Sustainable Development, Globalisation and Africa: Plugging the holes

By Jekwu Ikeme

Introduction

Perhaps the greatest controversy in the world today is how to make sense out of the two dominant global objectives ushering the globe into the new millennium: sustainable development and globalisation. These two obviously desirable paradigms appear to have some opposing tendencies within them. The aim of this paper is to discuss the issues facing Africa, and in deed, other developing nations in a globalised economy. The paper has a simple point to make: the major challenge facing African technocrats and policy makers today is how to strike the right balance between the demands of sustainable development and the goals of globalisation. It recommends seven policy measures with which African nations can protect themselves from the pangs of unsustainability while benefiting from the promises of globalisation.

Before examining the links between sustainable development and globalisation, it will be useful to attempt a snapshot at what the concepts are and how they manifest themselves.

Sustainable development, declares the Brundtland commission, is the "development that meets the needs of the present without compromising the ability of future generations to meet their own needs" (WCED, 1987). This automatically subsumes some notion of fairness of access to basic resource needs for all populations, both in the present day and in the future. Economists have been at pains to make sense of the elusive condition for sustainability. Various interpretations of this definition have consequently emerged, differing along the disciplinary lines of ecology, economics, philosophy and others. While the debate still lingers on how to develop appropriate indicators for measuring the concept, there is a consensus that sustainability is the capacity for continuance into the future (Barbier, 1989; Pearce, 1997). The implication of this conclusion is that while ensuring the welfare of all, a path of economic and social development should not seek to maximize gains for this generation if in so doing it reduces the capacity of future generations to provide for their own wants and needs. The sustainability concept recognizes that life is a complex bundle of values, objectives and activities, with ethical, environmental, economic and social dimensions. While current concern about unsustainability largely has an ecological basis, it is clear that human situations can be unsustainable for social and economic reasons as well. For sustainability, therefore, the pertinent questions are: For the environment, can its contribution to human welfare and to the human economy be sustained? For the economy, can today’s level of wealth creation be sustained? And for society, can social cohesion and important social institutions, knowledge and skills be sustained? (Ekins, 1997).

Viewed from an economist’s perspective, the above three ramifications of sustainable development can be said to constitute the capital assets available for societal development. In this sense, the capital available for sustainable development can be said to be natural, man-made, social, and human capital stocks in that order (the social dimension having been split into social and human capital stocks according to the works of Becker, 1996). The condition for sustainable development, therefore, amounts to each generation leaving the next generation a stock of productive capacity, in the form of capital assets and technology, that is capable of sustaining utility or well-being per capita than that enjoyed by the current generation, or at the very least, equal to that enjoyed by the current generation. Put in another way, sustainable development requires that the stock of natural, man-made, social and human capital should not decline, or if you like depreciate, below the present level. This has come to be known as the constant capital rule (CCR). For African nations to be deemed sustainable, therefore, their stock of capital (human, man-made, and social) should remain constant over time or ideally be increasing.

Globalisation, on the other hand, is the trend of increasing integration of economies in terms not only of goods and services, but of ideas, information and technology. Globalisation means trade liberalization, free capital mobility, privatization, commercialization and the empowerment of transnational corporations (TNCs). With the strong wave of globalisation sweeping across the globe today, a qualitatively new world economy is fast emerging. This is most dramatically apparent in the area of finance, where average daily foreign exchange transactions grew from $15 billion in 1973 to $1.2 trillion in 1995, and international capital flows now exceed trade flows by 60 to 1. It is also now becoming common place for anonymous institutional investors to influence currency rates, the availability and price of international capital, and interest rates in economies miles away from their operational bases. The trend is all embracing, the framework of rules within which economic activity takes place is increasingly defined in the international framework of the WTO, the IMF, the World Bank, the OECD, and G7 summits, and is heavily influenced by regional trading blocks such as APEC, the EU and NAFTA. Globalisation is both a cause and a consequence of the information revolution. It is driven by dramatic improvements in telecommunications, exponential increases in computing power coupled with lower costs, and the development of electronic communications and information networks. These communications technologies are helping to overcome the barriers of physical distance. To participate in the global economy, African nations are supposed to open up barriers to foreign investment, reduce corporate regulations and taxes, as well as other disincentives to vibrant economic activities.

Apparent from the above analysis and as has been recognised by other writers (see Pearce, 1996; Khor, 1997) is the fact that globalisation appear to be at loggerheads with the principles of sustainable development. The sustainability approach represents one paradigm for international relations: that of consensus-seeking, incorporating the needs of all countries (big or small), partnership in which the strong would help the weak, integration of environment and development concerns, the intervention of the state and the international community on behalf of public interest to control market forces so as to attain greater social equity and bring about more sustainable patterns of production and consumption.

Globalisation with emphasis on liberalization represents a very different approach. It advocates the reduction or cancellation of state regulations on the market, letting ‘free market forces’ reign, and a high degree of rights and ‘freedoms’ to the large corporations that dominate the market. The state should intervene only minimally, even in social services. On the environment, instead of intervening in or imposing environmental controls, the market should be left free on the belief that this would foster growth and the increased resources can be used for environmental protection. This approach also sidelines concerns of equity, or the negative results of market forces, such as poverty and non-fulfillment of basic needs. It assumes that market will solve all problems. Extended to the international arena, the paradigm advocates liberalization of international markets, breaking down national economic barriers, rights to corporations to sell and invest in any country of their choice without restraints or conditions. Governments should not interfere with the free play of the market, and social or development concerns (for instance, obtaining grants from developed countries to aid developing countries) should be downgraded. Globalisation thus simultaneously increases the demand for social insurance while decreasing the capacity to provide it.

Within the vortex of these two powerful and opposing tendencies lie African economies, with the wounds of poverty, civil wars, famine, overpopulation, deteriorating social conditions, increasing decay of institutional capacity, poor export performance, environmental degradation, debt-burden and poorly developed human capital. The question then is; what choices and opportunities are available to the African economies under the changing global environment? What are the threats? What policy measures are required to ensure the effacement of the undesirable possibilities while reaping the desirable fruits of the evolutionary process?

In answering these questions, much depends on which point of view one adopts, unrestrained economic growth versus sustainable development. Since I think sustainable development should remain the overarching societal focal point, the style of this essay is to analyze the impact of globalisation on the various ramifications of sustainable development and to suggest the policy measures for addressing the issues raised.

