Kicking Away the Ladder: The “Real” History of Free Trade by Ha-Joon Chang
Ha-Joon Chang, within Kicking Away the Ladder: The “Real” History of Free Trade“, presents a compelling case for debunking the neoclassical discourse on globalization which states that, “free trade, more than free movements of capital and labor, is the key to global prosperity” (Chang, 2003). Chang successfully reveals the shortcomings of an “official” history of capitalism based on half-truths and an inability (or unwillingness) of most of today’s most developed countries (i.e. U.S. and Britain) to recognize that they used active interventionist trade and industrial policies which aimed to promote infant industries during their catch up periods. Through an exploration of Britain, the U.S., Germany, France, Sweden, The Netherlands, Switzerland, and Japan and the East Asian newly industrialized countries, specific industrial policies point clearly to the fact that almost all NDCs not only used promotion strategies in relation to their infant industries but they also employed aggressive tariff protection, abolished patent laws, and importantly used a mix of policies not a single policy as some NDCs would have us believe. Developing countries, Chang points out, have grown much faster, “when they used ‘bad’ trade and industrial policies between 1960 and 1980 than when they used ‘good’ policies during the following two decades”. In recommending “good” policies, therefore, NDCs are “kicking away the ladder” to successful development, disallowing other LDCs the same conditions that initially allowed them to flourish.
“Growth Strategies” by Dani Rodrik
Dani Rodrik, within his working paper “Growth Strategies”, makes two key arguments: a) that neoclassical economic analysis is a lot more flexible than its practitioners in the policy domain have generally given it credit; and b) that igniting economic growth and sustaining it are somewhat different enterprises. To bolster his first argument, Rodrik explains that, “first-order economic principals – protection of property rights, contract enforcement, market-based competition, appropriate incentives, sound money, and debt sustainability do not map into unique policy packages” (Rodrik, 2003). Function and form of good governance, Rodrik explains, are not necessarily correspondent. Those looking to reform can (and have) reshaped the institutional designs of neoclassical economics by taking into account local constraints and learning to take advantage of local opportunities. He fills out his second argument by stating that it is often the case that sustaining growth is often harden than igniting it because of the fact that sound institutional underpinnings must be created to, “maintain productive dynamism and endow the economy with resilience to shocks over the long term”. This takes time, transparency, and a government committed to doing so. Rodrik uses countries which have pursued unorthodox, two-track, gradualist reform paths and found relative success as informative examples of the fact that there is not one, uniform way of approaching growth. Taking into account the economic and political contexts of the countries involved is paramount according to Rodrik and rule of thumb economics, “can be safely discarded”.
The Case of Mauritius
Chang’s book speaks very closely to the case of Mauritius but in many respects, due to Mauritius’ economic and political histories, the tiny island is a bit of an anomaly. Because of their dependence on sugar, the U.S. (and primarily the E.U.) have willingly offered non-orthodox protectionist treaties to Mauritius from associations such as the E.E.C. and the Lome Convention (which gave the island an assured market at high guaranteed prices for over one-third of the total Africa, Caribbean, and Pacific quote for the European Economic Community). Mauritius’ developmental history has been filled with a mix of fairly successful hetero/orthodox policy decisions, relatively stable government, and perhaps most importantly, the aforementioned perfectionist sugar (and later textile) trade agreements. Because of the colonial ties which Mauritius has kept very much intact as well as the respective colonial powers’ reliance upon Mauritius for a large percentage of its sugar imports (Mauritius exported close to 500,000 tons of raw centrifugal sugar to the E.U. in 2006), it is understandable why the NDCs have not pressured Mauritius to adopt the “good,” neoclassical policies towards development. The “ladder” has very much still remained and Mauritius continues to climb it.
In line with this, Rodrik’s claim that rule of thumb economics may be discarded seems to ring true with the case of Mauritius. The aforementioned trade agreements (particular to Mauritius) led to huge profits which were then partially reinvested into tourism, manufacturing, and the basic infrastructure but due to the extremely favorable terms of such trade agreements, there was a clear disincentive against diversification. The government of Mauritius then stepped in considering its local constrains and opportunities (Rodrik, 2003) and offered as many incentives (infrastructure, site and factory space at low rents, cheap energy, duty-free raw materials, etc) as possible to lure investors into manufacturing for export. But again, favorable trade agreements played a key role in expanding the government-led E.P.Z with the Multifibre Agreement (MFA). Neoclassical economics has most definitely played a role in Mauritius development but its limits have not only been changed or pushed. Instead, Mauritius has often stepped far beyond the confines of neoclassical theory into heterodoxy and has found great success as a result. This only lends itself further to Rodrik’s claim that one size does not fit all in the case of economic and social development and growth.
