinitely less perfect institution than an agricultural manufacturing state.”14 Both Friedrich List and Alexander Hamilton had clearly understood the power of manufacturing activities and machinery in laying the foundation for a strong home market. Only through expanded manufacturing activities and producing suitable means of production for the agricultural sector productivity growth can be assured in this sector and farmers will have a secured and continuous income. When all the economic sectors are interlinked each other, and exchange activities among the various sectors are being supported by the banking sector, expanded capitalist accumulation will be possible.
From this vantage point latecomers like Germany, and especially the USA had adopted educational tariffs (Erziehungszoll) for those not yet matured industries or infant industries. Therefore Friedrich List opposed the idea of competition on international level for such a backward economy that of Germany and had fought for the introduction of protective tariff15 for the infant industries. Following the example of Germany and the USA other relatively backward west and north European countries compared to that of Great Britain pursued similar strategy first of all to develop a strong home market. The free trade advocator Great Britain herself was the most prominent one to pursue a protective tariff in order to develop a strong economy on firmer grounds. Prof. Ha-Joon Chang, in his very famous book “Kicking Away the Ladder” clearly demonstrates how many West European countries, including Great Britain and USA adopted a nationalistic agenda in order to develop industrially.16 Professor Liah Greenfield in her well written book, “The Spirit of Capitalism: Nationalism and Economic Growth”, analyzes in clear languages the importance of economic nationalism among other things as one of the most important driving factor for the development of capitalism.17 Dr. Andreas Etges, in his book, “Economic Nationalism (Wirtschaftsnationalismus) in USA and Germany from 1815-1914” proves that the two countries had pursued a nationalistic agenda to develop their economy and become strong as Nation-States.18 Both Germany and USA had not only fought against pressures that came from abroad in the name of free trade, but also strictly followed from within aggressive industrialization policy by fighting against those forces from within which opposed systematic development and national unity. In all these countries that had pursued a developmental path that was based on nationalism and manufacturing activities the most driving factor was to be inspired by one common idea and agenda, that is nation building. In countries where fragmentation and divisive politics are the rule of the elite, and in societies where the political elite becomes a vassal of foreign forces and is integrated within the international hierarchical system and wages war against its own citizen, there cannot be genuine industrialization policy that can slowly encompass the entire nation. Professor Erik S. Reinert in his very important book, “How Rich Countries Got Rich and Why Poor Countries Stay poor”, shows the damaging consequences of free trade theory and the so-called international division of labor in blocking any meaning full economic development based on science and technology. According to him agricultural production intrinsically functions with decreasing returns19 and as such does not lead a given nation towards a fully developed and matured economy with integrated market structures. He clearly demonstrates that for the way out of poverty is, not free trade and pure market economic policy as propagated by Adam Smith, David Ricardo and present day Neo-Classical economists but pursuing a conscious economic policy that is based on the principle of the Renaissance. According to Prof. Reinert, in any society the role of the state must be highlighted20 and such a state must be organized on the principle of humanistic values in order to awaken the minds of the masses and improve their lives. His development model is a holistic approach and stressing the importance of manufacturing activities, since increasing returns and expanded accumulation are the most effective instruments which enable any country to create true social wealth. He shows through his numerous studies that any nation-state cannot be organized and develop scientifically and technologically on the principle of neo-classical economic doctrine or the present day macroeconomic policy. In other words, neo-classical economic theory or pure market doctrine as is propagated by international institutions and neo-classical economic experts cannot be the foundation of a nation-state. He even shows that those countries that repeatedly pursue the advices of the IMF, the World Bank and the International Community in general will never come out of the poverty trap. In short, free trade doctrine and deal of any kind based on the idea of a pure market economy cannot be a solution for the present day complicated crisis in many African and other Third World Countries.
Undoubtedly the developmental concept of Prof. Reinert, his understanding of the role of the state as the driving factor of economic development and his concept of society is based on the spirit of the German Classics that had developed the idea of the aesthetic state in Weimar of the 18th and19th century.21 Accordingly, any society must be organized on the principle of beauty so as to fully practice its creative power. On the other side free trade diametrically opposes beauty, and it will inevitably lead societies to uncontrolled, ugly and chaotic situations.
