The full circle of African underdevelopment

 

By Bernard Bwoni

Africa will forever be taking the full circle of underdevelopment and poverty should the continent continue embracing the very same free trade policies which were effectively rejected by the now established developed economies of today. Since David Ricardo laid out the principle of comparative advantage and Adam Smith’s invisible hand economists have advocated free trade and have argued that governments should not attempt to either reduce or increase levels of exports and imports that occur naturally as a result of supply and demand. The free market economy entails no economic intervention and no regulation by the state. The concept of the invisible hand of the market underlies the theory of the free market economy. However free trade is one of those theories that is logical consistent with itself in theory but not in the real world as it has not been universally linked to any subsequent economic growth particularly in the developing countries. The theory is outdated and makes many assumptions. It does not account for externalities, assumes perfect information, no social interactions and puts limits on economies of scale.

 A country is said to have comparative advantage over another in the production of a good if it can produce it at a lower opportunity cost and if is produces that good at a lower cost than anyone else. Trade allows specialisation based on comparative advantage with each country producing those goods that each produces comparatively efficiently compared to others. A country should specialise in those goods it has comparative advantage and some economists have argued that Zimbabwe could focus on a strategy puts emphasis exporting goods that have a comparative advantage and importing only those that have a comparative disadvantage. Zimbabwe has comparative advantage in agriculture and as such should focus more on that sector to benefit from trade with other countries. Provided opportunity costs of various goods differ in two countries both of them can gain from mutual trade if they specialise in producing and exporting those goods that have relatively low opportunity costs compared with other countries. Zimbabwe is endowed with abundant natural resources and theoretically should have comparative advantage by virtue of available resources. Of course the practical realities on the ground are different.

 

Bernard Bwoni can be contacted on bernardbwn@aol.com/  bernardbwoni.blogspot.com