The Case of Madagascar
Madagascar, particularly during the early years of the military dictatorship in the 1970’s, was run under a socialist economy and unfortunately lends itself to many of the neoclassical arguments against state intervention. The Great Island goes largely against Chang’s claim that many LDCs that have used “bad” policies have encountered strong growth. With largely stagnant GDP growth throughout the 1970–2007 period, the GDP grew at a mere 1% in the 1970’s compared to a long term average of 2.26%. Government economic and social policies have largely been distorted in favor of the urban populations and during the state interventionist period of the 1970’s, Madagascar departed from the Franc Zone and the pegging of the Malagasy Franc to a currency basket (with foreign exchange restrictions) and this contributed to economic underperformance. Further intervention, rent-seeking and corruption marked the 70’s and export taxation plagued farmers who received less that 8% of vanilla’s price at times. An export tax in the mid-70’s drove the nominal rates of assistance to -70% and heavy taxation on the producers was worsened. These “bad” policies (traditionally looked down on by neoclassicals) may have, in fact, been bad. This is where Rodrik steps in.
There are innumerable complexities as for why Madagascar’s growth has been largely stagnant, particularly during the 1970’s. Good governance, however, has been particularly important in Madagascar’s case. To Rodrik’s point, it is clear that although the form of governance does not necessarily constitute its function, the government’s economic and social policies in Madagascar have often lent themselves to the critique that they were largely unaware of local constraints or opportunities and were largely dysfunctional. Initial GDP growth and GDP per capita growth in the 70’s was not sustained because the country lacked sound institutional underpinnings as well as any form of dynamism to adapt to the inevitable shocks that arise when running a country’s economic and political machine. With Rodrik’s arguments in mind, it is clear that the Madagascar government has not always taken into account the economic and political contexts in which it was operating and unfortunately for the people of the country, there have been many tumultuous political movements in recent history.
“Sugar—or rather, the great commodity market which arose demanding it—has been one of the massive demographic forces in world history. Because of it, literally millions of enslaved Africans reached to the New World, particularly the American South, the Caribbean and its littorals, the Guiana’s and Brazil. This migration was followed by those of East Indians, both Moslem and Hindu, Javanese, Chinese, Portuguese, and many other peoples in the 19th century. It was sugar that sent East Indians to Natal and the Orange Free State, sugar that carried them to Mauritius and Fiji”[1].
“Merchants have no country. The mere spot they stand on does not constitute so strong an attachment as that from which they draw their gains”[2].
The Players: An Introduction
The developmental stories of Mauritius and Madagascar (the Great Island) are replete with the makings of an international crime thriller: pirates, slave trading, vanilla cartels, and sugar barons. Located off the southeastern coast of Africa, these two island nations tell a story of sordid convergence through the externally-imposed slave trades which brought businessmen from as far away as New York to as close as the shores of modern-day Cape Town, South Africa. But this period of convergence would not last long and the two countries diverged dramatically down two different paths, Madagascar’s replete with stagnant-to-no growth, political turmoil and corruption[3], a number of poor governmental economic and social policies and a sordid history of ethnic clashes largely empowered through the history of colonialism and Mauritius’ filled with a mix of fairly successful hetero/orthodox policy decisions, relatively stable government, and access to largely protectionist sugar (and later textile) trade agreements. To catch the flavor and essence of these two diverging nations, I will map out condensed histories of both nations followed by an economic and social policy-based exploration of each nation’s primary and manufactured goods from 1961-2007. For Madagascar, one of its main cash crops (vanilla) will be explored and for Mauritius, historically its main source of foreign currency (sugar) and a few attempts at diversification (tea and textiles) shall be explored. Through the explorations of these primary and manufactured goods, a clear story will emerge filled with international and local actors working at times against, at times for, the nations involved. At the close of this paper, I will offer a possible roadmap out of Madagascar’s unfortunate developmental position through a joint, symbiotic relationship with its near neighbor, Mauritius. To begin with, however, a brief exploration of a few of the neoclassical and heterodox economic theories underpinning many of the approaches either country has taken towards its economic and social policies will prove useful.
Free Market v. Protectionism: Not Necessarily a Story of Either/Or
Within Madagascar and Mauritius, various schools of thought have offered up answers to the particular challenges that certain time periods have presented to each country. Of these, the neoclassicals (as found largely within the IMF and World Bank) have advised each country to decentralize, increase private investment, privatize enterprises in key sectors (i.e. air transport, petroleum distribution, railroads, telecommunications, and agricultural production including cash crop industries such as the sugar and vanilla industries), improve administrative procedures, adopt a more liberal land-use policy, liberalize trade and investment, privatize productive activities, and manage their external debt prudently, amongst many other things[4]. But as Ha-Joon Chang explains in Kicking Away the Ladder: The “Real” History of Free Trade, such requests towards developing nations could not be more hypocritical. Virtually, “all of today’s developed countries did not practice free trade (and laissez-faire industrial policy as its domestic counterpart)”[5]. Rather, Chang points out, they promoted their national industries through tariffs, subsidies and other measures[6]. Through the dissemination of a false “official history of capitalism” by developed countries, we lose sight of the fact that success may not come as the pre-packaged, neo-classical bundle that are so often pushed upon developing countries in need of loans and assistance. As David Rodrik states, “rule of thumb economics, which has come to dominate thinking on growth policies, can be safely discarded”[7]. Through his analysis of various growth strategies, Rodrik makes two arguments key to thinking about the cases of Madagascar and Mauritius: a) first-order economic principles—protection of property rights, contract enforcement, market-based competition, appropriate incentives, sound money, debt sustainability—do not map into unique policy packages; and b) that igniting growth and sustaining it are somewhat different enterprises[8]. From Rodrik’s arguments, it becomes clear that there is no unique correspondence between the functions of good institutions and the form that such institutions take. After looking at numerous cases of developed and developing nations around the world, it becomes absolutely clear that there is no one way to think of development and the most successful countries have had governments that have been able and willing to take into account local opportunities and constraints. The cases of Madagascar and Mauritius are no exception.