As noted earlier, the capacity for continuance as stipulated by sustainable development depends on the stock of capital, viz: man-made, natural, social and human. These capital assets must not decline, or ideally be increasing for sustainability to be ensured. The effect of a globally integrated economy on the various assets for Africa’s sustainable development is varied. Lets now analyze these effects.

II Man-made capital

Man-made or reproducible capital refers to the conventional financial and physical assets. They can be referred to as derived capital given the fact that they can only be created with inputs from another type of capital, usually natural capital. They include cash, roads buildings, and machinery for example. Africa’s man-made capital can be split into indigenous and imported. Indigenous man-made capital includes those which are indigenously created in Africa and for which expertise for re-creation is readily available. Imported man-made capital are mainly western technologies - such as different forms of industrial machinery, vehicles, computers, etc - which many African countries presently lack the expertise and capacity to produce. Depreciation on man-made capital occurs through wear and tear, loss or obsolescence. However, depreciation on man-made asset is not a major problem for sustainability, since the capacity to replace such a capital is always readily available. In Africa, however, the only limitation to this capacity is the technological know-how and the financial ability to import the state-of-the-art in technology-related man-made capital.

The effect of globalisation on Africa’s man-made capital will probably be positive. This is because of the fact that with capital mobility and financial liberalization, foreign investors in search of greener pastures will move financial capital into African territory. Also the increase in the freedom of TNCs will mean greater permeation of African continent and this will increase the pace of technology transfer.

But another question one may need to ask is what effect will those new man-made capitals have on other capital stocks? How environmentally benign are they? If the transferred technology are such that have greater impact on environmental capital than the replaced technology, then the overall effect might be a decline in the total capital asset and the overall sustainability of the society. However, if the current wave of environmentalism and the consequent tight environmental regulations in the West is sustained and the TNCs are made to extend the same operational standards to their operations in the developing nations, then one would conclude there is no much threat for sustainability from the man-made capital angle.

III Natural Capital

Much of the force driving the quest for sustainable development stems from the concern for the despoliation of natural capital. Natural capital refers to all renewable and non-renewable natural resources, as well as the flow of ecological services derived and derivable from nature. They include the full array of minerals in the ground, forests, the stocks of groundwater and surface water, the quality of the air, the assimilative capacity of the atmosphere, the ozone layer and its capacity to regulate ultraviolet radiation, the various biogeochemical cycles that regulate hydrological and nutrient flows, and which provide the very life support systems on which we all depend, etc. While many of the types of natural capital described above can be said to possess universal characteristics and as such can not be owned by any one nation, others - such as minerals, surface and groundwater, soil - can be nationally situated. According to the sustainability paradigm, natural capital should not decline or depreciate. Depreciation on natural capital takes two main forms - natural resource depletion and environmental degradation. Natural resource depletion is associated with the extraction and consumption of natural capital such as gold, oil, timber, coal, columbite, etc. Environmental degradation, on the other hand, is the loss of environmental quality associated with production of goods and services. This takes the form of air pollution, water pollution, land degradation, etc.

Unlike man-made capital depreciation on natural capital are in many cases irreversible. Take a natural resource for instance, if it becomes completely exhausted, it is gone forever. This is because we lack the ability to recreate it. Many authors, therefore, argue that natural capital is special and insist that it is not substitutable with other forms of capital, such as man-made capital. This is at the root of arguments between the proponents of weak and strong sustainability. While strong sustainability recognises the aforementioned special nature of natural capital and insists that they are not substitutable with other forms of capital, the weak sustainability concept allows for substitutability between the various capital stocks. It is therefore wholly consistent with running down the stock of natural capital provided that the proceeds are reinvested in, say, human capital or man-made capital so that the aggregate value of capital assets remain the same or increases. The concept of weak sustainability assumes that it is a generalized capacity to produce that should be passed to future generations rather than any specific component of the capital stock.

African economies depend largely on natural capital. In fact, no other region in the world depends on natural commodity exports as much as sub-Saharan Africa. To scope the extent of Africa’s dependence on natural capital for economic growth, some statistics will obviously be needed and the United Nations and World Bank are never short of them. Statistics from the World Bank (1989)says that agriculture alone accounts for 33% of Africa’s GDP, 66% of its labor force, and 40% of its exports. This is just agriculture, mining and other extractive industries are not included. Further examples from the United Nations (1988) show that Burkina Faso and Mali rely on cotton for over 50% of their export receipts. Burundi, Ethiopia, Ghana, Kenya and the Cote d’Ivoire get over 50% of their export revenues from tropical beverages. Malawi, Mauritania and Somalia derive similar proportions from food products. Niger and Zambia depend heavily on the export of metals and minerals. These countries in general show very little diversification within their export sector and as such the stability of the economy depends largely on the health of the natural capital. Liberalisation will, hopefully, increase international trade and hence export of natural resource commodities by African nations. The question is: Will this increase in trade affect African economies positively or negatively? This question does not have a simple answer, but a snapshot at the present situation may give some insights on the possible effect.

Presently, the world marketing system, which denies African nations higher prices for their agricultural products and minerals and limits their access to Western markets is partly being held responsible for ecological degradation in Africa. At this juncture, World Bank’s findings appear very appropriate and insightful. According to them, African commodities have been subject to very large fluctuations over the past decades and are currently at their lowest levels in 30 years (World Bank, 1987). The usual response of African countries to decreasing prices is increased production (of timber, tin, copper, cocoa, coffee, and other agricultural products and natural resource). This effort, however, simply drives prices lower as dozens of developing countries flooded the world market with their commodities as part of donor-mandated "structural adjustment programs". The decline in foreign exchange earnings further constrains import capacity, depriving industry and agriculture of important inputs such as fertilizers and spare parts. In a more integrated global economy, the rate and quantity of resource outflow from Africa is bound to grow and so will the pace of the consequent ecological degradation, while the prices of the natural commodities continue to fall. As the resource base erodes rapidly so will Africa’s living standards (Harrison, 1987). So while advocates of liberalization argue that all countries will gain from free trade, it does seem as if it will make the pursuit of ecologically sustainable food security more difficult in Africa. Except the prices of natural resource exports of African nations are priced to reflect the externality costs, the impact of globalisation may well be negative.

