Capitalism or Anti-Capitalism: Approaches to Africa’s Development

The subject of capitalism in terms of sub-Saharan Africa’s development has strong arguments both for and against.

This article will firstly put forward some of the key arguments from both sides, to attempt to provide a balanced discussion of this extensive and extremely complex topic. It will then look at the topic of capitalism specifically in reference to sub-Saharan Africa.

One of the arguments of capitalists is that capitalism allows every person to work in their own self-interest and to compete, which automatically leads to an improvement in the welfare of their society as a whole.

‘From a business and economic standpoint, it is only when each of us acts in our own self-interests that the collective “society” can elevate.’ (Hoffman no date)

This assumes that economic growth is created by the value added and profits of a myriad of enterprises, whereas losses cause recession.

A particular argument for self-interest is that against excessive economies of scale. This term is often known as ‘small is beautiful’ and refers to the avoidance of ‘dis-interested dis-economies of scale’ – an example of which might be Microsoft. Simply put, this term means that when you over-specialise and your company becomes colossal, in theory your production costs should drop. This is the logical conclusion of Adam Smith’s ‘division of labour’ letting each do what they do best. However, in reality the costs eventually go up because of a drop in efficiency caused by the lack of interest and the de-motivation of employees. Or put another way, employees do not feel they are working in their own self-interest.

So capitalists argue that economies of scale will by default regulate businesses, because if the companies grow too big, they will eventually become less profitable, less innovative and will be overtaken by new innovators and new entrepreneurs.

Needless to say, there are many examples where capitalism still produces mega-enterprises, such as global oil companies, because of the massive costs and capital required. But even these giants can fail and they always face strong competition or regulation of monopolies and anti-competitive behaviour.

Anti-capitalists would argue that the competitive motivation does not help society. They believe it is one of the major problems with capitalism, and that motivation should be fuelled by morals instead of greed and the ‘system’.

‘…Competition, the war of all against all… Feed on others, or become their food, is the rule. Those who hope to change things by persuading corporate bosses to behave morally are genuine utopians.’ (Barker 2001:330)

Another argument within anti-capitalism on the subject of self-interest is that the system is simply working for large businesses rather than for the people. This contradicts the argument of self-interest advocated by capitalists, and further considers that the neo-liberal philosophy (the modern stem of capitalism) is not one of self-interest, but rather:

‘…That society should subordinate all other concerns to the interest of big business.’ (Monbiot 2001:5)

However, capitalists argue that this competitive nature and self-interest-led process reflects human nature and that the system is using it for the good of society. One view is that this system is not encouraging greed nor is it completely profit-led; instead it is allowing freedom. This in turn allows self-motivation to prevail, whatever those motivations might be, for the greater good of society.

‘The market philosophy reflects a realistic view of human nature… That is not to say that greed is the … main driving force…In reality, a more important characteristic…is freedom; and in conditions of freedom, motivations can be very mixed and complex… No good doctor… is driven chiefly by profit, but [doctors]…are found in these professions in capitalist societies.’ (Ryrie 1995:90)

As has been discussed, one of the key features of capitalism is the promotion of enterprise and innovation. This is the reverse of central planning (which is how communism works), and history demonstrates it is only created by capitalism.

One point made to demonstrate this is by Henry Kyambalesa in his book ‘Socio-Economic Challenges: The African Context’, where he consolidates his discussion into this simple flow:

Free Market Economy > Profit-led Industry > Competition > Innovation > Development > National Affluence

This flow not only supports the argument of promotion of enterprise and innovation, but also supports the self-interest argument, through the demonstration that innovation, which is created by people, leads to much larger-scale affluence of a nation or society.

