Extrapolate this Ricardian insight to industries and economies, and it is obvious that neither trade nor imports are the problems with underperforming economies. At the margins, arguments may be made for identifying and supporting champions in an economy, and then protecting these from competitors.
Listening to the chatter on social media last week, one could be forgiven the conclusion that the problem with industry remaining under-developed for far too long in Nigeria is the profusion of imports. There is a sense in which this new dialogue is but a rework of one leg of an old dispute that was wont to blame the country’s woes, especially the perennial crisis which the naira’s exchange rate suffers, on the proverbial Nigerian high “propensity to import”. This is the sense that saw the central bank respond to the last foreign exchange crisis (itself the consequence of poor global markets for the country’s main exports) by banning a smorgasbord of imports. After all, don’t Nigerians import just about everything — a goodly number of which have no “real” productive value? In a much broader sense, the notions of economic autarchy that inform the “anti-imports” advocacy find ready accommodation with the prevailing zeitgeist. The linchpin of the U.S.’s current economic and trade policy is visceral persuasion of the deleterious impact of imports on domestic production capacity; and the beneficial impact of exports. But is it enough to ban imports, and raise both tariff and non-tariff barriers to imports in order that an economy on its uppers may find a new lease of life? If current experience serves up any lessons, the answer to this question is, of course, a resounding “No!” This is not simply because the world is far too connected today for old mercantilist arguments to hold sway successfully. Nor is it because the dispersion of big businesses’ global supply chains across the world’s main manufacturing centres are a key factor behind the reduced costs that have driven welfare gains world-wide — and consequently any throttling off of trade risks disrupting these links, raising input costs, and eroding the gains in welfare notched up world-wide in the last four decades.
Invest in domestic capacity (social and physical infrastructure), strengthen institutions that support trust-based relationships, improve governance both in the public and private spaces. And then make it easy for businesses to go into and exit industries to the benefit of consumers.
My preference is for a much simpler (albeit far from original, and two centuries old) explanation. The basic rendering of this explanation takes a two-person (“Tunde” and “Okoro”), two-product “economy” (if we may properly refer to an example this simple as economy). If both individuals in our “economy” were to produce as much of each product as the resources available to each, and their respective competences allowed, we could safely assume that they are unlikely to produce equal quantities of both. Accordingly, in our example, Tunde would need to work 10 hours to produce a “mudu” of “beans” and 15 hours to produce a kilo of “beef”. Okoro, on the other hand, would manage 9 hours to knock out a “mudu” of “beans” and 10 hours for one kilo of “beef”. If 10 hours were all Tunde had, he could either produce the one mudu of beans, or 666gm of beef. On a 9-hour shift, Okoro could churn out one mudu of beans, or 900gm of beef. Okoro’s advantage over Tunde in the manufacture of cloth is absolute — in this example, his labour costs are simply lower. But when you include the cost of the alternative foregone (i.e. not producing the beef, which in this example costs Tunde 40 minutes per gram to produce, and Okoro, 54 minutes), it is clear that compared with Okoro, Tunde has the balance of advantage. Without exchange, “trade” if you will, Tunde will require 25 hours to produce both a mudu of beans and a kilo of beef. Okoro, on the other hand, would need all of 19 hours. If, however, each were to focus on that which he is best qualified to produce, beans in Tunde’s case, and beef in Okoro’s, then in 25 hours, Tunde would produce 2.5 mudus of beans, while in 19 hours, Okoro would be supplied with 2.9 kilos of beef. That they are then free to trade their surpluses is as obvious as the fact that the resulting acquisition would be far cheaper for each of them than if each had sought to produce and consume these staples all by themselves.
This latter requirement is all about a regulatory environment that improves consumers” ease of access to a product or service, and their convenience of consuming these.
Extrapolate this Ricardian insight to industries and economies, and it is obvious that neither trade nor imports are the problems with underperforming economies. At the margins, arguments may be made for identifying and supporting champions in an economy, and then protecting these from competitors. But as with cement production in the country, these expedients simply raise the costs to domestic consumers of the products or services from cossetted industries. If we agree that it is not one of governments’ responsibilities to tax consumers on behalf of businesses in this way, then, what ought governments to do in open economies? Invest in domestic capacity (social and physical infrastructure), strengthen institutions that support trust-based relationships, improve governance both in the public and private spaces. And then make it easy for businesses to go into and exit industries to the benefit of consumers. This latter requirement is all about a regulatory environment that improves consumers” ease of access to a product or service, and their convenience of consuming these. Uddin Ifeanyi, journalist manqué and retired civil servant, can be reached @IfeanyiUddin.
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