After 200 or more years of free trade doctrine, and especially after 60 years of pure market economic policies in many Third World Countries, especially in many African countries south of the Sahara, it must be clear by now that such policies cannot be solution to the economic crisis which is prevailing in these countries but also for the social, psychological, cultural, ecological and political crises that all these countries are facing. Since other aspects are purely depending on the performance of the entire economic sector, those countries that do not have a functioning economy to sustain their people that must also enable them to build a proud nation, will be confronted by political instability, social and cultural degradation. Because a functioning and a coherent economy is a binding factor for all the people that live in a given country, as long as there is no clear idea on this issue, such countries will face permanent crisis and the people will remain disoriented.
The question many well informed intellectuals raise and show is why the West including the USA insist and compel African countries to pursue again and again a free market ideology and a free trade doctrine? Though past policies that were based on the idea of free market had failed, why is the west sticking to this ideology that drives nations to ungovernable situations? If one carefully reads the books of those above mentioned intellectuals like Prof. Chang and Prof. Reinert the West tries to prevent African countries to pursue the same path of economic development as it has practiced itself. It therefore propagates the idea of free trade and a pure market economic policy for all Third World countries as if these policies will bring genuine economic development for these countries. The capitalist west knows that a strong economy based on science, technology and expanded manufacturing activities means sources of patriotism and national pride, and therefore Third World countries must be prevented from pursuing such a path of economic development. Only a weak and fragmented society can be controlled and become pure exporter of some agricultural products and mineral resources. Therefore by creating ‘new’ and very complex mechanisms and deals the West tries to bring African countries to a situation in which they will never come out of it. They will remain in a vicious circle of dependency, recipient of aid, indebtedness and permanent trade balance deficit that are mechanisms of intervention in the economic policies of each African country. In this way each African country cannot be seen as a sovereign nation that can manage its own affairs. Only on the blessing of the west, African countries can exist.
Globalization and Free Trade- The past 30 Years!
As numerous studies show globalization in its modern form is intimately linked with the changing of production system, intensification of work, revolutionizing the organization and management technic that were introduced in the 20s of the last century by Henry Ford.22 From that time onwards such a system of industrial organization and intensification of production processes has been taken to unprecedented scale that could also be copied by other western capitalist countries. Especially after the Second World War all capitalist countries could transform their production system from extensive to intensive form of production, and this has enabled these countries to raise their industrial productivity to a scale unknown in human history before the Second World War. Hence, innovations, invention of new technologies become the main driving factors of rationalization investment. This aspect and the organization of diverse international institutions that preach and advance free trade doctrine and market economic ideology empowered capitalist countries to collectively put pressure on weak nations to act and handle as they wish. In other words, the globalization process of the last 80 years and especially of the last 30 years could determine the fate of many African countries; and many countries are not functioning any more as normal sovereign states. Yet as it is supposed and propagated globalization could not fulfill its promises. It rather becomes the main cause of poverty, unequal distribution of wealth, robbery, loss of peace and permanent instability.
After globalization has been propagated as a new avenue of economic growth that can alleviate poverty in many African and other Third World countries millions of people in these countries are not in a better position than compared to the previous decades. Over the last 30 years many African countries have directly or indirectly pursued and practically applied free trade and free market economy with the hope of bringing economic growth that could ultimately fulfill the aspiration of the people in each African country. Since the IMF and the World Bank, the two Bretton Woods institution got the upper hand after the oil crisis in 1973/74, and after the economic crisis in the West due to the downturn in the economic growth, the neo-liberal ideology had triumphed.
Until the end of the 60s and the beginning of the 70s of the last century all major industrialized countries, including the USA, Japan and South Korea had pursued an interventionist or Keynesian economic policy that paved the way for a profound transformation of most West European economies and social systems. If one examines carefully the policy that all these countries had applied it was not a mere Keynesian macroeconomic policy, but a conscious economic policy that mainly focused on science, technology, R&D, manufacturing economic activities. At the same time they have reorganized the education system so as to produce technically skilled personnel. In order to finance these and other major projects, like housing, bridges, train systems and roads of various types, they have reorganized the banking system to allocate easy credits for small and medium size industries. Since manufacturing activities and industrialization can only take place in cities, towns and villages they had to plan their entire space and support them with effective and dynamic institutions to mobilize all the available resources. With such kinds of protracted measures, and strategic investment activities most West European countries could successfully build their broken economies within 15-20 years after the Second World War. Because of the inherent crisis within the system and due to heated competition mostly among Japan, the USA and Germany, and due to the Dollar glut on the world market, the Bretton Woods system had at the end collapsed. This had given for neo-liberal economists the opportunity to wage a war against state intervention and advocated for a pure market economic policy as the only effective instrument that can bring prosperity in all countries across the globe.