Sordid Convergence
The convergent story of Mauritius and Madagascar (only 400 miles apart) emerges between 1670 and 1810, during which time it is estimated by J.M. Filliot that 160,000 slaves reached the islands of Mauritius and the Seychelles from mainland Eastern Africa, Madagascar and South Asia[9]. Richard Allen goes into a deep explanation of the illegal slave trade that followed under the, at times, complicit auspices of the British from 1811-1827, stating that such an illegal importation of as many as 106,500 bondmen into Mauritius, Reunion and the Seychelles exerted a greater influence upon the region’s political and economic life than once believed[10]. In fact, it was the demise of this illegal trade that led Mauritian planters to experimentally seek laborers from India, the success of which led to more that two million Indian, Chinese, and other non-European workers being scattered throughout the tropical plantation world[11]. This connection between Madagascar and Mauritius, therefore, began early but the slave trade was coupled with a highly developed business of pirateering, particularly in and around the hidden coves of Madagascar. The early colonizing efforts by the Portuguese seafarers (c. 1500), the Dutch, the British, and soon after, the French (which invaded Mauritius in 1895) were all met with fierce opposition and the disastrous consequences of disease. Finding more success with the local populations in the 17th and 18th centuries, however, were the several hundred European pirates that sought refuge and traded guns for supplies, guns which significantly contributed to, “the emergence of large-scale kingdoms in various parts of the island [Madagascar]”[12]. Invariably, this laid the foundation for later ethnic clashes in Madagascar’s history. Clearly though, piracy was a business venture and its lifeblood was the slave trade which ran slaves between Madagascar and the Dutch colony of Mauritius in 1641 and later, Cape Town and Madagascar where the Dutch (in the 17th century) were sending one ship a year to procure slaves from the Great Island[13]. The descendants of the slaves, called Creoles, today make up more that one quarter of the island’s population (estimated at 1.3 million in 2007), largely marginalized since 1835 when planters relied primarily on indentured labor from India[14]. The Americans found legal loopholes around the monopoly of slave trading to the Americas (which was held by the Royal African Company) by traveling around the Cape of Good Hope to Madagascar where it was much cheaper to purchase slaves than in West Africa. With this constant ebb and flow of European and American traders, piracy was almost inevitable and between 1695 and 1700, the Indian Ocean became home to up to 1500 marauders[15]. Ethnic groups in Madagascar, particularly the Fiherena, established barter economies based on the supplying of such marauders and traders with foodstuffs in exchange for beads, brass, copper and firearms[16]. One result of this were major political transformations as was the case with the expansion of the Sakalara kingdoms who created numerous ties with the Europeans and Americans, incorporating Western technology within the traditional sociocultural framework[17]. The Merina of the central highlands were later to emerge and what arises from this period is an understanding of both Madagascar and Mauritius’ integration into the international trade network based on the acquisition of slaves as well as the provisional bartering systems around the key primary products of rice and later, sugar, for firearms which led to the major political transformations in Madagascar, the only island of the two with an indigenous population prior to European and American arrivals.
