David R. Henderson  

Mercantilism, "Chopsticks" and Otherwise

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Last week at the APEE meetings in Nassau, I saw economist George Ayittey give a talk on why most African economies are in such sad shape. He blamed the things free-market oriented economists tend to blame: foreign aid, the absence of free markets, heavy government controls, etc.

Then he turned to the role of China in Africa. He listed a number of things the Chinese government was doing in Africa that he didn't like: making deals with the government for mineral rights in return for fixing a railroad system and giving government officials palaces and soccer stadiums in return for favors, to name two. He also stated that the Chinese government wants to settle 12 million Chinese people in Africa. He seemed outraged by this.

In Q&A, I said that I would love it if 12 million Chinese people settled in the United States and I didn't see why he objected. Ayittey responded that he didn't necessarily object to the fact of 12 million people immigrating but to the fact that the deals are being made in secret and that rank-and-file Africans are not getting a say. I was glad to get that cleared up because his tone in his speech made me think that he was objecting to immigration per se. I still wonder, though: what if regular Africans had a say about immigration and voted to disallow it. Would he say that it should be disallowed?

Also, when I went on the web to see more about his objections, I found the following from Ayittey (paragraph 37):

Further, China's engagement has devastated local industries in Lesotho, Nigeria and Zambia. In Nigeria, the influx of Chinese products has destroyed Kano's manufacturing sector. In 1982, 500 factories churned out textile products in Kano, but fewer than 100 remain operational today, most at far less than full capacity. In South Africa, the textile union says some 100,000 jobs have been lost as Chinese synthetic fabrics replace cotton prints in street markets across Africa.

His objection sounds awfully mercantilist to me.


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COMMENTS (8 to date)
Tom West writes:

David, I'm curious, what you would think Africa's competitive advantage be in relation to China? It would seem to be that Africans themselves are surplus to what China wants from Africa.

And sadly, Africa has had first-hand evidence that wealth doesn't have to trickle down to a majority. I'd not be surprised if ordinary Africans were extremely wary of heavy Chinese immigration.

David R. Henderson writes:

Tom West asks:
"what you would think Africa's competitive advantage be in relation to China?"
I don't know. The great thing about free markets, if Africa's government allows them, is that I don't have to know.

Tom West writes:

I don't have to know

I am no economist, but I don't think economic theory guarantees that wages at the equilibrium have to be above subsistence level. *You* might not have to know what the free market will bring, but those concerned about the welfare of the African people certainly better have some idea before embracing the free market.

I consider the free market (in the theoretical sense, not necessarily how they get implemented in practice) to be a lot like evolution. They're both elegant, beautiful, natural systems that tend to maximize fitness. But just as the "invisible hand" of evolution has no trouble allowing certain sub-populations to die out, the "invisible hand" of market may dictate that there is excess labor that will not find new opportunities before it dies of starvation.

In a countries that are wealthy enough to support such a population during transition, this is not a problem. In countries where long-term unemployment may well mean death, governments are constrained in both moral and practical terms to find solutions that are viable in the short term. That done, they can look at what can be done to make things better in the long term.

(Of course, for a variety of African nations, the biggest problem is simply getting a government that is interested in the welfare of its citizens - however, even there experience seems to show that having a predatory government may well be better than having no government at all.)

David R. Henderson writes:

@Tom West,
I was answering the question you asked.
To your point about starvation, precisely because so many people in poor African countries are on the edge economically, it's important not to destroy wealth by restricting trade.

Mike Rulle writes:

It does not bother you that the implication is they can trade their own citizens as part of a government to government deal?

David R. Henderson writes:

@Mike Rulle,
That would more than bother me. Is that what they're doing?

Tom West writes:

I was answering the question you asked.

Indeed you did.

However, given we have an example of a wealth producing resource like diamonds that has cost millions of lives and untold destruction in Africa, I think we can safely say that we cannot assume that *any* general positives like trade (especially of the sort that the Chinese seem to be seeking) would necessarily be of general benefit to Africans.

Before I made any recommendations about Africa, where it be pro free trade or pro mercantilism, I'd be very careful to at least have some feel for how such policies might *actually* work out, rather than simply assume that because they usually work well in an industrialized context, they'd work in Africa.

Honestly, it seems that Ayittey has looked at how such trade is actually affecting Africans, while your objections seem based on general principles that may or may not apply to the specific situation of Africa. Now of course, he may be neglecting the benefits of trade with the Chinese against the obvious costs, or perhaps he's found that the benefits are entirely concentrated in the already wealthy class. Either way, given Africa's history, I'd think closer analysis than "trade is good" is called for.

Adam writes:

David,

Markets are not free in either Africa or China. There is no stable system of human and property rights in either country. The formal economies are entirely coercive and subject to the whims of ruling cliques and parties. Trades between these cliques (e.g., between African states and China), are at the expense of the ordinary African.

When you equate "free markets" with the thievery and barter that goes on by and between African rulers and China, you make a huge error. In his 1960 Problem of Social Cost, Coase argued the manifest error in mistaking ideations and models for reality. I'm sure you understand that error, but there you go, comparing China's state policies with "free markets". Eeeek!

Come to think of it, Econlog seems to be getting too comfortable with supplanting difficult real problems with the simplicity of naked ideas. Guiding principles are essential, but applying them to the issues such as migration, peace and self-defense is not easy. Strategies are not made by throwing a few good principles over the fence.

I certainly want us humans to move toward greater liberty, peace, and growth. But beautiful ideals and good intentions are not enough. The 20th century is riddled with good intentions and plans that went horribly astray.

We need history and real wisdom to figure out practicable strategies that are robust to unintended consequences.

Best,

Adam


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