For African countries south of the Sahara, and other Third World Countries neo-liberal economists had formulated what is known the Washington Consensus or the So-called Structural Adjustment Program (SAPs). The main agenda of this program is to implement a pure market economic policy in the African continent under the supervision of the IMF and the World Bank. Therefore everything must be deregulated, and the role of the state must be minimized to such a level so as to enable the so-called market actors to invest and decide over the fate of the economy, vis-à-vis millions of people in each African country. Accordingly, all the instruments, like devaluation, liberalization, reducing budgets from the social sector and reducing or totally abandoning subsidy for food and social projects, it was believed that all these instruments will effectively pave the way for the right allocation of resources, and hence for the materialization of a pure market economy that could guarantee economic growth in each country. It is assumed that if African countries liberalize their foreign trade they could attract investors. This will help many countries to create jobs for millions of people. This will in turn boost demand, and as a result of this the economy will grow. That means by pursuing and implementing economic policies that are formulated in Washington and other West European capital cities, and without any debate from within in each country, many African countries had practically applied a free trade and a pure market economic policy with the hope of seeing a bright future for the majority of Africans.
However, many studies, including studies conducted by the UNCTAD and other non-governmental institutions, and the realities on the ground in many African countries prove that the promise of the Washington Consensus could not be materialized. The so-called free market actors could not seize the opportunity to invest strategically so as to create bigger market structures in all African countries. The so-called foreign investors have concentrated mainly on plantation economies, like flower, sugar cane, fruits and vegetables and mineral resources that are planned for foreign markets and not to develop the home market in each African country. Because of such kinds of not theoretically well constructed economic policy and non-scientific approach that are alien to the African countries, economic forces from within are pushed mainly to the service sector, and become simply comprador. As this sector grows exponentially products from China, India and other countries including second hand products flooded the markets of many African countries. Instead of market economy on a wider basis and structural transformation, such a pure market economy of the Washington Consensus inevitably shrinks the market size. Instead of diversified and well-organized economic activities, we observe that similar activities that are mainly based on the service sector become the rule of many African societies. That is the consequence of liberalization.
With devaluation of their currencies many African countries as is believed could not sell more of their products on the world market. Since competition among agricultural producing countries is high, and since prices of raw materials and agricultural products, like Coffee and Cacao are determined on the world market and not by the direct producers themselves, devaluation of the currencies will not necessary help African countries to sell more of their agricultural products on the world market. Pure market policies of such kind will compel the peasants to shift their agricultural practices from cereal to cash crop production. Those farmers which believed that by focusing on cash crop production with the hope of earning more income must be frustrated. Due to their shift from cereal production to cash crop production, they must rely for their food on the market. They can buy as long as they have money in their pockets. Therefore devaluation and the shift of cultivation from cereal to cash crop production has condemned millions of peasant households to suffer from hidden hunger, and under nutrition become a common phenomenon in many African peasant households. Devaluation with other policy instruments has rather corrupted the African market. Instead of innovation and productivity growth we observe that the African market is overwhelmed by foreign products. As a result of such policy instruments the African markets become more and more non-transparent, and there is no clear cut division of labor. Especially those industries that heavily rely on imported spare parts and raw materials must be negatively affected. Those businessmen and investors which cannot afford to buy more dollars in order to import spare parts or machines must produce with very low capacity. This means that devaluation has negative impacts on resource allocation, employment, income, demand and the overall performance of a given economy. As is believed devaluation could not improve the trade balance of many African countries. To the contrary, many African countries must suffer trade balance deficits that compelled them to look after credits with still high conditionality that again strangulate the internal economy. More austerity policy means that governments must still be restricted to very limited areas, and are not allowed to invest and create jobs for the millions of people but wait until the economy recovers by itself or until a miracle happens. On the other side the clever IMF experts workout very sophisticated ‘poverty alleviation’ programs without studying and analyzing the causes of poverty that prevail in many African countries. They could not realize that their different economic policies over six decades are the main causes of poverty and underdevelopment in many African countries.
