Introducing Cedric Muhammad Jude Wanniski December 2, 1999

Memo To: Website Browsers, Fans, Clients
From: Jude Wanniski
Re: Cedric, Seattle and the United States of Africa

If you are a regular reader of the Nation of Islam’s weekly paper, The Final Call, you need no introduction to Cedric (nor do clients who have met him at our conferences in recent years). In his spare time as a counselor to black athletes and entertainers, this young fellow of 28 contributes articles to Minister Louis Farrakhan's journal on matters related to economics, banking, finance and international commerce. An "Army brat" whose NATO father was transferred from one European country to another while Cedric was growing up, he and his brother would make bets when they were in their early teens on whether the dollar/Deutschemark rate would move up or down, then have to switch to the French franc or the Italian lira. The essay which follows is Cedric's contribution to politicallyblack.com, a new news website with an African American perspective. It is lengthy, but I assure you it is state of the art on African economic development at the same time it offers a world view on the World Trade Organization in Africa. Be forewarned that Cedric quotes liberally from my book, The Way the World Works, including passages I'd forgotten I'd written 22 years ago. You will be hearing more of this young man during the next 40 or 50 years, I predict, and you will always be able to recall that you met him first at this website.

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THE WORLD TRADE ORGANIZATION AND AFRICA

To many, the World Trade Organization's (WTO) meeting in Seattle, Washington is about little more than China, the United States and some rowdy protesters. This is the case if one accepts the picture of the WTO conference compliments of America's major media outlets. But beneath the surface and on the minds of those "in the know" the gathering is about the parameters that will guide the economic relationships of every country on the planet earth. At the center of the debate over next century's trade relationships, is the continent of Africa and the 54 countries that dot her landscape. 47 of those 54 nations in Africa are members of the WTO and three of the remaining seven countries have obtained the next-to-member status of "observers" of the 135 member WTO. While much of the WTO debate is accurately portrayed as a clash of interests between the nation-state and the multi-national corporation, much of the arguing reduces to debates between competing industries and competing sectors of the world economy. On this latter point, Africa's dilemma becomes clear.

In this century, the leading Western nations and thus the world economy moved from an agricultural base to a manufacturing base, from a manufacturing base to a service-based economy and from a service-based economy to an information-based economy. In this transition the United States led the way followed by the nations of Germany and Japan. In the 1920s, when the U.S. shifted from an agricultural economy to that of manufacturing, it changed the equilibrium of the world economy pyramid and ruptured the prevailing status quo in the protocol of trading nations and between industries within the United States. The results were always national and international in implication. In his book, The Way The World Works, Jude Wanniski poignantly describes the national and transnational ramifications of an economic paradigm shift, his writing, though 20 years old, is applicable today:

When any economic unit becomes wealthier relative to the rest of the world, whether the unit be a family or a nation, it becomes uneconomic for members of that unit to persist in work consistent with the lower level of wealth. When Jones graduates from medical school, it soon is evident that his wife need no longer work as a typist unless she desires the non-monetary rewards. If Mrs. Jones should sell a successful novel, it is plain her children no longer need work their way through college.

As the United States became wealthier relative to the rest of the world during 1919-1929, the same happy condition applied, but with an unfortunate exception. A husband easily transfers the rewards of wealth to his wife and family, and so does the successful wife. In a nation, if there is no system for such transmittal, wealth brings its own problems. The system itself can advance to higher levels of prosperity even as a class of individuals within the system is being made obsolete.

So it was in the 1920s. The U.S. economy moved to higher levels of wealth. All segments of the economy became wealthier, but some became wealthier at a relatively slower pace. Throughout the economy, individuals became obsolete in the jobs they held at the lower level of wealth and had to adjust to new work. For most, this was a happy experience; promotion. What this invariably means is that the individual uses his physical capital less and his intellectual capital more. Instead of hammering out a widget, he makes one with a widget-making machine. The bank teller becomes a cashier. The laborer is recruited to be an apprentice plumber.

For some individuals, though, transition is not a happy experience. The economy as a whole must move to greater emphasis on intellectual capital and less emphasis on physical capital as it rises to a higher level of wealth. On the margin of society, those who could not or would not make the transition voluntarily are forced to do so by the weight of expansion.

The textile mills of New England, for example, give way to machine tools or electronics manufacturing, which are more "capital intensive", and less "labor intensive". New Englander becomes too wealthy to produce textiles. Similarly, the Southern states face the same transition by moving small farmers who have been pushing plows into now transplanted textile mills, while other farmers turn in their plows and horses to buy tractors.

The textile analogy above is exactly the case today. If you insert the United States for New England, it can be said that with the exception of a few southern states, the United States has become too wealthy to produce textiles. Africa however, is not and welcomes the opportunity to make textiles for America and the rest of the world. Of course this has put the interests of the continent at variance with those textile workers in the southern United States but the principle holds true: America has become "too wealthy" to produce textiles [an exception of course must be made for impoverished regions in the U.S. - most notably inner cities that would value textile work and the jobs it can produce. Unfortunately, textile manufacturers find little incentive to set up shop in these inner cities].