Mauritius, Condensed
In line with the divergence that I believe these two countries illustrate, I wish now to present a condensed history of each country’s political, cultural and economic histories with the knowledge that such histories will be further understood once we take into account the aforementioned exports of each. Mauritius, gaining independence on March 12, 1968, was a creation of European colonization. As Jean Houbert states, “the economy, the society, the polity, the very flora and fauna of the island are all a direct result of its colonial history”[18]. Colonialism is built into the very fabric of the society as Holland, France and Britain often used the island as a watering place, a trading and military base en route to India, and a sugar plantation which it largely remains today (not to discount the country’s considerable foray into the manufacturing of textiles for export after 1981). A volcanic boulder of an island of 787 square miles (compared to Madagascar’s of nearly 227,000 square miles), Mauritius’ initial beginnings were based on the importation of slave laborers, basic infrastructure being built for the purposes of setting up sugar plantations and of course, the sugar cane itself which was not a native to Mauritius. Because of the importation of slaves and labor (Indians and Chinese) the island today boasts of a complex ethnic makeup with French-origin whites at the top, black slave-descendents at the bottom and Indians and Chinese somewhere in the middle, divides which the British exploited in their takeover of the island in 1810[19]. Through land acquisition, many Indians were able to move up this ladder and today own just under half of the cultivated land in Mauritius which today can be seen in cultural tensions between white millers/planters and the Indian sugar proletariat. Born from the class unrest of the Creoles and Indians, the Mauritian Labor Party was born pre-WWII which pushed strongly for independence from Britain. Franco-Mauritian nationalism emerged which advocated for the return of the island to France in theory but in reality, revealed itself to be quite happy with its trade relations with the British Empire. As an offshoot of this, the Parti Mauricien Social Democrate (P.M.S.D.) was formed which advocated for the integration and association with Britain as it would open the markets for sugar further, Mauritians would more easily acquire jobs in Europe, and their ties with France could then be reinvigorated. A number of smaller groups emerged around this time (the C.A.M., I.F.B. and the later prominent M.M.M.) and in 1968, independence came from Britain with little rejoicing but also, very little violence. After independence, Mauritius was secured (after some heavy negotiations) under the Commonwealth Sugar Agreement which sheltered the sugar industry from the worst fluctuations in the world market and with the end of Britain’s reign over the island, France reentered as the principle aid donor to Mauritius, building schools, offering scholarships and offering French radio and satellite services to its inhabitants. Through the Paris-led Department of Cooperation, Mauritius became a member of the Organisation Commune Africaine et Malagache, Etats Associes Malacaheset Africains, the first member of the EEC before Britain joined the Common Market (with access to loans on favorable terms with the European Development Bank and European Fund for Development) and the Lome Convention (which replaced the Yaoundé Convention) which gave the island an, “assured market at a high guaranteed price for 500 thousand tons—over one-third of the total African, Caribbean, and Pacific (A.C.P.) quota for the European Economic Community”[20]. Britain agreed to import this cane as long as it arrived raw from Mauritius which Britain would then add value to through refinement followed by export, a pattern which continues to this day. The A.C.P. agreement plus the high prices on the open market led to huge profits and was simultaneously met with large-scale investments in tourism and manufacturing[21]. But such outlets were minimal and could not utilize the huge accumulation of capital by planters and the international agreements discouraged the diversification of economic growth. Wealth was concentrated in a few hands and often was consumed through imported sophisticated luxuries or saved and invested abroad (particularly Britain and South Africa). The small wealthy class therefore found it nearly impossible to move out of the colonial framework but with government long-term social and economic developments (particularly from 1971-1980) and new trends in the capitalist economy with long-distance air transport and the transnationalization of capitalist production on a global scale, changes began to take place. Tourism has steadily gathered strength but with the creation of an export processing zone (E.P.Z.), Mauritius enabled itself to start manufacturing for export and the government provided as many incentives as possible (infrastructure, site and factory space at low rents, cheap energy, duty-free raw materials, etc.)[22]. With plentiful, literate, cheap, adaptable labor and access to the E.E.C. many firms were and continue to be attracted to manufacturing (textiles in particular) in Mauritius. Through sugar (and its protectionist agreements that it fell under), tourism and the E.P.Z., Mauritius’ economy was quickly transformed. In 1979, due to the rising oil prices and a decline in the price of sugar, Mauritius obtained a soft loan from the IMF which was followed by a 30% devaluation of its currency, cuts in public expenditure and food subsidies, curbs on wages and prices, a raise in the bank rate, and a ceiling on bank lending[23]. These cuts were soon met by the revitalized M.M.M. party whose hard-line radical stances towards land reform, the nationalization of the sugar industry, direct democracy, a new system of education, and the upgrading of the Creole language prompted many E.P.Z. workers to join its cause and in the election of 1976, the M.M.M. won 39% of the votes[24]. The M.L.P. and the P.M.S.D. banded together, however, and kept Ramgoolam (the Prime Minister prior to elections) in power and so far, the government of Mauritius has not significantly changed the basic socio-economic structures it inherited from colonialism. Through the restructuring and modernization of the textile and sugar sectors, the government of Mauritius emphasized private entrepreneurship, a strong and dynamic private sector and an increasing movement towards the further development of the information and communication technology sector.