IMF experts when they formulate pure market economic policies and insist that African governments must apply them their intention is to see a certain amount of economic growth and not to bring an overall economic development. The policy instruments that must be applied to achieve a certain amount of economic growth are not suitable to bring radical changes which can be translated into the lives of the ordinary people in each African country. Therefore because of the nature of their theoretical background and way of seeing what is happening on the ground in any country, economic growth and poverty alleviation are seen as two different goals that need different approaches. They totally forget that the main aim of economic growth is to eradicate poverty and not achieve a certain amount of economic growth for the sake of growth. By bringing such unscientific policies and compelling the elite to introduce them the IMF and the World Bank confuse not only the political elite but also the new emerging class and the young generation in many African countries.
Like liberalization and devaluation, the privatization policy of the IMF and the World Bank could not induce economic growth. The policy has rather created a unique kind of social relationship, which helped the few to accumulate wealth within a short time. Therefore privatization in many African countries and especially in Ethiopia could benefit few people that are intimately linked with the state machinery, and that originate from certain ethnic group. These forces with the backing of the state could easily get cheap credit from the banks, and buy state owned companies and businesses and become multi-millionaire overnight. Since most of them do not have business experiences and work ethic they began pushing those investors and business men to go out of the market. They even go further to expel others from the areas of investments that have been practicing for generations with the intention of earning more profit and accumulating wealth. They believe that when they control strategic sectors of the economy they can control the country and determine over the fate of the entire people. If we compare the Ethiopian case with other African countries it is unique in many cases, and the government deliberately hinders private investors that are not originated from the one region, vis-à-vis Tigre province. In this case the reorganization of the state apparatus in Ethiopia after 1993 and its entire economic policy and including privatization and land grabbing cannot be analyzed within the concept of a normal state theory, but from the perspective of globalization and integrating within the international hierarchical system that has changed it to a more predatory state. Only with the help of foreign forces the state system in Ethiopia and the ruling elite become predatory and get the opportunity to play divide and rule politics in order to block national cohesion and national sentiments that help the people to rise up together to solve their problems.
In short, the neo-liberal agenda of a pure market economic policy and free trade could not bring any tangible results to the various African countries, especially to the millions of Africans who hope a better future. Market economic policies of the IMF and the World Bank type, and that are vehemently supported by the International Community become a nightmare for millions of Africans, while few could become successful and state apparatus have become heavily militarized. In other words, a pure market economic policy of such a kind that does not reflect the real situation in each country and that is imposed from outside will inevitably create social abnormality that could endanger the entire social fabric in each African country. The consequence is a unique kind of economic, social and political suppression and disempowerment of the masses that can pave the way for unwanted actions and intervention of outside forces in the internal affairs of each African country. The case of Nigeria is a vivid example how austerity programs, unplanned and not consciously organized economic activities create and will lead to more corruption and embezzlement of the meagre resources that the country needs to repair and organize the entire economy on solid foundation that ultimately bring prosperity to all Nigerian people and create also social and political stability. Though Nigeria earns from oil alone over $ 60 billion year after year nobody knows where such an amount of money stays. Over the last five decades the country has earned over $ 600 billion form oil revenue alone, and most of the money is simply wasted rather than being properly invested to improve the lives of the Nigerian people. It is estimated that $10- $20 billion will disappear every year. From sub-Saharan Africa as a whole it is estimated that over the last 5 decades over $ 607 billion to $ 1 trillion has been lost or left out of the continent to swell foreign banks. From this bleak perspective let’s examine whether African countries will get any benefit and transform their economy to a better one if they ultimately arrive to free trade agreement with the EU. The next chapter will examine the genesis of free trade policy in Africa since independence.
Economic Partnership Agreement and its Impacts!
