DRI-334 for week of 5-5-13: Economics and Geography: The Case of Africa

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Economics and Geography: The Case of Africa

Economics is the social science dealing with human choice. Geography is the physical science that deals with the above-ground features of the Earth’s surface. The two are seldom mentioned in the same breath. Yet they work hand-in-hand. The subject matter of geography forms the objective physical, structural parameters with which economics must cope. Geography’s brute facts can mold, shape and manhandle economics to a stunning degree. No better example could be cited than the effect of Africa’s geography on its economic history.

The Geographic Dimensions of Sub-Saharan Africa

The continent of Africa encompasses a geographic kaleidoscope. The “Africa” of popular imagination and special economic interest lies to the south of the Sahara – the world’s largest desert whose land area exceeds the size of the continental United States. Sub-Saharan Africa stretches to the tip of the Cape of Good Hope, north of the Antarctic Ocean. It abuts the Indian Ocean to the east and the Atlantic Ocean to the west.

The adjacency of oceans on three sides suggests that African economic history should be a tale of international maritime trade. Just the opposite – although at least three important trade lanes developed between Africa and the rest of the world, international trade was not a tremendous engine of economic development and growth in Africa. The noted economist Thomas Sowell found the source of this apparent paradox in two geographic drawbacks. First, winds and ocean currents near the African coast were (and are) among the world’s trickiest and most variable. Throughout most of world history, the expertise necessary to cope with them was absent.  Second, the African coastline was and is mostly smooth and shallow, thus unsuitable for harbors. Ships had to anchor offshore and transfer cargo by boat – a time-consuming, cumbersome and costly method. This gave rise to one of the great economic-historical ironies, noted by Sowell: As a large fraction of world international trade passed back and forth from Asia around the Cape of Good Hope to the New World, it passed within hailing distance of the African sub-continent – but seldom stopped.

It is hard to overrate the importance of these factors for Africa’s economic development. (And while for most other purposes we would need to analyze African economic development by separating the continent into its constituent nations, this geographic analysis is better conducted by treating the sub-continent as a unitary whole.) These days, many people treat foreigners and foreign trade as unwelcome intruders in economic life, but throughout human history international trade has been the key to a better life for most people and nations. Many of the great nations, from Rome to Greece to Carthage to Phoenicia to Egypt to the modern European nations, were either trading civilizations or encouraged trade beyond national borders. Trade allows nations to consume a broader range and larger volume of goods than they individually produce. It also increases the amount, scope and accuracy of human knowledge. When deliberately imposed from within, trade deprivation is a form of self-starvation.

In Africa’s case, the effects of geography are directly analogous to those of anthropogenic taxes and quotas. Those effects were not limited to the coastlines. They were even more pronounced in the interior. To appreciate their effects, we can compare them with the effects of geography on economic development here in the U.S.

From the arrival of Europeans in North America just prior to and after 1600, rivers were the transportations arteries of choice for north-south (and some east-west) travel. Barge, keelboat and canoe were media of transport. Cities sprung up at the confluence of rivers and at convenient landing points. Today, the history of the nation’s major cities is writ in their rivers. Despite the plethora of new transport media, ranging from planes to trains to automobiles, river transport is still an important secondary source of freight transportation for goods whose ratio of bulk to value is high.

Africa has always has even more and bigger rivers than North America. But they have been a much smaller boon to her economic development, which has been drastically curtailed compared to that of the New World.  The problem has been that African rivers are often unnavigable. Hard-core movie fans are familiar with the 1951 film The African Queen, starring Humphrey Bogart and Katharine Hepburn. The movie follows the adventures of a hard-drinking, World-War I era ship’s captain and a spinster missionary who set out on a long river journey aimed at locating and sinking a German steamer in Central Africa. The two must traverse the length of the unnavigable UlangaRiver (also called the Bora) to reach the Kenyan lake where the steamer resides. The formidable river hazards they surmount form the basis of the movie’s plot. These include rapids, plagues of swarming insects, river animals such as hippos, inclement weather and the river itself – which eventually becomes so choked with reeds and vegetation that they have to climb in the water and pull their weatherbeaten old tub of a tiny craft through the muck. Hollywood films are legendary for mangling the truth, but in this case the screenwriter (and novelist C.S. Forester, on whose book the film was based) hit the nail on the head.

In addition to above-mentioned hazards to navigation, African rivers suffer the drawback that African geologic structure is often mesa-like – plateaus followed by sharp dropoffs that form a falls. (Indeed, sharp changes in altitude hinder mobility on land as well as water over most of the continent.) The result is navigational nightmare; traversing a falls is not merely awkward but downright dangerous. The Zaire River is 2,900 miles long and contains a volume of water second only to that of the legendary Amazon River. But the Zaire’s succession of falls and rapids prevent entering ships from getting very far. This is typical – according to Sowell, “no river in sub-Saharan Africa reaches from the open sea to deep into the interior.” We must travel up the Mediterranean coast to the Nile to find a river that stretches inland. While the 1,500-mile total length of navigable water in the Zaire is impressive, this is not a continuous stretch, but is rather comprised of many discontinuous stretches. For several centuries, a map maker attempting to travel the river’s entire length would have had to make repeated portages across land to bypass the unnavigable parts of the river. This was typical of Africa’s waterways.