Madagascar, Condensed
Madagascar’s growth, however, has remained largely stagnant since gaining independence from France in 1960. As Fenohasina Maret states, “Agriculture is a key economic sector in Madagascar, but its performance since the 1950s has been insufficient to cope with demographic pressures and contribute to a significant reduction of poverty”[25]. The population has grown dramatically from 4.2 million in 1950 to over 20 million in 2008 due to improvements in disease control as well as a period of steady growth from 1950-1960. The agricultural sector is characterized by low productivity and high vulnerability to climactic conditions (the Great Island is in the middle of the cyclone belt which has historically affected both rice and vanilla exports dramatically to name but a few). With a very low political weight, the rural and farming population has often incurred taxation on key agricultural imports and exports and have had to navigate through highly regulated marketing chains. From 1960 onwards, Madagascar went through three different economic regimes: the post-independence period when the economy was still linked to the French system (1955-1971), the socialist economy period (1972-1988), and gradual liberalism (1988-2009). Agricultural output has declined steadily over each period[26]. Producers’ incentives have been highly distorted in favor of the urban populations which has emerged from and added to the long-standing animosity between the populations of the highlands and the lowlands, the North and the South. In the 1950’s, Madagascar was able to implement a development plan that extended the value-added chain to food and other agricultural processing and gained membership to the CFA Franc zone which facilitated trade access, limited exchange rate exposure and built infrastructure[27]. Cash crops such as vanilla, however, remained vulnerable to external shocks, political turmoil and weather. With this good economic growth from 1950-1960 came a 26% increase in population and social problems soon followed (stagnant employment, protein and lipid-intake deficiencies and unaddressed poverty, particularly in the rural areas)[28]. In 1960, 93% of Madagascar’s exports were agricultural products and from 1960 to today, Madagascar’s economic development and policymaking has been influenced by the aforementioned succession of economic schools of thought as well as a succession of political shocks[29]. The state interventionist period of the 1970s caused a decline in productive activities and in 1974, Madagascar departed from the Franc Zone and the pegging of the Malagasy franc to a currency basket (with foreign exchange restrictions) and this contributed to economic underperformance[30]. The 1980s were met with stabilization and structural adjustment programs which focused on exchange rate and international trade liberalization, price deregulation, and state withdrawal from economic and commercial activities[31]. There were quantitative restrictions and tariffs which remained high and had a negative impact on external trade which illustrates the continual inward-looking development strategies harkening back to the 70’s and 80’s. The years 1972, 1991, 2002, and 2009 have all been marked by political turmoil and from 1975 to 2001, Didier Ratsiraka ruled under a military coup (shortly ousted in 1991). Marc Ravalomanana (recently ousted by Andy Rajoelina in a military coup in 2009) took power in a contested election in 2001 and soon after, began “Madagascar Naturally” which promised by 2020 to diversify the agro-industry sector, turn the country more towards market-orientated production and promote service sectors. The island has continually faced restrictions and roadblocks to development through poor investment in basic transportation infrastructure (i.e. roads, railways, ports) which has severely limited the movement of products due to huge transportation costs and intermediation margins. Additionally, the “Madagascar Action Plan for Rural Development” has begun which boasts of an implementation of greater land security, rural credit access, irrigation infrastructure, and the promotion of market-orientated activities[32]. With the recent political upheaval, however, very little is certain and many economic and social programs have been put on hold. There is serious talk recently of the U.S. pulling Madagascar from the A.G.O.A. act due to the coup which would devastate the textile and agricultural exports and lead to tens of thousands of layoffs[33]. Further policy initiatives which have succeeded or failed will become clearer as the primary exports of Mauritius and Madagascar are probed.
Sweet Growth: Sugar and the Tiny Island
Mauritius has largely transformed its economy from a low-income country to a middle-income country based on the production and exportation of sugar and textiles. Sugar exports for Mauritius from 1961 to 2006 have varied considerably but have averaged at around 550,000 tons per year (see Table A.2). Through sound macroeconomic and structural policies, steady investments in economic and social infrastructure, and preferential access to the E.U. market under the sugar protocol and world markets under the Multifibre Arrangement (M.F.A.)[34], Mauritius has moved away from monoculture to a diversified economy, enough to keep the country from being wholly dependent on the volatile prices of sugar. In 2005, sugar exports accounted for 25% of total domestic exports, 96% of which were directed to the E.U. under the sugar protocol[35]. Historically, the region’s sugar production originated on the island of Mauritius in the latter part of the 18th century and much of South Africa’s know-how in the sugar industry came from Mauritius expertise and industrial infrastructure. By the early 1940’s, both Mauritius and South Africa showed patterns of condensing ownership and control and increases in scientific research and management to increase their sugar cane yields[36]. Within the SADC region, Mauritius has kept ownership of all eleven of its sugar companies in the face of two South African giants, Illovo and Tongaat-Hurlett, that have acquired most of the other SADC member’s sugar companies. Importantly, each country’s sugar producers have significant access to protected markets where they are able to dump most of their product at a guaranteed price. Surely with such guaranteed markets in mind, Mauritius is not wholly a story of neoclassical glory. Sugar exports for Mauritius account for 87% of its total agricultural income and it is therefore questionable whether this colonial dependency has been stymied[37]. Strangely, but understandably, Mauritius imports cheap sugar for domestic consumption as to take full advantage of the lucrative markets of the E.U. (Mauritius imported a little over 27,900 tons of raw and refined sugar in 2002)[38]. This largely protectionist market in Mauritius has led some, such as Richard Sandbrook, to label the country a partial welfare state, benefits of which have been stability, social cohesion and an educated and healthy labor force in the face of a potentially disastrous fate given that it is very much a plantation state[39]. It has done so well in fact that between 1970 and 2007, Mauritius GDP (at constant 1990 prices USD) averaged 5.4% compared with an overall 2.4% in Africa[40] (see Table A.2), a large part of which have been the profits gained from this largely-protected sugar industry. Undoubtedly, favorable trade agreements in sugar have been key to sustaining an industry that may have folded under pressures exerted from dives in prices in 1976, 1981, 1982, 2000, and 2001 (see Graph A). Such agreements have included the Contonou Agreement (formerly the Lome Convention), the E.B.A. (Everything But Arms-2001-02), the A.C.P. sugar protocol quota (previously mentioned), the S.P.S. opportunities (2001-02) and the U.S. Tariff Rate Quota (2004-05). All aforementioned agreements have, in one way or another, attempted to, “optimize the positive socio-economic dimensions of sugar production” and involved the state simultaneously in the commercial as well as international policy aspects of the regional sugar economy[41]. But it is recognized that such agreements will not last forever, nor will sugar provide a reliable backbone of economic development indefinitely. Long ago recognizing this, the government of Mauritius attempted to diversify its agricultural outputs and tried producing tea but due to a lack of natural resources, low-yielding crops, poor infrastructure, and heavy labor costs, the trial run has all but been aborted (see Table C)[42]. In 30 years, however, Mauritius has become the world’s second largest fully fashioned knitwear producer and in 2001 enjoyed access to the African Growth and Opportunity Act (A.G.O.A.)[43].
