Economic theory impeding national development

There is a concept in economics known as the comparative advantage theory which is being taught in our schools and universities and practised at the national level as well. 

Stripped to its barest essentials, the theory maintains that all countries gain from free trade if they specialise in the production of those commodities in which they have a comparative cost advantage and exchange those products for commodities in whose production they have a comparative cost disadvantage.

In this way, both sets of countries can optimise their production capacities in the areas in which they specialise, so says the theory. There are several reasons why this is dubious.

First of all, it was contrived by European colonising powers, mainly Britain, to provide an intellectual rationalisation for a system of international trade in which colonies were compelled to specialise in the production of primary agricultural commodities and mineral extraction while the colonial powers specialised in industrial manufacturing and finance.

The main objective of this arrangement was not only to ensure a ready and cheap supply of raw materials for industries of the imperial metropolis but also to prevent the colonial victims from industrialising.

Another reason why this theory is fraudulent is the differences in the elasticities of demand between primary produce and industrial manufacturers.These differences ensure that the burden of adjusting to the recurrent crises in the international economic system is routinely passed on to the former colonies.

This is achieved through the deliberate lowering of the prices of their primary exports and the hiking of the prices of their industrial imports. This and other subterfuge methods are used to ensure the exploitative transfer of capital from underdeveloped countries to industrialised countries.

Therein lies the paradox where underdeveloped countries are not only paying the cost of the prosperity of the advanced industrialised countries but are also bearing losses. To illustrate this point, at the time of Ghana’s independence, a ton of cocoa could buy four VW Beetle cars.

Today, with cocoa selling at about £8,000.00 per ton, we will need more than three tons to buy just one VW Beetle which is going for about £27,000.00 in today’s prices. So, despite our best efforts, so long as we remain primary producers, our crisis of underdevelopment and its attendant poverty will only intensify. 

Easy

By pinning underdeveloped countries down to primary production, it is always easy for the imperialist powers to exploit the attendant economic vulnerabilities to frustrate, block and eventually break any visionary and patriotic leader who is committed to restructuring his country’s economy away from primary production to industrialisation.

For example, in budgeting for his industrialisation programme under the Seven-Year Development Plan (SYDP) in the early 1960s, Nkrumah had calculated that the world market price of cocoa, a crop imposed by the British as the mainstay of Ghana’s economy, would not fall below £200.00 a ton.

This assumption was based on market records which showed that prices had fallen below £190.00 only once between 1953 and 1963. However, as Nkrumah notes in Dark Days in Ghana, the situation changed dramatically upon the launch of the SYDP. The imperialist powers went to work and manipulated the world market price of cocoa causing it to magically plummet from a high of £476.00 a ton in 1954 to just about £87 a ton in 1965.

At a certain point during the implementation of the SYDP, although Ghana exported 500,000 tons of cocoa, she earned only £77 million representing less than her receipts for 250,000 tons in the mid-1950s. 

At the same time, prices of capital goods and machinery needed for the various projects under the SYDP rose by more than 25 per cent. The imperialist powers then turned around to exploit the hardships engendered by the economic dislocations to engineer regime change. 

The new government abandoned Ghana’s industrialisation programme and returned the country to the status quo ante under the comparative cost advantage paradigm. 

Irony

The irony of it all is that, we the victims of this dubious theory continue to be indolently committed to it and then turn around and lament over our ever-worsening economic fortunes.

‘Insanity’, says Albert Einstein, ‘is doing the same thing over and over and expecting different results.’ A paradigm shift is necessary. Our adherence to the comparative advantage theory must be abandoned in favour of a robust programme of industrialisation focusing on the indigenous manufacture of consumer and capital goods.

For this to happen, we need a progressive reprogramming of the collective national mind. This would entail a complete overhaul of our educational curricula away from self-destructive theories and aligning them with a national programme of industrialisation.   

The writer is a lecturer.
E-mail: gnadam@ug.edu.gh