This case is further compounded by the failure of African nations to recognize the contributions of natural capital in national income accounting. Revenues obtained at the expense of depreciating natural capital are thus treated as income. In a region where natural resources provide the foundation for so much of the economy and a source of livelihood for a large part of the population, disregarding degradation and depletion of environmental capital is likely to be damaging both in the short term to the welfare of those, especially the poor, who rely directly on these resources, and in the longer term to the sustainability of income. This issue has been extensively treated in another article: (Ikeme, 1999)

IV Social capital

While current concern about unsustainability largely has an ecological basis, it is clear that human situations or ways of life can be unsustainable for social and economic reasons as well. In the words of Becker (1996) credited with the fatherhood of the human and social capital concepts, ‘social capital incorporates the influence of past actions by peers and others in an individual’s network and control system’. It also includes relationships between individuals, organizations, and between individuals and organizations, kinship, and charitable behavior. Social capital can be deemed the ‘glue’ that holds society together without which societies are themselves unsustainable (Pearce, 1996). The identification of this type of capital stems from the observation that different societies can have broadly equal endowments of other forms of capital, but that certain societies perform better in terms of economic and social development. This missing link is thought to lie in the fact that the better performing societies have less conflict between social groups, more participatory decision-making procedures, greater trust between economic agents, and so on (World Bank, 1997). Thus Putnam (1993) found that one of the factors explaining Northern Italy’s better economic performance compared to Southern Italy was the presence of many more voluntary organizations. This is not to suggest that this form of capital is easy to measure in a manner consistent with how other forms of wealth are quantified. Nevertheless, the destruction of social capital can easily be identified. The wars in Congo, Sierra Leone, etc. obviously constitute a stumbling block to the right social atmosphere necessary for both sustainable development and pursuit of the benefits of globalisation.

Until the incursion of the western political and cultural colonialism, Africa could be said to be very rich in this form of capital. Originally, African societies were founded on communalism where reciprocity and kinship bonds reigned. Resources were held in common and interdependence was recognized as a fact of life. These attributes, however, are fast disappearing. The social philosophy of the emerging global economic order is that of individualism, survival of the fittest and winner takes it all. As the wind of globalisation continues to blow through Africa, rendering the world more selfish and predatory, and as long as we continue to accept the western culture as superior over other cultures, the societal glue that held African societies in one piece will continue to get weaker.

V Human capital

Human capital refers to the relevant past consumption, experiences, knowledge and skills that affect current and future utilities. Recognition of the importance of this capital stock is critical both for sustainability and globalisation. As rightly noted by Prof. Anya O Anya (1999), with the onset of the post-industrial society, development has gone from the resource-exploitative model as the basis for increased and increasing prosperity to the knowledge-based and technology driven. In the process, the new forces of globalisation, and the attendant liberalization, fostered aggressively by TNCs have ensured that goods and services, capital and finances can move across national boundaries, attracted often by the skill and knowledge base of a given society. Thus, skills and knowledge rather than natural resources are now the basis of comparative and competitive advantage in the developed world. African nations are grossly poor in this aspect of development. They are not only still dependent on natural resources for comparative advantage as noted above, but possess a stock of grossly underdeveloped human capital - that is in terms of the type of knowledge and skills presently required by western capitalism.

It is always assumed that there can be no depreciation on human capital since knowledge and skills are always increasing, rather than declining, and can always be passed on to future generation. But nothing can be farther from the truth. Depreciation on human capital does occur and this is expressed in the loss of indigenous skills and knowledge through displacement of tribes, loss of ancient crafts, culture, language, etc. as is going on all over Africa at the moment. This is particularly crucial for African countries because in the indigenous knowledge lies the cultural history of inter-dependence on which the ‘glue’ value attribute of social capital is hinged. Also health hazards and poor sanitary conditions will lead to a depreciation of human capital in the sense that the incapacitation of a human being to maximize the utilization of his/her embodied knowledge or skills through poor health is akin to the loss of that knowledge or a portion of it.

So what is the fate of Africa’s human capital in a globalising world? Firstly, globalisation is already obliterating the indigenous cultures of many African societies. The indigenous knowledge and skill is giving way to western knowledge and skills and many African languages have been predicted to be on the path to extinction. While one can not deny the benefits of the western knowledge, the questions are: Must these new knowledge and skills be acquired at the expense of the indigenous knowledge and skill base? Are there no elements of our indigenous knowledge and skills that are relevant to our present development effort?

Secondly, there is a valid fear that globalisation may put African economies at a greater risk of income inequality. Income inequality has been increasing at an increasing rate in Africa. In Africa as a whole, the richest 20% of the population had, in the early 80s, an income four times that of the poorest (UN ECA, 1983). Since then, the condition of the poor has deteriorated further as governments across the continent are compelled to cut public expenditures and restrict necessary imports to conserve foreign exchange as part of an International Monetary Fund (IMF) or World Bank economic restructuring programs, thereby curtailing investment in the productive sectors (Cornia, et. Al., 1987; World Bank, 1989).

Consider some examples of how the market reforms associated with globalisation can affect inequality in African countries. Recent evidence shows that trade liberalization leads to increasing wage gaps between the educated and uneducated, not only in the OECD countries but in the developing countries (Birdsall, 1999). This risk is potent in no other place as much as it is in Africa where the greater percentage of the populace are uneducated. Apparently the combination of technology change with the globalisation of markets is raising the demand for and wage premium to skilled labor faster than the educational system is supplying skilled and trainable workers.

A second example is privatization. Privatization of utilities (power, water, telecommunications, etc.) is always perceived as good for the society. This is because most if not all publicly managed utilities in Africa are inefficient and bedeviled by poor and corrupt management. But it is increasingly obvious that privatization poses grave risks of concentrating wealth in the hands of a few unless done well and with the full complement of regulation. The risk of privatization arise because developing and transnational economies, almost by definition, are handicapped by relatively weak institutions, less well-established rules of transparency, and often, not only high concentrations of economic and political power but a high correlation between those two areas of power. These conditions combine to make it difficult indeed to manage the privatization process in a manner that is not disequalizing.