Briefly, it is worth noting the phenomenal growth Mauritius has experienced in textiles. Mauritius has experienced steady growth from 1992 to 2008 in their articles of apparel and clothing exports with an average growth rate of 5.25% per year (see Table D). With rises in energy prices and the removal of Mauritius from the Multifibre Agreement (M.F.A.), large declines within exports have resulted and the shock continues due to the economic downturn. The E.P.Z. sub sector of textile production recorded a negative growth of 12.3% following a decline of 6.8% in 2004 and additionally, heavy competition has risen in China, India and Bangladesh[44]. Many textile enterprises have closed down or have attempted to adapt to a loss of preferential treatment which has led to labor downsizing and factory consolidation. Modernization and restructuring has been the main approach of the government and currently, they are attempting to diversify into the information and technology sector[45]. Diversity, strong domestic institutions, initial inheritances and demographic characteristics and ideology have all been noted as reasons for Mauritius’ success[46]. Four hundred miles away on the island of Madagascar, however, a different story of development can be told through the cash crop of vanilla.
Vanilla Cartels: Who Turned Out The Lights?
Out of Madagascar’s estimated 2008 GDP of 9.7 billion USD, 26% is accounted for through agriculture[47]. Of that 26%, vanilla accounts for 10.15% of agricultural exports but acts as a major foreign currency actor (Madagascar supplies nearly 50% of the world’s demand for natural vanilla)[48]. That said, it is an extremely volatile cash crop due to market price fluctuations, weather, political tumult, steep competition from Papua New Guinea, India, Uganda, Indonesia, Mexico, and Comoros, and is quickly being replaced by synthetic vanilla (today accounting for 90% of the U.S. flavoring market, 50% of the French market and is one hundredth the price of natural vanilla)[49]. Table E shows the volatility of Madagascar’s vanilla exports between 1961 and 2006. Ranging from a low of 292 tons in 1963 to 1813 tons in 2005, wild fluctuations in the price (export value between 1999 and 2002 jumped from 12 million USD to 137 million USD) as well as the aforementioned reasons (cyclone Hudah in April 2000 destroyed 15% of the world’s vanilla crop) have caused many seeking vanilla flavoring to go elsewhere. The 2002 political crisis was also heavily involved in such fluctuations and in 2003, prices were at an all-time high of $400-500 per kilo, up from $15 per kilo in 1993[50]. The U.S., France, and Germany account for about 80% of the world’s imports and with continued fluctuations due to political turmoil and the rise in synthetic vanilla sales, it is questionable as to how long these countries will continue to import this important cash crop of Madagascar[51]. Madagascar continues to actively participate in multilateral trading systems as a member of the W.T.O. (1995), the I.O.C. (1984), the R.I.F.F. (1992), COMESA (1993), AGOA (2001), and the SADC (2005)[52]. It too enjoys a number of preferential tariff treatments granted by Australia, Canada, the E.U., Japan, New Zealand, and the U.S. But vanilla is largely exempt from all of these and has remained secretive and strategic for the country. In 1962, a cartel was formed with Comoros and Reunion to strengthen the region’s market power and CAVAGI (a stabilization fund) was created[53]. This fund stabilized the price received by producers and financed stockholding costs from export proceeds. The 1970s were plagued by further and further intervention, however, and rent-seeking and corruption ensued. Export taxation became antithetical to any notion of growth, some farmers receiving less than 8% of vanilla’s F.O.B. price[54]. The prices compiled, the hidden fees surged and over-estimations of the country’s degree of market power led to the opening up of the vanilla market to competition from Indonesia. According to Cadot, Dutoit, and de Melo, “three quarters of the stock of inventories were burnt” and poverty-stricken farmers had their outputs destroyed[55]. Heavy direct taxation on the producers was worsened by the introduction of an export tax in the mid-70’s which drove the N.R.A. (nominal rates of assistance) to -70% and to an average of -80% in the 1980’s[56]. And although most forms of government intervention (including the export tax) were removed in 1997, political and weather-driven shocks have caused major ebbs and flows in the export value of vanilla (see Table F). What does this tell us? The government in power and its policies have very much affected distortions in the agricultural incentives of vanilla (as well as many, many others—i.e. rice, cassava, cocoa, and cloves). Tsiranana (the first President after independence) kept most of the traditional market structures inherited by the French and farmers were generally well-off as a result. President Ratsiraka turned the terms of trade largely against agricultural producers, implemented heavy taxation, a cumbersome foreign exchange allocation system and affected exports negatively through overvalued exchange rates. As mentioned earlier, most of his policies were urban-oriented and even through the liberalization drive in the late 80’s, rural areas were still greatly affected by poverty. Unlike Mauritius, reforms have been gradual, partial and incomplete, political crisis and civil unrest have caused stop-and-go reforms, and assistance was not used effectively (rural development projects have been poorly conceived and implemented)[57]. As a result, after ample time, Madagascar remains a subsistence economy and the rural sector is still fragmented, poorly organized and largely ostracized, even though the country’s source of wealth remains largely in their hands.