Economic treaties with the EU are not new, and since 1963 there have been agreements and treaties between the African and Caribbean countries and the EU. The first agreement between the EU at that time called the EEC and 18 francophone African countries was signed in Yaoundé. The aim was to give commercial and financial aid to these countries. In 1969, at the Yaoundé II other African countries become part of the treaty. The central aspect of the agreement was to expand the scope of the first agreement by introducing preferential trade for African countries that were members of the treaty and at the same time to get raw material access to the EEC. In 1975 in the Lomè convention stabilization program for raw materials (STABEX) and ‘development aid’ become part of the agreement. The agreement was expanded from 1979 onwards until 1995 by including other elements like food security and self-reliance, structural adjustment and problems of dealing with debt and issues of democracy, human rights and good governance, regional cooperation and European Development Fund (EDF). Especially, in the Lomé agreement of 1984 attention was shifted from industrial policy to mere food security. This shows the nature of the agreement to limit African member states to certain areas while neglecting an overall developmental plan based on systematic industrialization. Though experiences in most western European countries show that systematic industrialization coupled with other economic enhancing measures are the most effective instruments to deal with such kinds of crises most African countries are facing why such a shift to few specific aspects was necessary, is a matter of speculation.
The foundation for the new Economic Partnership between African, Caribbean and Pacific states(APC) and the EU was laid in 2000 in Contonou by expanding the agreement previously reached to remove tariffs on almost all products that are imported by the EU, including Sugar and Beef. It was at the same time agreed to shift the attention to a more ‘participatory development’ paradigm. In article 1 of the Contonou agreement, it was agreed that: … “reducing and eventually eradicating poverty with the objectives of sustainable development and gradual integration of the ACP countries to the world economy.”23 become one central issue in which both parties agreed. The agreement also raises the importance of shifting to a new paradigm of ‘participatory development’ to help the continent. How this new paradigm looks like, and how sustainable development can be materialized and to what kind of society the supposed sustainable development leads, and whether this can bring equitable distribution in each member country is not clear. When we scrutinize again the concept participatory development, does it mean that the people in each African country will have the right to participate in development issues? Or does it mean that the political elite in each African country with some experts from the EU will decide over the fate of million Africans? This and other issues about the general context of development and its goal are not clear. Besides these how free trade and real development can go side by side is not systematically analyzed. From the experiences of other countries we learn that free trade cannot lead economically backward countries to a homogenous market capitalism that is based on science and technology and on a vast division of labor.
Fact is that such a free trade agreement with the EU must be compatible with the rules of the WTO. If African countries sign an agreement with the EU, they cannot get any more favorable trade preferences that has until then existed. Secondly, African countries that sign the Partnership Agreement must be abide by the rules of the WTO, and the so-called reciprocal tariff agreement must be effective. Though there exist valid information from well informed and respected intellectuals that the WTO is nothing than a lobbyist organization, 24 especially controlled by some American multinational corporations that have accumulated huge amount of wealth and controlling some of the world’s wealth, it is unclear why the EU as a democratic and civilized institution insists that African countries must accept the rules of the WTO. At the same time the Partnership Agreement entails three fundamental elements, namely, development relationship, political relationship and economic relationship. The question is how all these aspects can effectively be materialized and their scientific and philosophical foundations are not clear. It is not also clear whether these three elements are within the concept of the WTO which advances a pure free trade policy across the globe. It seems that the agreement, if it will be accepted and operational it cannot be any more than a technocratic and technical agreement than a transformative agenda with clear scientific and philosophical foundation to build the continent on more firm foundation.
The other question that can be posed here is why is it necessary to make free trade agreements when some African countries are already members of the WTO? Why do many countries need extra free trade agreements like regional trade agreements or one region with another institution like the EU, again EU with America, etc.? What is the essence of all these scattered agreements if there is one established organization, like the WTO? Do not such diverse free trade agreements on bilateral and regional basis, some countries with another institution, and one continent with another contradict the spirit of the WTO?