The third attribute of globalisation with a lot of implication for human capital is financial liberalization. While the elimination of financial repression and increased competition of a modern and liberalized financial sector will benefit small enterprises, through increased access to credit, it also presents some adverse effects as well. In the short run at least, financial liberalization tends to help those who already have assets, increasing the concentration of wealth, which undergirds, in the medium term, a high concentration of income. For one thing, liberalization increases the potential returns to new and more risky instruments for those who can afford a diversified portfolio and therefore more risk, and who have access to information and the relatively lower transacting costs that education and well-informed colleagues can provide. In Africa, with repeated bouts of inflation and currency devaluation in the last several decades, the ability of those with more financial assets to move them abroad (often while accumulating corporate and bank debt that has been socialized and thus eventually repaid by taxpayers) has been particularly disequalising.

Inequality is destructive, when for example it reflects deep and persistent differences across individuals or groups in access to the assets that generate income - including not only land (which is extremely unequally distributed in Africa) but, most important in today’s global information age, the asset of education. Obviously, this destructive inequality undermines economic growth and efficiency, by reducing the incentive for individuals to work, to save, to innovate and to invest. And it often results in the perception if not the reality of injustice and unfairness - with the political risk in the short term of a backlash against the market reforms and market institutions that in the long term are the critical ingredients of shared and sustainable development.

But of course, as many will argue, not all inequality is bad. Some inequality is a manifestation of the healthy outcome of differences across individuals in ambition, motivation and willingness to work. This constructive inequality provides incentives for mobility and rewards high productivity. Some would say constructive inequality is the hallmark of the equal opportunity society the US symbolizes. Increases in this constructive inequality may simply reflect faster growth in income for the rich than the poor - but with all sharing in some growth. In any case, so far as welfare for all is part of the goal of sustainable development, inequality is a negation of sustainability objectives.

VI Policy implications

Here I present seven interrelated policies to ensure the sustainability of African nations in a global economy. The policies reflect my position on globalisation, which is that every society should consider any aspect of globalisation side by side with their own economic realities and circumstance: there is no standard foolproof model for every society. While globalisation opens a door of new economic opportunities for developing and transitional economies, it does appear to have some costs as well. The challenge for African policy-makers remain how to balance the benefits against the costs in such a way that they come out better off and without compromising the principles of sustainability. The following policy measures might have a role to play in this regard.

1. Modify the national income accounting system

The national income accounting system as it is presently structured is a poor reflection of the sustainability of African economies. National income accounts are intended to track growth of aggregate income in national economies. Following Lindhal (1933) and Hicks (1946), an indicator of income should measure the value of goods and services that could be consumed in a nation during a given period without reducing future consumption opportunities. This leads to an interpretation of income as the return to a capital stock, and of economic growth (or aggregate income growth) as increases in that flow. Funds generated through reduction of the capital itself are not actually income or contributions to economic growth. In national accounts, however, there is no attempt to measure depreciation of natural capital. Revenues from activities that reduce the stock of natural capital are treated as income without considering the impact of lost stock on future consumption opportunities.

It is this anomaly in income accounting that sends false signals to African policy makers, blinding them from the need for corresponding savings or re-investment of the rent from natural capital consumption. For instance, Gross Domestic Savings in Africa fell from 24.5% of GDP in 1975-84 to 16.2% in 1990-1997, likewise Gross Domestic Investment plummeted to 19.3% of GDP in 1990-1997 from 25.4% in 1975-84 (IMF, 1997). In the same vein, failure to factor environmental costs into the prices of exported commodities ensures that African economies are continually drained of their natural resources at marginal prices and that they remain unfavorably positioned in the world economy. In a more integrated world in which multinationals call the shots, the rate and volume of resource outflow from natural resource dependent economies is bound to grow, while the income received per volume of natural resource output will continue to decrease. According to ECA (1998), Crude oil prices declined by 10% in 1997 from an average of US$ 22.1 to US$ 20.0 per barrel. To compensate for the shortfall in their foreign exchange earnings, these countries – and more so the non-OPEC producers – increased their output from 368.42 million tons in 1996 to 378.40 million tons in 1997, an increase of 2.7%. In South Africa, mines continue to face significant productivity problems associated with dwindling reserves and slender profit margins. Such is the story of Africa’s economic situation. Modifying the national income accounting framework is thus key to ensuring that the rents on depleted natural capital are captured and adequately re-invested. This will serve two important purposes. One, it will provide information on the level of income that the nation can consume while leaving capital intact. Two, it will indicate the amount (rents on natural capital depletion) to be re-invested into other income generating ventures which is the key to diversification of the economy.

2. Modify the tax system

As has been noted by other writers (see Daly, 1997), the present system whereby labor and income is taxed by government has been criticized as unsuitable and distortionary. This fact is most glaring in no other place than in African economies. Granted, we have to raise public revenue somehow for financing redistributive schemes, but the present system is distortionary in that by taxing labor and income - in the face of high unemployment in nearly all African countries - we appear to be discouraging exactly what we want more of. The present signal to firms is to shed labor and substitute more capital and resource throughput, to the extent feasible. This will generate unemployment, which is socially unhealthy. It might be killing two birds with one stone if the tax base is simply shifted away from labor and income on to throughput. This will encourage economic actors to economize on throughput because of the high external costs of its associated depletion and pollution and at the same time to use more labor because of the high social benefits associated with reducing unemployment - ‘a double dividend’ in terms of efficiency.

As a bumper sticker slogan the idea is, ‘tax bads, not goods’. In more theoretical terms the idea is to stop taxing value added and start taxing that to which value is added, namely the natural resource flow yielded by natural capital (Daly, 1995). Since the latter is the limiting factor in the long run and since its true opportunity cost is only poorly reflected in markets, it is reasonable to raise its effective price through taxation. Shifting the tax base to throughput induces greater resource efficiency and internalizes, in a gross, blunt manner the externalities from depletion and pollution. It also avoids the distortions of taxing income.

Besides, such a tax structure may be the antidote to the problem posed by globalisation to an effective tax system. Presently, there is some evidence that it is increasingly difficult to tax footloose capital and the income of highly educated and internationally mobile labor (Birdsall, 1999; Rodrik, 1999). It is thus only the low-income earners who do not have the mobility and international business connections that gets effectively taxed. Many countries, including South Africa, are now reducing corporate taxes. So countries ironically need to tax most in good times those who are most vulnerable in bad times - and to the extent that these are the innocent bystanders to the boom and bust cycles, the impression if not the reality of unfair burden sharing is heightened.