Anti-capitalism however believes that privatisation and free markets lead to devastation in the lives of the majority of a country’s population. They argue that, through privatisation, workers’ benefits, such as pensions and medical care, are often lost, along with mass job losses leading to mass unemployment. An example of this was given in 2001 by anti-capitalist Helen Shooter when discussing China:

‘China’s rulers pump out the… lie… that only the market can improve the status of the poor… Governments across the globe are driving through privatisation and attacking social welfare. China is one of them… So there is much more pain to come for China’s workers and rural poor.’ (Shooter 2001:228-232)

Unfortunately, the author has to question this rationale, due to the fact that since Shooter put forward this argument, China’s economy and the lives of its population have improved dramatically, to become one of the world’s largest capitalist economies (soon to overtake US GDP) and most rapid success stories. There is no doubt that there has been pain for people in China, but there is also no doubt that the situation has improved dramatically, and it is continuing to do so.

‘Short of some cataclysmic event, demographics alone suggests China’s continued economic rise. If talent is randomly distributed in the world population and if agglomeration of talent is important, then the odds are strongly in China’s favour.’ (Holz 2005:1)

And history contains many 20th century examples of non-capitalist systems that led to mass poverty, human rights abuse, environmental devastation and economic collapse.

A key factor in the capitalist and anti-capitalist argument is the example of countries like Taiwan and Vietnam. 50 years ago, Taiwan was as poor as Kenya, but now it has risen out of poverty and has gone through a manufacturing stage to that of high-tech industry. As Johan Norberg put it:

’30 years ago Taiwan was making boxes, now they are making the products to put in those boxes.’ (Norberg 2003)

According to capitalists, one of the greatest initiating factors in Taiwan’s success was that the government gave land to their farmers. This, as previously discussed, fuelled entrepreneurship, innovation and self-interest, which led to wealth being generated.

‘…Government handed land ownership over to farmers, they became motivated and generated their own profit, making the country richer.’ (Norberg 2003)

This led to manufacturing plants being set up on land owned by entrepreneurial farmers, which led to further employment and again, more wealth generation.

Vietnam is now following suit, currently being in the manufacturing phase. One of the most prominent and controversial examples of this is the Nike shoe manufacturing plants based in Vietnam.

The anti-capitalist argument is that the people in these factories are not being treated fairly. They have low wages, few workers rights, and there are concerns over child labour and other human rights abuses. They also argue that these giant corporations are the only ones being rewarded by the capitalist system.

‘Free market policies [in Vietnam] are resulting in growing inequalities… The result is rural unrest amongst ethnic minorities and peasants and strikes by urban workers in foreign-owned factories…’(Ungpakorn & O’Lincoln 2001:225-247)

‘The reality is that most of the world’s population are struggling to survive in a world whose rules are shaped by and for the large corporations…’ (Coates 2001:29)

The capitalist argument is that the employees are being paid a much higher wage than they would working for a local company and that the human rights abuses such as child labour were outlawed as far back as the 80’s. They say the workers at these factories are better off than they would be without the job, are more happy and fairly treated than before, and will now be able to afford to send their own children to school, to enable them to work higher levels jobs, which will lead to more money for the next generation, eventually leading Vietnam to be in the position that Taiwan finds itself in now. Capitalists say that these phases are a necessary step towards a wealthy and fair society, and make the argument that no other system has ever succeeded in bringing countries out of poverty; in the last 50 years three billion people have been lifted out of poverty through capitalism. They also point out that western societies went through the same process before they reached their stage of wealth and respect of human rights.

Norberg’s view is that if the anti-globalists had been around when Taiwan was going through the stage that Vietnam is currently, they would have protested against those 60’s sweatshops, as they do now about Nike and others, with the argument of ‘cheap labour’, and richer countries would probably have boycotted the cheap Taiwanese products. This would have resulted in Taiwan never having risen from poverty.

One of the popular arguments often put forward for anti-capitalism and anti-globalisation is that of the role of the World Bank and IMF (International Monetary Fund), amongst other MLAs (Multilateral lending Agencies).