Turning Divergence On It’s Head
On one hand, we have Mauritius, a country experiencing an average growth rate in GDP of 5.4%, an average per capita GDP growth rate of 9.8% and a positive trade balance between the years of 1961-2007 (see Table A.2). On the other, we have Madagascar, country experiencing an average GDP growth rate of 2.3%, an average per capita GDP growth rate of 4% and a negative trade balance (see Table A.1). It is a clear story of divergence. But how, the question then becomes, can a story of divergence become a story of convergence as both countries look ahead? As history has shown, a country’s growth rarely lasts forever and when that time comes, who will Mauritius turn to? The answer could be found in its near neighbor, Madagascar. There are never simple answers but Akilash Roopun offers a compelling case that closer economic partnership and cooperation between both countries in the areas of agriculture, renewable energy and tourism can be helpful in the economic development of both countries[58]. Madagascar sits upon a pool of potential natural and human resources largely left untapped and undeveloped. Mauritius exhibits an increasingly diverse economy, technical know-how, excellent infrastructure and long experience with tourism but nearly imports all of its food, only 1% of which constitutes imports from Madagascar[59]. How can this be? There are undeniably historical reasons for such occurrences, one being the colonial ties that Mauritius has largely maintained to France and the E.U. but Madagascar too participate in such colonial relationships. Interestingly, this ‘partnership’ was attempted previously when, 25 years ago, Madagascar was one of the main suppliers of rice to Mauritius but due to bad policies, the Malagasy rice industry collapsed and Mauritius had to turn to Asia for a basic foodstuff[60]. Such has been the unfortunate story with Madagascar’s governmental policies but this does not imply that such policies cannot change. Once Madagascar is over its latest political turmoil, transparent and accountable governmental policies should be implemented that aim to bring its divided populations of the highlands and lowlands together into a structure that works for the benefit of all (in particular the long-ostracized rural populations that have built the very backbone of the country). Using the know-how of Mauritian investment firms (which are already found in Madagascar’s urban areas in small numbers), basic infrastructure and agro-processing investments can go a long way. Through the development of trade-related infrastructure, Madagascar’s potential offerings to the Mauritian population in farming, fishing, and agriculture can be monumental. Raw products in Madagascar can be basically processed (i.e. washed, packaged) and shipped 400 miles to Mauritius for value-added input which could be consumed domestically or exported. Both island’s memberships in COMESA, SADC, and the IOC could be leveraged to battle the increasing challenges world trade liberalization will present. As Peter Dicken states, “the view from older industrialized countries is very different from the view of the newly industrializing countries and different again from the least industrialized countries”[61]. Importantly, there are no pre-made blueprints though and the hetero/orthodox approach towards development that Mauritius has taken towards development may not work for Madagascar. An accountable and transparent Malagasy government must use its local knowledge to find the economic and social policies that work best for its people and country and must steadfastly work towards developing closer political and economic ties to its nearest neighbors.
[1] Mintz, Sidney W. Sweetness and Power: The Place of Sugar in Modern History. New York: Penguin, 1985, 71.
[2] Thomas Jefferson, 1814
[3] Easterly, William. The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done so Much Ill and So Little Good. New York: Penguin Books, 2006, 155-156.
[4] IMF, “Madagascar: Enhanced Structural Adjustment Facility Policy Framework Paper (1999-2001)”: www.imf.org/external/NP/PFP/1999/Madagas
[5] Chang, Ha-Joon. “Kicking Away the Ladder: The “Real” History of Free Trade.” Foreign Policy in Focus, December 2003: 1.
[6] Ibid., 1.
[7] Rodrik, David. “Growth Strategies”. National Bureau of Economic Research, No. 10050, 2003: 30.