Politically, the shift toward ecological taxes could be sold under the banner of revenue neutrality. However, the income tax structure should be maintained so as to keep progressivity in the overall tax structure by taxing very high incomes and subsidizing very low incomes. But the bulk of public revenue would be raised from taxes on throughput either at the depletion or pollution end, but especially the former. The goal of the vestigial income tax would be redistribution, not net public revenue.

Given the dependence of African economies on natural capital and the need for rapid economic growth, one might argue that such a tax structure as proposed above will do no more than erode their competitiveness. Policy suggestion 5 may serve as a solution to this problem.

3. Promote efficiency of natural resource use and reinvest proceeds

Economic logic requires that we behave in these two ways toward the limiting factor of production, maximize its productivity today and invest in its increase tomorrow. Those principles are not in dispute. Disagreements do exist about whether natural capital is really the limiting factor of production. Some argue that man-made and natural capital are good substitutes that the very idea of a limiting factor, which requires that the factors be complementary, is irrelevant. It is true that without complementarity, there is no limiting factor. So the question is, are man-made capital and natural capital basically complements or substitutes? I will not bore you with the analysis of such an engaging argument, even though I think it is sufficiently clear to common sense that natural and man-made capital are fundamentally complements and only marginally substitutable.

In the past, the assumption was that natural capital is so abundant that they have no marginal value. Now remaining natural capital appears to be both scarce and complementary and therefore limiting. For example, cut timber is limited not by the number of sawmills, but the remaining standing forests. Pumped crude oil is limited not by man-made pumping capacity, but by remaining stocks of petroleum in the ground. The atmosphere’s capacity to serve as a sink for CO2 is likely to be even more limiting to the rate at which petroleum can be burned than is the source limit of remaining oil in the ground.

As globalisation is set to increase the pace and quantity of resource extraction and export, it behoves African policy makers to ensure that returns on the natural capital, on which the economy largely depends at the moment, is maximized and that the user cost for the depletion of natural capital base is re-invested in other wealth creating ventures. As one can see, this third policy suggestion follows from the first two above. Re-investment of funds from the depletion of natural capital can only be rigorously pursued if the national income accounting recognizes the importance of natural capital to economic development on one hand, and measures this contribution, as put forward in the first policy suggestion. Likewise, raising the price of natural capital by taxing the throughput (which is just another way of reflecting the externalities ignored by the market), as advocated in the second policy suggestion above, will provide the necessary incentive to economic agents to maximize natural capital productivity.

Investment in natural capital over the long run is also needed. But the question is: How do we invest in something which by definition we cannot make? If we could make it, it would be man-made capital. For the renewable natural capital, we can only produce a sort of cross between man-made and natural capital represented by tree plantations, fish farms and so on, but which cannot have the same level of diversity as would be found in a natural equivalent. For non-renewable resources, we can do nothing. Being prudent with what we have is thus the key to maximizing benefits derived and derivable from them.

4. Invest in human capital

Long term economic success will depend on building the human capital base to promote modernization of the economy. This requires, first, considering basic education and health not solely as consumption items for improved welfare (needs) but also as investment in productive and technical competence. The key instruments include enhancing efficiency via better technology and cost-effective delivery as well as private sector and community participation in service provision. This is particularly true for postprimary education, where the high private returns generated justify a larger role for private provision.

A policy to build human capital should also aim to develop a broad array of technical, managerial, and scientific skills needed to sustain rapid growth. Technological progress should be seen more broadly to encompass skill formation. A supportive incentive structure should reward the acquisition and building up of such competence. The issues here include the most cost-effective ways of achieving basic human competence involving the private and the public sectors.

While building up on the western scientific knowledge and skills, a vigorous program of protecting indigenous knowledge and skills should be mounted and sustained. It is absolutely wrong to jettison all that is indigenous in favor of all that is western as is presently the case in Africa. The African traditional medicine should be studied, developed and applied where appropriate, the indigenous crafts and technology should be developed and promoted to attract foreign interest. Today many Asian medical science and technologies are finding their way into the western health sector - from acupuncture to massage techniques. There is no culture that is ideal to all human situations and circumstance. The problem of unsustainability is one of the crisis that have proved that the western capitalism and civilization does not have all the answers. The answers to humanity’s questions and problems lie in the different diversity of races, cultures, world-views and beliefs scattered all over the world. All the problem in the world today stem from the attempt to project just one culture as superior and universal. That is certainly unacceptable. African nations should preserve the indigenous human capital as a way of expanding their choices and the horizon of their outlook to various shades of social, economic, and political situations of the different stocks of the human race.

5. Coalesce into a more integrated economic bloc

To be able to forge a more potent economic force in a globalised economy, African nations should pursue a regional economic integration. Pundits have criticized this suggestion (see Uzonwanne, 1999), but the critic failed to come up with an alternative solution to the need for a potent bargaining trump card for re-negotiating Africa’s position in the world economic order. Firms and not the state create wealth, he argues, and as such economic integration of national economies will not solve Africa’s economic problem since it is firms that determine the economic competitiveness of the nation vis--vis other nations. But who determine the framework within which firms operate? Whose responsibility is it to ensure that firms operate within the confines of the national social and economic objectives? What sort of wealth are we talking about? Is it just economic wealth - which firms may be good at producing? Or does it include social welfare, ecological stability and other sustainable development indicators? The state in their role as the social caretaker is responsible for the overall wellbeing of the society. They determine the pace, pattern and type of economic activity that takes place in the nation and by extension the competitiveness of the nation.

Uzonwanne’s arguments can be summarized in one sentence: Follow, with sheepish relish, every step of the western capitalist developmental path and embrace wholeheartedly their new global economic contraption: globalisation. Nothing can be more nave. Granted, there are lessons to be learnt from every developmental success, but the context of every nation’s situation demands some peculiar strategies. Developing countries are in a special situation that demands special solution. The need to waste too much energy in addressing the issues he raised is, however, dampened by the fact he made a volte-face in the same article to accept the viewpoint he claimed to be challenging.