Wanniski continues:

Those who resist transition, often because they are too old to begin new careers or must move too far from family and friends, are crushed by progress. This was the dynamic of the late 1920s. All segments of the economy were becoming wealthier rapidly, but the labor-intensive farmer was being wiped out by the falling farm prices. That is, a non-farm worker could trade his labor for more farm goods than was the case prior to the expansion. On the other side of the coin, the farm worker could trade his labor for fewer non-farm goods and services. To adjust back to equilibrium, more farmers had to become industrial workers. They were indeed doing so, but the expansion required ever faster transition, and the political system felt this as an irritation.

The irritation described above is being duplicated within the world trade system and is currently being expressed by member countries through the WTO in a manner akin to the way the fifty states in America communicate their interests, needs and woes to the United States Congress. When America moved from agriculture to manufacturing and from manufacturing to a service economy, the rest of the world assumed more of the responsibility of supplying the world's agricultural and manufacturing needs. But the manner in which this transition took place was uneven. Central and South America and Asia assumed more of the agricultural burden and Asia assumed more of the manufacturing responsibilities. Africa was only to continue its role as the world's biggest supplier of commodities, in the form of precious metals and a few farm commodities. Thus, as America and the world moved from agricultural onward to today's information age, Africa remained dependent upon the earth for its wealth. As the world became more capital intensive Africa remained labor and land intensive. Today, most African economies generate most of their wealth from one or two commodities that they export. It's coffee in Burundi, Rwanda, Uganda, Ethiopia, Madagascar and Kenya. It's petroleum and petroleum products in Libya, Nigeria, Algeria, Gabon, Egypt and Angola. Its iron ore in Liberia and Mauritania. It's copper in Zambia, cotton in Chad and sugar in Mauritius. All of these commodities are from the earth and require manual labor to cultivate.

The next step up the ladder from agriculture is manufacturing and it is in this area that the U.S. is receiving the most resistance to its efforts to integrate the nations into the WTO. Unfortunately because Africa is not a manufacturing powerhouse, she is absent from a crucial debate taking place at this week's conference but certainly not oblivious to it. In one of the most striking divisions within the WTO, developing nations are battling those higher up the economic ladder. The debate revolves around 1) the interests of countries that believe they are harmed by America's anti-dumping laws and 2)the interests of American technology companies that believe that they are hurt by the laws of primarily developing nations that prohibit them from freely engaging in e-commerce. The battle lines are fairly clear. On the e-commerce side, the United States is attempting to extend a WTO moratorium on duties applied to Internet purchases. Many in the technology industry like American Online Inc., Apple Computer Corp., Cisco Systems Inc. Compaq Computer Corp., IBM and Microsoft Corp want the moratorium made permanent and even expanded to cover Internet taxes and other laws that might inhibit the growth of the Internet industry. Developing countries that have not evolved into the information age are resistant to such actions and fearful of the effect they would have on their economies. On the anti-dumping issue, Japan and developing countries like Mexico, Brazil and South Korea are fighting against U.S. anti-dumping laws that are designed to protect key industries in the U.S. The anti-dumping laws punish countries for "dumping" products on the U.S. markets at prices below those in their home markets. Most recently, U.S. steel companies used the laws to punish South Korea, Russia and Japan for undercutting the prices of U.S. steel. The United States is under pressure from members of Congress from steel-oriented districts to push the anti-dumping laws into WTO rules. A compromise would have the developing countries open their markets for e-commerce in exchange for the phasing out of U.S. anti-dumping laws. Here, the highest levels of the technological pyramid are locked in a struggle with those near the bottom. It is a clash of economic paradigms.

The developing countries have lower wages and a plentiful labor supply as their marginal utility and they do not wish to give up that advantage by permitting the U.S. to deny them the right to obtain economic gain because of their marginal utility. Unfortunately for these countries, the U.S., at the top of the economic pyramid, is in a more influential position within the WTO and the world trading system to influence the rules of the game, and this will more than likely prevail in the area of e-commerce. Herein lies Africa's problem. Because the continent is not effectively united around the commonality of the economic paradigm from which all 54 nations operate, they speak with muted and disparate voices that are not respected or heard by the U.S. or the European Union (EU). Because Africa is not united in an economic paradigm it concedes the debate on behalf of developing nations to the countries of Central and South America and Asia. But because these countries have a manufacturing base they are not quite in the position that Africa is, where manufacturing is few and far between. The nations of Central and South America and Asia will never be able to adequately address the woes of Africa because they are more capital intensive than Africa. Africa is much more labor and earth-intensive than any other contiguous land mass on earth. There is nothing wrong with that. But she must be able to express her interests and apply the most leverage in trade negotiations with the rest of the world as does the U.S. and the European Union. If Africa is to compete in the world economy her nations will have to overcome their internal differences much like the nations of Europe were able to when they united to establish the EU to rival the U.S. Though the destination of African economic unity is ambitious it is a path that all signs indicate she will be forced to undertake if she is to thrive and move from the bottom of the economic heap upward. Here are a few steps that she must take in order to bear pressure upon the WTO and influence international trade in terms of her collective best interests.