[8] Ibid., 3.
[9] Allen, Richard. “Licentious and Unbridled Proceedings: The Illegal Slave Trade to Mauritius and the Seychelles during the Early Nineteenth Century.” The Journal of African History, Vol. 42, No.1, 2001: 93-94.
[10] Ibid., 115.
[11] Ibid., 116.
[12] Bialuschewski, Arne. “Pirates, Slavers, and the Indigenous Population in Madagascar, c. 1690-1715”. The International Journal of African Historical Studies, Vol. 38, No. 3, 2005: 401-402.
[13] Ibid., 404.
[14] Storey, William K. “Review: Learning from Mauritius about Slavery and Identity”. The Journal of African History, Vol. 44, No. 2, 2003: 348.
[15] Bialuschewski, Arne. “Pirates, Slavers, and the Indigenous Population in Madagascar, c. 1690-1715”. The International Journal of African Historical Studies, Vol. 38, No. 3, 2005: 408.
[16] Ibid., 410.
[17] Ibid., 419.
[18] Houbert, Jean. “Mauritius: Independence and Dependence”. The Journal of Modern African Studies, Vol. 19, No. 1, 1981: 75.
[19] Ibid., 78.
[20] Ibid., 89-90.
[21] Ibid., 91.
[22] Ibid., 92-93.
[23] Ibid., 99.
[24] Ibid., 102.
[25] Maret, Fenohasina. “Distortions to Agricultural Incentives in Madagascar”. Agricultural Distortions Working Paper 53, 2007: 1.
[26] Ibid., 2.
[27] Ibid., 2.
[28] UN Statistics Division: http://unstats.un.org
[29] Maret, Fenohasina. “Distortions to Agricultural Incentives in Madagascar”. Agricultural Distortions Working Paper 53, 2007: 4.
[30] Ibid., 9.
[31] Ibid., 5.
[32] Ibid., 23.
[33] Reuters. “Loss of U.S. Trade Deal Could Sink Madagascar Textiles”: http://www.reuters.com/article/latestCrisis/idUSLH725702
[34] AfDB/OECD. “Mauritius Country Profile”. African Economic Outlook, 2007: 361.
[35] Ibid., 363.
[36] Lincoln, David. “The Historical Geography of the Southern African Development Community’s Sugar Protocol”. Illes i Imperis, Vol. 9, 2006: 119.
[37] Ibid., 123.
[38] FAOSTAT Data: www.fao.org
[39] Sandbrook, Richard. “Origins of the Democratic Developmental State: Interrogating Mauritius”. Canadian Journal of African Studies, Vol. 39, No. 3, 2005: 576.
[40] World Bank: www.worldbank.org
[41] Lincoln, David. “The Historical Geography of the Southern African Development Community’s Sugar Protocol”. Illes i Imperis, Vol. 9, 2006: 128.
[42] Brookfield, H.C. “Problems of Monoculture and Diversification in a Sugar Island: Mauritius”. Economic Geography, Vol. 35, No. 1, 1959: 37.
[43] Research and Markets Website: www.researchandmarkets.com/reports/38738.
[44] AfDB/OECD. “Mauritius Country Profile”. African Economic Outlook, 2007: 364.
[45] U.S. State Dept. Website: www.state.gov/r/pa/ei/bgn/2833.htm.
[46] Subramanian, Arvind and Devesh Roy. “Who Can Explain The Mauritian Miracle: Meade, Romer, Sachs, or Rodrik?”. IMF Working Paper, WP/01, 2001: 38-40.
[47] U.S. State Dept. Website: www.state.gov/r/pa/ei/bgn/5460.htm.
[48] Afrol News. “Vanilla Crack Threatens Madagascar, Comoros”: www.afrol.com/articles/13754.
[49] Decisionnewsmedia. “Vanilla Prices- A Double Edge Sword?”: www.foodnavigator.com/content/view/print/8465.
[50] Ibid.
[51] Ibid.
[52] Maret, Fenohasina. “Distortions to Agricultural Incentives in Madagascar”. Agricultural Distortions Working Paper 53, 2007: 10.
[53] Ibid., 16.
[54] Cadot, O., L. Dutoit and J. de Melo. “The Elimination of Madagascar’s Vanilla Marketing Board, Ten Years On”. CEPR Discussion Paper Series, No. 5548, 2006: 16.
[55] Ibid., 17.
[56] IMF, “Madagascar: Enhanced Structural Adjustment Facility Policy Framework Paper (1999-2001)”: www.imf.org/external/NP/PFP/1999/Madagas
[57] Ibid.
[58] Roopun, Akilesh Adiratha. “Madagascar and Mauritius: Unlocking Value Through A New Strategic Partnership”. Friedrich Ebert Stiftung, 2008: 1.
[59] Ibid., 2.
[60] Ibid., 7.
[61] Dicken, Peter. Global Shift: Mapping the Changing Contours of the World Economy. New York and London: The Guilford Press, 2007, 452.