In his suggestion that African nations should "avoid excessive reliance on natural comparative advantage", he appeared to be pleading my case. In the article he claimed to be challenging (Ikeme, 1999), I had suggested that African economies should recognize their dependence on natural resources, count them as part of their capital stock, and recognize the user cost of its depletion as depreciation funds to be re-invested. These are the antidotes to avoiding reliance on natural comparative advantage and the shift towards diversification of the content of export commodities. Economic integration has never solved economic problems, he argues. Now how can these economic steps be taken by any one nation on its own without injuring its foreign earnings significantly? If Congo, in recognition of the ecological and consequent economic implication of logging on the economy of the fishermen downstream, raises the price of its timber to offset these external costs, the western buyers of timber will simply shift to, say Ghana, who has turned a blind eye to these economic losses. The economic impact on Congo, at least in the short run, will be highly strangulating. But if the externalities are internalized simultaneously across all natural resource-dependent economies, then the importers will have no choice but to fall in line. If the economic interests of poor countries are to be relevant to the global economic play, a formidable economic bloc powerful enough to force the current economic giants to the negotiation table is the only tool. Uzonwanne wants African states to provide the necessary factor inputs into the production - good road networks, efficient communication system, etc - but will challenge the suggestion that they derive maximum revenue from their natural resource exports in the short term, as a source of investment funds for long term development and social expenses.

One cannot underestimate the benefits that would be derived from a regional integration of African economies (and ideally economic co-operation of all developing and transitional economies). Economic integration is necessary to foster national policy credibility and pool economic risks between otherwise vulnerable small economies; to resolve conflicts and minimize political risk; to exploit complementarities; and to develop regionally based links on a reciprocal and mutually beneficial basis. It is thus no wonder that many authors have identified integration as a viable path for a sustainable economic redemption (Amoako, 1999; Rodrik, 1999). The current economic agglomeration going on in Europe is founded on the need to exploit the above characteristics as well as present a more formidable economic front against the dominance of the USA.

Thankfully, the new visionary leaders emerging in Africa at the moment appear to be recognizing the imperatives and the realities of Africa’s predicament in a globalising world. If what we hear from the press is right and the spirit is sustained, then Africa may be about to take a giant step of self-determination. In his maiden speech to the UN assembly, President Obasanjo of Nigeria recognized the strangulating impact of globalisation and debt burden on African economies. In his recipe for proactive action, he shunned the usual plea for charity for the more historically consistent demand for moral and economic justice. This assertiveness is essentially a very positive phenomenon. Such utterances should also be followed by decisive steps and proactive action. One can not, therefore, help but applaud the joint statement issued by both South Africa and Nigeria disclosing their resolve to foster the integration of African economies. That to me is a proactive step in the right direction. In addition, African leaders must also reject the willingness of their predecessors to defer to outsiders - be they IMF and World Bank, or any of the western nations - especially concerning the content of Africa’s renewal. Africa’s economic and social problems must be solved by African people using sound policies, arguments, and strategies at the international front.

6. Democracy and enhancement of social capital

A democratic society, founded on equity, truth and egalitarianism is fundamental to economic progress. Empirical evidence suggests that inequity and injustice breeds conflict, strife and war (see Amoako, 1999) and that countries with deficient basic governance will never be able to undergo sustained economic development. Apart from some dots of light here and there, Africa can be said to be a graveyard of all the vices above. At the most worrisome end are half a dozen states that have collapsed amid civil strife. As we saw tragically in Rwanda, Liberia and Sierra Leone, war not only devastates the lives of civilians; it damages the environment; it wreaks havoc on social, education and health services; it traumatizes whole generations of youth; and it forces people to abandon homes and farming land, engulfing once stable family units in a flood of refuges. It also triggers massive capital flight; diverts funds away from investment and to military expenditure; distorts foreign aid budgets, etc.

A second category includes countries where the risk of collapse is real and the state machinery is preoccupied with the survival of the regime in power, considerably detracting from sustained development initiatives. This is the case in many countries under a dictatorial regime, or a pseudo form of it, as most military men now change their uniform for a civilian clothes just to massage the perception of the international community while continuing to crush the will and volition of their subjects. Despotism stifles anger and when given vent by any trivial issue, all the pent-up emotions are expressed through violence. The more democratic the society, the more it has vents for frustration and ways to seek solutions. A fundamental ingredient of the political and economic strategy for a more prosperous Africa must have as its pillar an unfettered democracy.

I am advocating democracy not because the western imperialist powers are clamoring for it, still less because of the sanctions lack of democracy may attract, but simply because it is the only system of governance that makes cross fertilization of ideas possible and comes nearest to carrying everyone along on the path of governance. Infact, democracy is not new to Africa, as the western powers will have us believe. In the old African societies, the administrative structures of many villages were democratic. Using the Igbo culture in Nigeria as a case example, villages are subdivided into clans, each clan into families. The village council of elders is made up of representatives from the different clans who carry the view of his clan to the meeting of the council of elders (not necessarily his view, but the majority view in the pre-village council clan meeting). This ensures that everyone participates in the decision-making process. Democracy is, thus, not alien to Africa. What may be alien is the fact that societies are now larger and cultures within each society varied, all stamps of the incursion of colonialism. But that notwithstanding, African nations can obliterate the memories of schism that colonialism introduced by accentuating those views that unite the different cultures in Africa. Such common attributes include, the similarities in the traditional societal structure, worldview, language, cosmic outlook, etc. Most importantly, the philosophy of interdependence, which in the past had been the hallmark of social existence, should be sustained.

7. Reject unrestrained global economic integration

African nations should move from the ideology of unrestrained export-led growth and move toward a more nationalist orientation that seeks to develop domestic production for internal markets as the first option, having recourse to international trade only when clearly much more efficient. To globalize the economy by erasure of national economic boundaries through free trade, free capital mobility and free, or at least uncontrolled migration, is to wound fatally the major unit of community capable of carrying out any policies for the common good. This is because of the already belabored fact that cosmopolitan globalism weakens national boundaries and the power of national and sub-national communities, while strengthening the relative power of TNCs. Trade liberalization has to be pursued in line with the objectives of sustainable development. It must be accompanied by domestic policies aimed at enhancing overall economic development, social development and environmental protection.

Developing nations can thrive in the new global economy - but only if they combine economic openness with a clear domestic investment strategy and effective civil and political institutions. While it may be true that globalisation increases economic growth, it is also a fact that it could cause some other adverse complications. The appeal of opening up to global markets is based on a simple, but powerful premise: international economic integration will improve economic performance. The comparative advantage argument for free trade as put forward by the revered champion of classical free trade, David Ricardo, is also always cited as proof of the efficiency of global economic integration. As countries reduce their tariff and non-tariff barriers to trade and open up to international capital flows, growth will increase, the theory goes. This, in turn, will reduce poverty and improve the quality of life for the vast majority of the citizens of developing nations.

