Markets and States in Tropical Africa

Robert H. Bates

Berkeley: University of California Press, 1981

The economies of Africa are rural but the governments seek to industrialize. Elites attempt to extract resources from agriculture and channel them into manufacturing and industry. Infant industries also require protection and the governments use the revenue from agricultural taxation to promote industrial policy. Workers and employers have common interests in increasing profits, and governments seek low-cost food to maintain the backing of the urban centers. Thus, cash crops are taxed for revenue, while prices of food crops are depressed to ensure low-cost supply to urban areas. Both taxation and price depression cut into the profits of farmers.

In addition, inefficient industrial production (due to protection from both foreign and domestic competition) ensures that the prices they pay for consumer goods are also higher, which further erodes their purchasing power. This leads to fall in agricultural production. One way governments promote increases in agricultural production is through subsidizing inputs such as fertilizers, credit, and machinery. These subsidies, however, tend to accrue to larger commercial farmers at the expense of the smaller ones. Governments repress those who would champion the collective interests of agricultural producers; they give side payments to influential members of the rural sector, inducing them to defect from the rural coalition; and they use resources obtained from market intervention to build political organizations in support of their policies (pp. 119-21).

Thus, we observe the seemingly paradoxical phenomenon in Africa: in a continent peopled largely by farmers, an ever-increasing portion of scarce foreign exchange is being spent on imports of food (p. 1), and agriculture is both taxed in products and subsidized in inputs (p. 5). The reason for this mixture is the social purposes and political calculations that lead governments to intervene in agricultural markets to the detriment of farmers (p. 3). Thus, the reason lies in autonomous choice on the part of local actors, and is not determined by international political and economic forces as if often supposed (p. 8).

Summary of Arguments and Subsidiary Points

Farmers are viewed as sitting on the intersection of three markets: (i) the market for their agricultural products (both cash crops for export and food stuffs), (ii) the market for agricultural inputs (credit, machinery, fertilizer, seeds, etc.); and (iii) the market for consumer goods, mainly manufactured by urban-based industries. The book examines the reason for government intervention in all three markets in ways adverse to interests of farmers, and then analyzes the reasons farmers have been unable to organize to protect their interests.

Cash crops taxed. Rapid development is achieved by shifting from economies based on agriculture to industry and manufacturing. African governments divert resources from traditional to the modern sectors through publicly sanctioned monopsonies for purchase and export of cash crops (pp. 11-2). Governments need revenue and foreign exchange, and thus these agencies are used to impose taxes on farmers instead of accumulating funds for them (they buy at artificially low prices and sell profitably at world market rates). Resources are diverted to the state, to urban-based industrial enterprises, and to the bureaucrats who administer the markets (p. 28).
Food crops subsidized. There is also pressure for low-cost food crops from urban workers, employers, and the state. Urban unrest is serious threat to governments and cannot be eradicated through repression or co-optation. Thus, governments try to appease urban interests not by higher money wages (want to maintain environment friendly to foreign investment and develop domestic industry) but by reducing the cost of living, especially the cost of food (p. 33). African governments maintain an overvalued exchange rate to facilitate certain imports and thus reduce the domestic price for food. They also restrict exports of food when domestic price is under the world price (p. 36). They also intervene directly in food markets but with less success because unlike cash crops that need to be exported (and thus are easily controlled at ports of exit), food crops can be bought and used by virtually anyone (p. 40). Governments seek to promote food production by means other than raising commodity prices (since this is unacceptable to urban workers). They enter the market for food and set themselves up as producers rival to the peasants by using the public treasury (p. 46). Although state farms are unprofitable, ever in arrears, and unable to influence the level of food prices, they impact the social structure of the countryside and privilege few farmers at the expense of the small ones (p. 49). In addition, governments try to promote production by manipulating the price of farm inputs. Again, state subsidies for fertilizers, seeds, mechanical equipment, and credit tend to benefit large commercial modernizing farmers at the expense of the small ones (pp. 50,57).
Consumer prices high. The major strategy for promoting industrial development is to shelter new firms from economic competition, both foreign and domestic. The level of effective protection (given to the profits of industries) exceeds the level of nominal protection (given to the price of products). In this, they favor industries that produce goods for final consumption (pp. 65-6). Because trade programs involve allocation of quotas or licenses for imports, and because their distribution depends on historic market share, these policies freeze existing patterns of competition and prevent domestic competition, thereby allowing inefficient high-cost firms to survive (p. 67). The resulting industrial structure has a small total number of firms, with few firms in each industry, and with production within each industry concentrated in a very small portion of establishments (p. 71). Without foreign competition, domestic prices increase; and without domestic competition, profit margins are higher. In both cases, the result is a rise in consumer prices (p. 74). Market intervention leads to formation of vested interests in policy program (p. 98). Administrative rents (a value in excess of market value created by an administratively generated fixity of supply) as well as noncompetitive rents (increases in earnings of firms created by ability of prices in protected industry to rise above level that would be sustained by competition) create economic inefficiency that can be used for political purposes (p. 105). Privileged access to scarce commodities or help in sheltering industries is used by elites for personal gain or to create a political following.
Government policies. When governments intervene in markets, they often harm the farmers. By sheltering domestic industries, they rise the commodity prices that farmers must pay. On the other hand, they lower the prices that farmers get for their products or compete with them. Finally, most subsidies for inputs are reaped by the richer few (p. 81). How do governments get away with this, why don't farmers organize to protect themselves?
1. Private choice. Rural dwellers can use the market against the state and evade some of the adverse consequences of government policy. They can (a) withdraw from ventures that have become economically unattractive; (ii) alter their production mix to take advantage of shifting relative prices; (iii) migrate to places with better labor markets; (iv) divert produce into private (illegal) channels of trade; (v) alter the production mix to avoid the burdens that governments impose by switching to products that are difficult to control (pp. 82-7).
2. Collective action. The structure of their industry prevents rural dwellers from organizing: the large number of small farmers results in interest-group inaction due to free-rider problems with lobbying costs (p. 90). The large farmers, whose interests often conflict with those of the small ones, secure gains at the expense of the latter (p. 95).
3. State coercion and rural demobilization. Primary object of government coercion are (i) opposition parties that mobilize rural populations against the agricultural policies, or (ii) political entrepreneurs who seek to build their careers on protests against these policies (p. 108). States also use their control of markets to fragment the rural opposition by making it in the private interest of individuals to cooperate in programs that are harmful to the interests of the producers as a whole; e.g. subsidizing supporters only (p. 109). Also, governments manipulate the structure and performance of public services in efforts to organize political support in the country side; e.g. creating a system of spoils and pork-barrel politics (p. 113).

Notes

Although selection bias in this study does not allow one to test Bates' hypotheses (no variation in either the independent or the dependent variables, acknowledged on p. 8), the theoretical argument is compelling. Has some data on African states such as Nigeria, Senegal, Sudan, Kenya, Tanzania, Uganda, and Ghana.

June 20, 2001. BLS

@BOOK{bates-81:markets,
    TITLE     = {Markets and States in Tropical Africa},
    AUTHOR    = {Robert H. Bates},
    YEAR      = {1981},
    PUBLISHER = {University of California Press},
    ADDRESS   = {Berkeley},
    ISBN      = {0-520-05229-3 (pbk.)},
    NOTE      = {bibliography, index}
}