When water transport is unavailable or infeasible, animals are the historical second-best means of transporting people or goods. In the U.S., oxen and horses pulled wagons and carried travelers on the westward migrations beyond the original 13 colonies. African settlers made similar attempts to employ draft animals but were thwarted by the tsetse fly, an insect pest that carries disease that is deadly to animals. Animal populations were so ravaged that human beings often stepped in as beasts of burden. The stereotypes of African males as jungle bearers on safari and females carrying loads on their heads were born of this necessity. But the tropical climate was not much friendlier to humans. In the 20th century, some 90% of all deaths from malaria occurred in sub-Saharan Africa.

Bacteria tend to flourish in the tropics because of dampness. Oddly enough, the moisture content is favorable to disease organisms but less so to agriculture. Even though total rainfall seems adequate, the boom-or-bust pattern of rainfall – torrential rains alternating with sizable periods of drought – is hard on soils. Drought bakes and hardens soils, enabling heavy rains to wash them away. This destroys valuable nutrients, damaging agricultural prospects. The use of fertilizers was long hindered by the dearth of animals – yet another point of unfavorable contrast with North America, where animals were a plentiful source of fertilizer.

While it is true that not all regions of sub-Saharan Africa suffered all these deficiencies simultaneously, virtually all areas suffered at least one of them. Normally, when some areas produce some things but sorely lack others, trade can make up for this by allowing each area to specialize in its comparative advantage good and trade a surplus of its good for the other things it lacks. But when transport between areas is absent or highly costly, the value of trade is greatly reduced.

The effect of transport costs is exactly analogous to that of a specific tax. Suppose that it costs $10 to transport a good from point A to point B. This drives a wedge between the price paid by the buyer of the good (located at B) and the price received by the seller (at A). This holds true regardless of who pays the transport costs; in fact, the welfare of buyer and seller are unaffected by the identity of the taxpayer. Suppose, first, that the buyer is responsible for paying the tax and that the final market price is $90. That means that the buyer pays $100 (the $90 market price plus the $10 tax) and the seller receives the market price of $90. Alternatively, suppose that the seller is responsible for paying the tax. We previously established the buyer’s willingness to pay $100 for the same quantity of the good – this time the buyer pays it all to the seller instead of paying $90 to the seller and $10 to the government (collected at the sales counter by the seller). Now the seller receives a larger market price of $100, instead of the $90 market price in the first example. But the seller must subtract the $10 tax paid to the government, so the seller nets only the same $90 as before. In both cases, the buyer pays $100 net and the seller receives $90 net. In public finance, this is called the equivalence theorem. But the same logic applies to transport costs. Both tax and transport costs deter economic activity because they reduce the gain to the seller and increase the sacrifice made by the buyer.

Transport costs are ubiquitous. But they loom especially large in Africa. In African economic history, transport costs have been a figurative cross borne on the shoulders of the African citizen. They have severely limited both international and intranational trade.

African Trade

Northwestern Africa, including what eventually became the countries of Nigeria and Ghana, was least disfavored by nature and accordingly hosted several relatively prosperous civilizations. Because prospects for interior trade with other African nations were so poor, these nations increased their real incomes by regional warfare and international trade. Their higher standard of living allowed them to produce weapons of war with which to subjugate their neighbors and reduce their citizens to slavery. The Niger River provided one of the few navigable water routes leading to the ocean, which facilitated the export of slaves to Europe and the West Indies, whence they were often re-exported to North America.

Slaves were one of the few African export items because a slave was a very valuable capital good, capable of earning a decades-long stream of income for its owner. This future stream of income could be estimated, discounted to a present value using an interest rate and sold for a purchase price that capitalized that future stream of income into a current capital gain for the seller. This made it worthwhile to incur the sizable costs of transporting imprisoned slaves across a vast ocean. Consequently, the Nigerian coast acquired the appellation of the “slave coast.”

Another profitable export of this region was gold, which was mined in Ghana. Gold was (and still is) used for limited industrial and decorative purposes, but its primary value lies in its scarcity and acceptability as a medium of exchange and store of value. Investors bid up its price whenever money loses its value in exchange. Even today, the world’s entire physical stock of gold would fit into a single sanitary landfill. Mined gold resembles dust. This means that gold has an extremely high value relative to its physical bulk – the perfect kind of good to overcome the barrier erected by high transport costs. It is not surprising, then, that the Ghanaian coast acquired the nickname of the “gold coast.”