But the above argument is based on a false premise. Were Ricardo alive today, I don’t think he would support a policy of free trade and global integration, as it is understood today. As rightly noted by Daly (1997), Ricardo was very careful to base his comparative advantage argument for free trade on the explicit assumption that capital was immobile between nations. Capital, as well as labor, stayed at home; only goods were traded. It was the fact that capital could not, in this model, cross-national boundaries, that led directly to the replacement of absolute advantage by comparative advantage. Capital follows absolute advantage as far as it can within national boundaries. But since by assumption it cannot pursue absolute advantage across national boundaries, it has recourse to the next best strategy, which is to reallocate itself within the nation according to the principles of comparative advantage.

For example, if Ghana produces both cocoa and cotton cheaper than does Nigeria, then capital would love to leave Nigeria and follow absolute advantage to Ghana where it would produce both cocoa and cotton. But by assumption, it cannot. The next best thing is to specialize in the production of cotton and trade it for Ghanaian cocoa. This is because Nigeria’s disadvantage relative to Ghana in cotton production is less than its disadvantage relative to Ghana in cocoa production. Nigeria has a comparative advantage in cotton, Ghana has a comparative advantage in cocoa. Ricardo showed that each country would be better off specializing in the product in which it had a comparative advantage and trading for the other, regardless of absolute advantage. Free trade between countries and competition within each country would lead to this mutually beneficial result.

Absolute advantage is the rule for maximizing capital returns when capital is mobile. Comparative advantage is the rule for maximizing returns to capital subject to the constraint that capital stays at home. Economists have been giving Ricardo a standing ovation for this demonstration ever since 1817. So wild has been the enthusiasm for the conclusion that some economists forgot the assumption upon which argument leading to the conclusion was based; namely, internationally immobile capital. Whatever the case in Ricardo’s time, in our day it would be hard to imagine anything more contrary to fact than the assumption that capital is immobile internationally. It is vastly more mobile than goods. The argument for globalisation based on comparative advantage is therefore embarrassed by a false premise. When starting from a false premise, one would have a better chance of hitting a correct conclusion if one’s logic were also faulty. But Ricardo’s logic is not faulty. Therefore I conclude that he would not be arguing for free trade - at least not on the basis of comparative advantage which requires such a wildly counterfactual assumption. Unlike some of today’s economists and politicians, Ricardo would not argue that because free trade in goods is beneficial, adding free trade in capital must be even more beneficial. To use the conclusion of an argument that was premised on capital immobility, to support an argument in favour of capital mobility, is too logical for words. To get away with something that illogical, you have to hide it under a lot of intimidating, but half-baked mathematics.

Moreover, there is no convincing evidence that openness, in the sense of flow barriers to trade and capital flows, systematically produces the economic wonders that has been ascribed to it. The lesson of history is that ultimately all successful countries develop their own brands of national capitalism. The states which have done best in the postwar period devised domestic investment plans to kick-start growth and established institutions of conflict management. Borrowing from the experience of the last two decades, the countries that have grown most rapidly since the mid-1970s are those that have invested a high share of GDP and maintained macroeconomic stability. The relationship between growth rates and indicators of openness - levels of tariff and non-tariff barriers or controls on capital flows - is weak at best. African policy makers, therefore have to focus on the fundamentals of economic development specific to their own realities - namely; recognition of their dependence on natural capital and hence the need to make corresponding offsetting re-investments, macroeconomic stability, human resources, and good governance - and not let international economic integration dominate their thinking on development.

In the same vein, the rave for privatization as demanded by globalisation should be doused with reason. As has been noted earlier, privatization, despite its attraction holds some adverse implication for the African society as result of disequalizing effect. Privatization should be tempered by socially oriented regulation.

Also the goings on at the international political arena makes it rather obvious that this much vaunted global village will never function to the advantage of countries without political, economic and military power, especially in the absence of a world government to ensure justice. The concept of a global village is, in practice, a slogan of mercantilist public relations. Protectionist policies continue to imperil the economic fortunes of the less developed countries. Given a historical context, defined in space and time, the dominant ideas are, in general, the ideas of the dominant or ruling groups, classes or nations. The only exceptions to this rule are revolutionary periods which, in any events, are expected to be relatively brief. Globalisation is no different, it was created by the dominant social forces in the world today - to serve their specific interests.

There are many instances to prove that the world economic powers are only interested in their selfish interests and will mobilize their political and economic muscle to assert that interest under any situation. Two may, however, suffice to drive home the point here. Firstly, the USA contains about 5 percent of the world’s population but consumes 15 percent of the world’s resources and creates the majority of the world’s pollution as well. But at the Environment and Development earth summit as well as in Kyoto, USA will not join other nations to carry forward the actions that would begin to cleanse the world for future generations as demanded by sustainable development. Another example is the recent case in South Africa. The government of South Africa recently passed a bill to import drugs cheaper through generic productions rather than ordering drugs more expensively through representatives of drug companies based in the country. This means that ordinary South Africans would be able to get the medicine they need at much reduced costs. This is permitted by the World Trade Organization (WTO) which replaced GATT. But the senate of the United States of America will have none of that. Reason, it cuts into the profits of its transnational and globalised drug companies. This US senate is an arm of a government which is urging China to adhere to the agreements of WTO, but in another part of the global village is telling everybody that it had no intention of respecting those same agreements. How convenient? This accentuates a fundamental question in the globalisation debate, the question is to what extent are African governments willing to give up their economic sovereignty to the money spinners and interest of TNCs in the west in the name of globalisation?

The attitude of the western powers described above also raises some questions concerning the interest of the weaker economies in the emerging global economy. If some of the players are going to double as referees and linesmen in a globalised world, how do we ensure that the political and economic game is fair to all concerned parties and interests? In the area of global justice for offenses relating to pollution, piracy and many others, how do we ensure that justice is easily accessible to all? These questions appear to reinforce the earlier suggestion that African economies (and all developing economies for that matter) should take their destinies in their own hands, shun all the deceptive advice that always come from the west, and that they should form a regional economic bond to buffer the vicissitudes such a bold economic liberation step will attract from the west.

