(Strictly speaking, it should be Robert Naiman who replies to Brad on these
issues, since he (Robert) has studied Mozambique. But here goes.)
Before getting into this, it should be mentioned that the World Bank folks
are not simply fighting against _raising_ tariffs and non-tariff barriers.
Rather, they are engaged in pushing tariffs down. The IMF/WB should pursue
the rule of "first do no harm" (especially when dealing with a poor country
like Mozambique) rather than trying to fit each country to the same
Procrustean bed of free-market solutions (and big dams). But of course they
won't follow my prescription.
>I have seen summaries of a Deloitte and Touche report supporting the
>Mozambique cashew-nut producers, described as saying:
>
>The new study was carried out by international consultants Deloitte &
>Touche and the World Bank's previous policy "should be abandoned" [because]:
>>
>>1) Indian subsidies to its industry "tilt the playing field" and
>>make competition unfair.
>>2) Peasants did not gain anything from liberalised exports;
>>extra profits were all earned by "traders" and those few farmers
>>who were able to store nuts until the end of the processing season
>>3) "Improved management practices continue to contribute
>>to factory efficiency" in the newly privatised Mozambican factories.
>>4) Mozambique can earn an extra $130 per tonne by processing
>>its own cashew kernels--increasing total earnings from about $750 per
>>tonne to $880 per tonne..
in response to point #1, Brad says:
>My first reaction is that something's wrong with the subsidy argument. If
>India *subsidizes* its cashew nut processing industry than Mozambique can
>capture part of that subsidy by letting Indian workers do the
>processing--the bigger the subsidy, the stronger the argument for
>exporting raw nuts. (Unless, of course, you think there is something
>special and important about the learning-by-doing generated in the cashew
>processing industry, which I don't).
As a non-expert on cashew production, I can think of one important thing
that's special about the cashew processing industry (in addition to the
external benefits that any manufacturing industry has), I believe, which is
that it is one of the few non-agricultural industries that Mozambique has.
If M loses that industry, I doubt that the IMF/World Bank would allow them
to create a similar new industry, since to do so the way Japan or South
Korea created industries would violate the _laissez-faire_ principles that
are supposed to reign (but never seem to apply to "intellectual property").
Given M's debts (arising from Renamo's attacks, etc.), the IMF/WB have the
leverage to impose their _fiat_. (If the IMF/WB had been around, the US
wouldn't have been able to protect its industry after 1860, so that the US
would have ended up being an economic colony of England.)
According to ENCARTA 96, M also exports sea food, which is similar to
agriculture in terms of its long-term spin-offs. As far as manufacturing is
concerned, >Food processing [mostly cashews?], cotton ginning, and the
manufacture of clothing and textiles are principal industries.<
I would guess that the IMF/World Bank folks would also push for the opening
of M to international competition in these industries, too, so any
potential benefits of infant industries would be lost. Rather, if
experience is to be a guide, the IMF/WB will encourage foot-loose industry
based on low wages, that will move as soon as M's workers start raising
their labor standards. This contributes to the world-wide "race (or creep)
to the bottom," lowering world labor standards toward the lowest common
denominator, corrected for differences in labor productivity,
infrastructure, environmental standards, tax subsidies, and the like.
Unlike PKrugman, ENCARTA notes that:> Civil war and a lack of foreign
exchange crippled Mozambique's industrial output, which declined by an
annual average of 7.1 percent during the period from 1980 to 1988, but
expanded by 65 percent in the early 1990s.<
>My second reaction is that, as Paul Krugman wrote, any claim out of Africa
>that "peasants did not gain anything from liberalized exports; extra
>profits were all held by the traders" should be viewed with great
>suspicion: it is a remnant of the old-fashioned belief-- criticized by
>Dumont a generation ago--that the countryside is a stagnant source of
>resources to be taxed and exploited to support urban development, that it
>is important to foreclose any options that rural producers and marketers
>have that would increase their bargaining power.
There's also the possibility that the WB's efforts to free up the cashew
trade impose all sorts of transition costs (as the cashew industry shuts
down) of the sort that the WB usually ignores. In theory, the workers
unemployed by the WB are supposed to be compensated, but somehow the lonely
hour of this compensation never comes...
>Over the past generation such policies have been a disaster for rural Africa.
Do you have any evidence that this kind of policy has been applied in
Mozambique, by either the Portuguese or the Frelimo government? Do you have
any evidence that these policies (if pursued) were more severe in their
economic impact than the Renamo sabotage efforts?
with regard to point 2 above,
>Thus anyone making such an argument should have to answer two questions:
>Where does the extraordinary market power held by these traders come from?
In most countries, it comes from poor transportation and communication,
which allows traders to also be usurers and to grab a big chunk of the
value-added. The farmers don't have much of an option but to borrow at
planting time and to pay back at harvest time, so that they are at the
mercy of the traders/usurers.
>And why weren't they exercising it under the old trade regime? To argue
>that it is good to redistribute wealth from rural peasants to urban
>factory-owners by cutting off their ability to export raw nuts is one
>thing. To argue that cutting off the ability to export raw nuts does not
>harm peasants is something else entirely and is hard to credit.
Actually, it has a good impact in the long term, because it encourages the
farmers to diversify. Focusing on exporting a single crop has always been
what Brits call "a mug's game," a losing proposition.
with regard to point #3,
>My third reaction is that management consultants--like Deloitte and
>Touche--always claim that the firm they are studying is about to
>experience enormous increases in managerial efficiency, and they are
>almost always wrong.
If they are so incompetent or self-serving, why did the WB hire these
folks? It's true that it's a management consulting type organization, but
at least they studied the issue, unlike the IMF, who apply the same
analysis to every country without serious study.
with regard to point #4:
>And my fourth reaction is that Mozambique would probably be better off
>spending the money needed to realize that $130 a ton on schools and
>transportation. Vietnamese and Indian cashew-nut processors are willing
>and able to pay higher prices on the dock at Maputo than are domestic
>producers--that's why the domestic industry is crying for protection. And
>if your domestic industry can't match the costs of foreign producers,
>that's a powerful sign that this is not an industry into which a country
>should be pouring its resources.
This assumes the absence of beneficial externalities of having a domestic
manufacturing industry.
In any event, it should be the people of Mozambique, not those of the World
Bank, who decide what kind of economic policy that country should pursue.
Jim Devine [EMAIL PROTECTED] & http://liberalarts.lmu.edu/~jdevine