Like MNEs (Multi-National Enterprises) these agencies are often a target of anti-capitalist and anti-globalisation movements, as a further example of the damage that capitalism can do to poor countries.

However, capitalists would argue that whilst these agencies claim to promote the values of capitalism, they actually operate a central planning system which, as mentioned previously, is the opposite to capitalism and specifically blocks enterprise and innovation, two of the elements they claim to promote.

‘A particular perversity in [the World Bank’s] approach is that although it claims to promote enterprise and innovation, especially in the private sector, it actually carries out all its lending through governments on a central planning basis – an economic approach that even China has abandoned! Planning and lending through central governments is a recipe for inefficiency and corruption, which is endemic in much of Africa alongside poverty, famine, disease, environmental collapse and conflict. The Bank and other MLAs need to contract hugely, focus on basic needs and free up enterprise and innovation.’ (Romanos 2008)

Capitalists also argue that Africa’s economy is not only controlled with a socialist approach by MLAs, but that it has been largely socialist since the 1950s.

‘…The remarkable thing is how widely prevalent this approach [of state ownership, government planning, price controls and market protection] was in the developing world for three decades or more. In many countries the private sector was not regarded as having a significant role to play in development.’ (Ryrie 1995:53)

China in fact achieved its recent success through a change to a capitalist economic system, whilst specifically ignoring the advice of the World Bank and IMF.

‘I think it is no accident that the only major East Asian country, China, to avert the [global economic] crisis took a course directly opposite that advocated by the IMF.’ (Stiglitz 2002:126)

It should be noted here that there is a difference between a capitalist political system, and a capitalist economy, and the two do not necessarily have to go hand in hand. For example to continue with China where they have left behind their failing centrally planned economy, and changed to the promotion of enterprise and innovation, i.e. a capitalist economy, they have also retained their non-capitalist/non-democratic political system. This system currently is working for China; they have risen out of poverty and are becoming a successful nation.

‘While developing world countries with liberalised capital markets [following the World Bank and IMF policies,] actually saw their income decline…[China] grew at a rate … close to 8 percent. (who?)

There is another point of view regarding the politics and economics of capitalism and that is Norberg’s, who believes that:

‘Democracy is a happy side-effect of globalisation’ (2003)

I suppose for this point to be proven, the world will have to wait and see whether China eventually becomes a democracy or not. Perhaps the huge success in China of their equivalent of UK’s ‘Dragon’s Den’ is a pointer in that direction.

So, in terms of MLAs such as the World Bank and the IMF, capitalists and anti-capitalists are actually in agreement, similarly to the disinterested diseconomies of scale discussion earlier. Both sides believe that there is a problem, but they put forward different explanations of the cause. In terms of MLAs, where many capitalists believe they actually go against the capitalist system as discussed previously, anti-capitalists believe the opposite - that the MLA’s approach is neo-liberal capitalism.

‘The three major official institutions helping to push forward the corporate agenda are the World Bank, the IMF and the World Trade Organisation [(WTO)]… [The IMF forces countries] to adopt its neo-liberal views about economic management…’ (George 2001:14)

There are many other arguments between capitalism and anti-capitalism. Some examples of these are trade, globalisation, patents, environment, immigration and war, to name but a few. Discussion of all these are outside the scope of this paper, however, the author has discussed some of the issues in other articles, both on African Loft and on her blog www.designedforafrica.org.

In terms of Africa, many capitalists argue that the reason Africa is poor is because they have not been exposed enough to capitalism and globalisation, as discussed earlier with the MLAs and the socialist history.

‘it is not that we in the west are trying to trick poor countries into global capitalism, the problem is, we are shutting them out from it’ (Norberg 2003)

For example, in Kenya (ignoring the recent problems), some of the key issues are:

People do not have legal title to land: This means that they cannot develop their business in their own self-interest. They have little incentive to innovate or create enterprise, as they will not profit from it.