VII Conclusion

In conclusion, globalisation presents both risks and opportunities for African nations. The risks stem from the fact that their integration into the global economy will exacerbate inequality, at least in the short run, and raise the political costs of inequality and the social tensions associated with it. Most importantly, the risk that globalisation is going to expedite the rate of the ecologically unsustainable growth in Africa. Arguments for unfettered globalisation are founded on the neo-classical economic thinking of infinite growth. To use Herman Daly’s metaphor, such argument does not recognize the plimsoll line, which indicates the maximum load capacity of a ship. Overloading (excess growth) may eventually sink the ship. Pareto efficiency - the current criterion of macro-economic health - only ensures that the load is distributed in such a way that the ship sinks optimally. Recent evidence shows that this sinking will start from natural resource dependent economies such as Africa. This is because of both the economic implication of resource depletion and their lack of adequate resources to protect themselves from the rebounds of ecological destruction, such as global warming, acid rain, etc. No doubt, globalisation has tremendous potential benefits for Africa and indeed any developing country for that matter. Nothing I say should suggest otherwise. The challenge is to realize the potential benefits without incurring huge offsetting costs in loss of the ecological basis for development and in the increase of inequality and impoverishment of the populace. African governments and policy makers should thus cease to see globalisation as an end itself, but as a means to an end. The real end is sustainable well-being for all. To the extent that globalisation objectives add value to the achievement of this goal, it is very welcome. But to the extent that it detracts from the well-being objective, policies and developmental goals should be steered away from such aspects of globalisation.

The opportunities are derivable from the fact that the collision of the two concepts of globalisation and sustainable development are initiating a new process of human development which offers new opportunities for the re-negotiation and re-juggling of the world economic configuration. Africa presently has a new opportunity to reposition itself in the world economic equation. To do this, they have to reject all the textbook frameworks for development as handed down by western powers and their agent institutions in favor of a home grown development strategy that focuses on their specific realities. As rightly noted by Rodrik (1999) ‘Development policy is prone to fashions’. No particular fashion is foolproof. None can serve all circumstances and situations. African nations should realize this common, but very crucial fact. To be globally competitive in a globalising world African nations must recognize the contributions of natural capital to their economy and make offsetting re-investments; train their local labor force; ensure that local companies are, to a larger extent, owned by the local people and managed by competent hands; ensure that profits are re-invested at home rather than expatriated; innovations in technology should be vigorously developed in the country rather than imported.

The successful nations of the next century will be those who are willing to take informed decisions concerning their affairs in the light of their own specific realities and goals, despite the conflicting and chaotic directives coming from the so called economic and development experts. Until developing nations begin to engage the global economy on their own terms and not on the terms set by multilateral institutions and western powers, development - especially one that is sustainable - will continue to elude them.

References

Amoako, K.Y. (1999) The economic causes and consequences of civil wars and unrest in Africa. Address to the 70th ordinary session of the council ministers of the Organisation of African Unity.

Anya, O.A. (1999) Preparing Nigeria for Competition in the 21st century - An address by the President, Nigerian Academy of Science.

Barbier, E. (1989) Economics, Natural Resources, Scarcity and Development. Earthscan, London, UK.

Becker, G.S. (1996) Accounting for tastes. Harvard University Press, Cambridge.

Birdsall, N. (1999) Globalisation and the Developing Countries: The Inequality Risk.

A paper delivered at the ODC conference ‘Making Development Work’ in Washington DC.

Cornia, G.A., Jolly, A. and Stewart, P. (1987) Adjustment with a human face: Protecting the vulnerable and promoting growth. Oxford University Press.

Daly, H.E. (1995) Consumption and welfare: Two views of value added. Review of Social Economy, LIII(4), 451-473.

Daly, Herman (1997) ‘Reconciling Internal and External Policies for Sustainable Development’ In Dragun, A.K. and Jakobsson, K.M. (eds) Environmental Policy: New Perspectives. Edward Elgar, Cheltenham, UK. PP. 11-31.ECA (1998) African Economic Report - 1998

Ekins, P. (1997) ‘Sustainability as the basis of environmental policy’. In Dragun, A.K. and Jakobsson, K.M. (eds.) Environmental Policy: New perspectives. Edward Elgar, Cheltenham, UK. Pp. 33-61.

Harrison, P. (1987) The Greening of Africa. Penguin Books, London.

Hicks, J. (1946) Value and Capital. (2nd ed.) Oxford University Press, Oxford.

Ikeme, Jekwu (1999) Africa and Global Competitiveness: The neglected perspective (Africa Economic Analysis: http://www.afbis.com/analysis/default.htm)

IMF, (1997) World Economic Outlook (May)

Khor, Martin (1997) Effects of globalisation on sustainable development.

Lindhal, E. (1933) ‘The concept of income’ In Bagge, G. (ed) Economic essays in honour of Gustav Cassel. George Allen & Unwin, London.

Pearce, David (1996) Is sustainable development compatible with a free market? CSERGE Working paper PA 96-02.

Pearce, D. (19997) Corporate behaviour and sustainable development: the view from economics. In Bansal, P. and Howard, E. (eds) Business and the natural environment. Butterworth-Heineman, Oxford, UK. Pp. 102-104.

Putnam, R.D. (1993) Making Democracy Work: Civic Traditions in Modern Italy. Princeton University Press, Princeton, USA.

Rodrik, D. (1999) The new global economy and developing countries: Making openness work. ODC Policy Essay No. 24.

United Nations Economic Commission for Africa (UN ECA) (1989) African Alternatives to Structural adjustment programs (AA-SAP): A framework for Transformation and Recovery E/ECA/CM.16/6/Rev.3

United Nations Economic Commission for Africa. ECA and Africa’s Development. 1983-2008

United Nations (1988). Financing Africa’s Economic Recovery: Report and Recommendations of the Advisory Group on Financial Flows for Africa.

Uzonwanne, Jude (1999) Competitiveness and the future of Africa (http://odili.net/feature/jude.html)

World Bank (1989) Sub-Saharan Africa: From crisis to Sustainable growth. World Bank, Washington.

World Bank (1997) Expanding the Measure of Wealth. World Bank, Washington, D.C., USA.

World Commission on Environment and Development (WCED) (1987) Our Common Future. Oxford University Press, Oxford.


Jekwu Ikeme, Environmental Change Unit, University of Oxford, United Kingdom
jekwu@yahoo.com

Transmitted: 1999

Back to top of page


Copyright Africa Economic Analysis 2000