The third of Africa’s famous “coasts” was its “ivory coast,” located to the west of Ghana in Northwest Africa. The ivory was obtained from the tusks of African elephants, hunted to near extinction because private ownership of elephants was mistakenly forbidden. (In the late 20th century, those African nations that experimented with allowing private ownership of elephants saw dramatic increases in elephant populations and successful control of poaching.) Ivory was greatly prized for a myriad of uses and elephants were extant only in Africa and India. Thus, elephant tusks also attained a high value relative to their substantial bulk.

Overall, this represented an incredibly meager showing for one of the world’s largest continents and populations. At the most, it produced prosperity for small African regions for limited historical periods. The slave trade was outlawed in the 19th century and this edict was policed by the British navy. The ivory trade was a self-limiting business, plagued by its illegal status and the short-sightedness of officialdom. Gold mining is limited by the stinginess of nature and the expense of extracting gold from the ground.

Alternative Explanations for Africa’s Lagging Economic Development

Africa has long been the poster child for the failures of economic development in the Less Developed Countries, or what was formerly called the Third World. Most of the blame for this failure was placed on the fact that, for comparatively short historical time periods, many African nations were colonies of European countries.

On general direction, this seems an odd position to take. The theory of colonial immizeration – if it can be called that – apparently assumes that colonizers gained by withdrawing resources from colonies in some way analogous to that in which, let’s say, an embezzler gains by withdrawing funds from a successful company. But that misconceives not only the basic nature of trade between nations but also the stylized relationship between colonizer and colonized.

There is a theory that colonizers gained by imposing unfavorable terms of trade on their colonies and by substituting less efficient trade relationships for those that colonies would otherwise have developed with the rest of the world. But even if we subscribe to this, it does not imply that colonizers wanted to prevent or retard economic development in their colonies. Presumably, just the opposite was true, since development would enable the colonies to produce more and better goods for the colonizer to acquire via biased trade. And in fact, colonizers expended vast sums of time and money on attempts to promote development in the African colonies. If they failed, their failures seem small in comparison to the spectacular failures achieved by Western economists and development agencies like the World Bank and the International Monetary Fund after World War II.

Another oft-cited villain in African non-development is authoritarian political institutions. Doubtless, the fact that Africans exchanged colonial masters for home-grown despots in case after case is not only ironic but tragic, in view of the appalling human toll taken by famine, executions and all-around misery. But the question here is: Is despotism per se responsible for the lack of economic development in Africa? There is a very well-established relationship between political freedom and economic freedom, but the causality seems to run mostly in one direction – from economics to politics, not vice-versa. It seems reasonable to think that more democratic institutions would lead to fewer executions and political imprisonments and less repression in Africa. But Western nations have proven that democracy is fully compatible with economic serfdom and penury.

One of the most objectionable theories of African economic development is racial. It ascribes Africa’s development failures to the genetic inferiority of a predominantly black population. Since this theory offends current sensibilities, it seldom receives serious discussion. A dispassionate examination would cite, among other objections, the economic and intellectual success that the same genetic strains have achieved elsewhere in the world. Indeed, one of the most compelling counterarguments was played out in southern Africa itself, where the successful competition of poor black workers forced dominant white minorities to impose apartheid in order to protect white incomes. The same scenario was played out in the American South under the Jim Crow laws. If blacks are inferior in some economically meaningful sense, why do whites so often need the law to enforce economic protection against black competition?

That last example should click on the light of realization in our minds. Africa seems to be an object lesson in how badly a free market is needed. The African continent is home to less than 10% of the world’s population but over one-third of its languages. This cultural indicator reeks of economic and cultural isolation. In an America blessed with plentiful natural resources, navigable rivers, hospitable climate and a century’s worth of relatively benign colonial stewardship, some sort of economic development was virtually inevitable. Our experience with free markets was a huge bonus that made us the world’s leading economic power. Scandinavia, with its added advantages including complete cultural homogeneity, needed free markets even less. But nothing less than free markets would have sufficed to bring economic development to the Dark Continent.

Free markets do not work miracles; they merely permit the best to be made from available opportunities at any particular point in time. They also provide the widest scope for innovation and technological advancement over time. When nature has dealt you an inferior hand of cards, you can only make the optimal draw, then play those cards for all they are worth. Freedom and free markets are that optimal strategy for economic development.

Today, there are stirrings of economic development in Africa, as there are in longtime development laggards like China and India. The Economist has reported on the ability of individual African fishermen to use cellphones to check the market prices of their daily catch. At long last, technology is beginning to improve the bad hand that Africans have been dealt. Technology has been working its wonders for a couple centuries in the West. Now free markets are bringing them to the poorest of the poor in the heart of Africa.