People cannot develop businesses: This is partly because they do not own the land, but also because of the bureaucracy involved in obtaining a licence. Huge costs and long timescales are involved simply to obtain a licence to trade, to set up a business or export goods..

‘None of them can build their businesses, so capitalism cannot take root’ (Norberg 2003)

Exports and Imports: High import tariffs have been imposed by many industrialised countries to protect their own (more expensive, and often subsidised) producers. This protectionism (of which the USA is a major practitioner) means that many African businesses cannot afford to export competitively. The few exceptions include vegetables and flowers. The extent of the distortion this causes is demonstrated by the fact that Kenya is now the biggest exporter of cut flowers to Europe, and this is not Kenya’s best value-added product. If other trades were able to export with the same tariffs, they too could lead to wealth creation, employment and long-term prosperity.

Therefore, capitalists such as Johan Norberg argue that these factors all hamper development due to a lack of capitalism and globalisation.

‘Kenya is not prosperous, hampered by bureaucracy at home, and export restrictions abroad… Once upon a time, we escaped poverty because we globalised, we produced and traded freely, now that we are rich, we are withholding those same opportunities from poor countries’ (2003)

Norberg even goes as far as to claim that the worst enemies of the poor are the anti-globalists in his statement:

‘Our world is not at all too globalised, in fact it has far too little globalisation, wherever the doors have been opened we have seen amazing results, therefore the worst enemy of the poor today is the anti-globalist movement.’ (2003)

However, the anti-capitalist argument is that neo-liberalism is worsening the problems caused by the earlier effects of capitalism, notably the slave trade and colonisation.

‘[Neo-liberalism] is both a continuation and intensification of [the capitalist]… system.’ (Fisher 2001:203)

John Fisher, an anti-capitalist, in his discussion of Africa, argues that development within sub-Saharan Africa has been curbed by the focus on wealth-creation by and for the rich and powerful, to the detriment of the poor. This has meant that the poor have never had the means to stand up against the adverse affects of capitalism.

‘..Sub-Saharan Africa has remained without significant industrialisation. This has meant the major force capable of challenging capitalism and the continued immiseration of its people has been underdeveloped – namely the working class.’ (2001:203)

In terms of the problems within sub-Saharan Africa, the World Bank, IMF and WTO are the cause of some of the most prominent and controversial arguments. They have great influence on the region, and therefore the anti-capitalists and capitalists both see them as a driving force behind the failure of development and economic growth within sub-Saharan Africa.

To conclude the anti-capitalist view, they find the cause of the problem to be the exact reverse of the capitalist belief that of a lack of capitalisation and globalisation. The anti-capitalists believe that capitalism is the root and cause of the problem, and that whilst it exists, sub-Saharan Africa can never improve and rise out of poverty.

‘The future under capitalism holds out no opportunity for the masses of sub-Saharan Africa to relieve themselves of the enormous daily burdens they are forced to suffer.’ (Fisher 2001:210)

In conclusion, whatever the capitalists and anti-capitalists disagree about – both sides generally seem to agree that the international agencies exerting control of developing countries are at fault, and are part of the problem, not the solution. They agree in most cases what the problems are, where they vary is their extremely different views on what causes these problems.

It seems fair to agree with capitalists that no other economic system has ever produced consistent economic growth, but if you accept the anti-capitalist argument that the problems are part of capitalism, then you could agree with the anti-capitalists that capitalism doesn’t work either. However, if you accept the capitalist point of view, that the problems are in contradiction to capitalism, then you can understand why capitalists believe their system is a promising but not perfect, and constantly evolving one.

It is also important to remember that no economic system has ever been purely capitalist due to market failure where, in its simplest form, capitalist enterprise does not see the rewards justifying the risks, leading to mixed economies. Hence all so-called capitalist countries have some state-owned enterprises, such as the national health system in the UK, or water companies in the US.