From this vantage point no one knows what will be the impact of the oncoming free trade agreement, known as the Transatlantic Trade and Investment Partnership (TTIP) between the EU and the USA, will have on many African countries, if EPAs will become effective one day? As is well known, TTIP is not a classical free trade agreement to simply reduce and slowly abolish tariffs on goods and services. The main agenda of TTIP is the reduction and slowly abolishing of non-tariff barriers. Under non-tariff barriers one can understand and define many things that one thinks that they are barriers to free trade and investments in other countries. These are like abolishing consumer protection rights, such as not declaring the types of the ingredients that may exist in each food item to make the consumer aware of the elements in each food substance, protecting personal data, protecting workers right, and investment criteria.
The main spirit of TTIP is to abolish all these basic rights that the consumers and workers in the EU have fought for long and have been practicing them over many decades. If TTIP will be accepted in a closed door agreement, the EU will be abide by the rules of TTIP, and is not permitted to close its door or discriminate imported items by labeling special stamps on them to make aware the consumer so that he can have enough information what kind of foods he buys and consumes. Likewise, workers will inevitably lose their rights and cannot be seen as equal partners by their employers. Due to the competition which exists in the labor market it will be easier for the employers to make pressure on the workers and compel them to work under severe conditions. The question which we have to impose is, does this not contradict by itself the spirit of the WTO? Does it not such an agreement between the USA and the EU has wide range consequences on the people of the EU countries? What will be the impact of such a free trade agreement on many African countries if this is the case? Food items that are imported from the USA, will only be sold in the super markets in the European Community, or can also be exported to African countries by changing their labels and declaring as if they originate from the EU countries?
On the other side the USA had already signed free trade agreements with some African countries. The African Growth and Opportunity Act (AGOA), that became effective since the year 2000 is by itself a free trade agreement. Its main agenda is by propagating trade as an engine of economic growth, to tighten African countries more within the sphere of American influence. Through free trade agreement and other cooperation measures the USA want to counter attack Chinese involvement in many African countries. Though it seems that African countries may get some advantages, its main agenda is to deepen the old division of labor and prevent at the same time a holistic approach of economic and social development that is based on science, technology and manufacturing activities. Under the agreement though many African countries could export more of their agricultural products, this does not mean that such an agreement will help African farmers to come out of poverty. The situation in many African countries proves that such a free trade agreement with the USA could not improve the life of the peasants and workers. It will only benefit those individuals who are engaged in export and import activities.
Other than this kind of free trade agreement there are also bilateral agreements between the USA and various African countries in order to pave the way for a general free trade agreement. The so-called Trade and Investment Framework Agreement (TIFA) is a systematic approach towards a free trade agreement to make the situation more favorable for American big companies. In the name of boosting trade and investment, raw material extracting companies will get access to the mineral rich areas of the continent, exploit and ship them to America. It must be clear that multinational companies of any type are not interested in developing the continent. Their main motive is to exploit the continent’s resources and ship them to their countries to process them there. As experiences over the last 60 years show that many African and Latin American countries could not get any benefit from the activities of multinational companies. Many African and Latin American countries still suffer from the ecological, economic and social damages that multinational companies have inflicted. Many American multinational companies are the causes of unequal development, political suppression, and political instability, social and economic degradation in many Third World countries. In other words, new investment activities which come from abroad won’t help African countries to develop as dynamic nation-states. All such kinds of agreements that are signed and become operational in the name of free trade will rather bring more confusion than clarity in the African society. They do not help Africa and the African people to articulate on the essential issues that are crucial to eradicate poverty and build an economic and social system that could bring justice and harmony in each country. They rather deepen the existing social and political relationship, and through that poverty will be produced and reproduced on a higher scale.
Coming to the economic partnership agreement between the EU and African countries, it is now almost over 10 years since an agreement has been reached to work towards a partnership agreement. Due to the complex nature of the issue and the way how the EU commission handles the issue, especially not to be abiding by its first agreement about development issues the final agreement has been delayed. We hear that African ministers who took part in the negotiations are not in good terms with the commission of the EU, and the EU brings new ideas and tries to reach a deal in its own favor. For example in the Contonou agreement it was stated that ACP countries can decide over development issue concerning their countries. On the other hand the EU wants to bypass or ignore such an agreement that has been accepted by both parties. From the African minsters who are in charge of this affair we read the following statements: “[…] Minister observed that European Union mercantilist interests have taken precedence over the ACP`s d