In support of anti-capitalism, the protests and groups that are active and prominent in today’s society have made some extremely influential and positive changes to the system that is in place. Examples such as an end to child labour in many areas, and the raising of awareness of environmental problems and unfair terms of trade (although not exclusively a capitalist problem) are all issues of which western society are fully aware, largely due to the determination of the anti-capitalist movement.

It does seem that one key problem with anti-capitalism is within what the anti-capitalists also define as its greatest benefit. This problem is that they are many in number but extremely diverse in location and opinions. There are socialists, anarchists, NGOs and many other divisions, all of which have sub-divisions within them, all having differing views on what is wrong with the current system, and exactly what causes the problems within capitalism.

‘We, the opponents of neo-liberalism… are enfeebled by our greatest strengths. Our creativity, our diversity, our authenticity have encouraged us each to fight their programme in our own tiny and idiosyncratic way… We have failed to understand how powerful we can be if we work together.’ (Monbiot 2001:5)

‘Increasingly within the [anti-capitalist] movement the question arises: we know what we are fighting against, but what are we fighting for?’ (Callinicos 2001:397)

Another key problem, it seems to the author, is that the beliefs of anti-capitalism, which in many ways are similar to communist beliefs, with socialist ideals, do not take into account human nature. Human beings compete to survive and to improve their, and their children’s living standards. This is one of the key reasons communism did not work, and this does seem to perhaps be one of the main problems with the anti-capitalist movement.

‘The failure of socialism… stems ultimately from the fact that, as a philosophy, it rests on a naïve view about human nature… No more striking example can be found of the consequences of this naivety about human nature than the handling… of the Soviet Union and Eastern Europe under communism.’ (Ryrie 1995:90-91)

In terms of sub-Saharan Africa’s development, the argument that capitalism and globalisation have actually not infiltrated Africa seems a well supported one, which leads the author to consider that perhaps capitalism is the best available way for Africa to have a chance at developing. The fact that countries that were as poor as Africa have developed through capitalist economies, coupled with the fact that countries under entirely socialist politics and economics have never succeeded, does seem to support this point of view.
Sub-Saharan Africa is perhaps the greatest example of market failure, indicating that capitalism is necessary but not presently sufficient for development, creating a need for a mixed economy approach. The question that ensues is what system best complements capitalism in a mixed economy.

From reading around the subjects of anti-capitalism and capitalism, the author’s biggest concern is that nowhere has there been put forward a concise, structured alternative or complement to capitalism by the anti-capitalists, for sub-Saharan Africa or elsewhere.

Whilst anti-capitalists acknowledge this issue, it does seem to be the biggest argument in favour of capitalism – that there is no other system that has ever worked better, and no one has ever before presented a possibly viable alternative that has not been disproved, at least ……until recently…

There is another type of system that has been suggested lately – the concept of social enterprise and social business, put forward by Mohammad Yunus, the creator of the successful Grameen businesses in Bangladesh and winner of the Nobel Peace Prize. This will be discussed in another article shortly.

References

Ryrie, W. (1995) First World, Third World London: MacMillan Press

George, S. et al (2001) Anti-Capitalism: A Guide to the Movement London: Bookmarks Publications

Stiglitz, J. (2002) Globalization and its Discontents London: Penguin Press

Globalisation is Good J. Norberg (2003) UK

Romanos, J. - Director (Ret’d) CDC Group Plc (romanos@globalnet.co.uk). (20 February 2008) Personal Email Email to E. Romanos (ella.romanos@gmail.com)

Hoffman, I. (no date) Self-Interest [online] Available: http://www.ivanhoffman.com/selfinterest.html [date accessed: 26 February 2008]

Holz, C. (2005) China’s Economic Growth 1978-2025: What We Know Today about China’s Economic Growth Tomorrow [online] Available: http://ihome.ust.hk/~socholz/Growth/Holz-China-Growth-2Nov05-web.pdf [date accessed: 26 February 2008]