Enact Government Reform and reduce corruption
It is no secret that many African nations suffer from internal corruption and leaders that have sold out the best interests of the people in favor of material aggrandizement and the favor of the western world. That deplorable trend must cease if the continent is to heal the wounds of colonialism and generate self-respect and engage the world community on equitable terms. The dissatisfaction level among the population of many African countries provides fertile ground for violent changes in government throughout the continent and which make economic development impossible. Only when the nations of Africa are characterized by peaceful lawmaking and smooth transitions of power will the necessary stability and trust be generated and developed. Far too often a shameful reign of greed has characterized the rule of African leaders. In Africa In Chaos, George B.N. Ayittey describes a not-so-uncommon process that marks power struggles in the Motherland. His depiction may offend some but it reflects the pain of many Africans who believe their leadership can do so much better than it does:

A serious study of Africa's interminable and innumerable crises reveals that they all share a similar evolution. Each crisis begins when an "educated" buffoon, civilian or military, assumes power through an election or a coup d'état. He then proceeds to entrench himself in office by amassing power and surreptitiously debauching all key government institutions: the military, the civil service, the judiciary, and the banking system. With all powers in his hands, he transforms the state into his personal property-to benefit himself, his cronies, and tribesmen, who all then proceed to plunder the treasury. All others who do not belong to this privileged class are excluded, as the politics of exclusion is practiced.

The tyrant employs a variety of tactics to decimate opposition to his rule: co-optation, bribery, infiltration, intimidation, and "divide and conquer". Opposition leaders compound their weakness by their constant bickering. Out of frustration, a rebel group emerges from the excluded class and mounts a guerilla campaign to oust the despot and his cohorts from power or to secede, as in the Biafran secession in 1967. In the course of the insurgency, the guerilla movement splits into several factions, often along tribal lines. If the campaign to overthrow the regime is unsuccessful, the war drags on for years, even decades, as in Angola, Mozambique, Sudan. If the head of state is ousted or killed, a power vacuum emerges and factional leaders battle ferociously to fill the void, as in Somalia and Liberia.

Chaos and carnage ensue. Infrastructure is destroyed. Food production and delivery are disrupted. Thousands are dislocated and flee, becoming internal refugees and placing severe strains on the social systems of the resident population. Food supplies run out. Starvation looms.

The Western media bombards the international community with horrific pictures of rail-thin famine victims. Unable to bear the horror, the international community is stirred to mount eleventh-hour humanitarian rescue missions. Food, tents, blankets, portable toilets, high-protein biscuits, and other relief supplies are airlifted to the refugees.

Factional leaders, who initially welcomed the humanitarian mission to feed refugees, turn against the mission and refuse to cooperate with it because its presence accords some legitimacy and recognition to the hated regime. The demands soon turn into extortion. At some point, relief supplies are attacked and aid workers are taken hostage or killed. The mission loses public support and is terminated; relief workers are pulled out and the starving refugees are left to fend for themselves. That is, until another African country blows up and the whole macabre ritual is repeated. Nothing -- absolutely nothing, it seems -- have been learned.

Free herself from the grip of the IMF
Few factors have damaged the continent of Africa more than the conditions that have been externally forced upon her by the IMF. The IMF, in exchange for emergency financial aid, forces nations to completely alter their fiscal and monetary policies in the most destructive manner. Frequently the IMF has forced the nations of Africa to raise taxes, devalue their currencies and limit spending in the very midst of what would qualify in America as an economic depression. The combination is near-fatal in and of itself. No Western nation could survive under such a prescription. Even in the Great Depression the government increased government spending to expand the safety net and foster economic growth. Yet African nations have routinely been denied even this basic option when under IMF programs and policy initiatives. This horror show recently repeated itself in the 1997-1998 Asian crisis where the IMF exacerbated the problems of Indonesia by encouraging a currency devaluation and the raising of taxes at the height of its economic shock. If the struggling nations of Africa are to survive and prosper they must reject money from the IMF and the draconian conditions attached that quite often result in nothing more than the nation in question exporting its way to economic recovery by selling its most valuable natural resources at fire-sale prices to the U.S. and EU. The nations of Africa should view the recent resignation of IMF managing director Michael Camdessus as an opportunity to lobby the organization for leadership and policy changes that take into consideration Africa's unique situation and put the interests of struggling nations before that of Western governments and wealthy foreign investors.

Establish the United States of Africa
In September of this year the Organization of African Unity met in Libya and determined that it would accelerate the pace and intensity of its commitment to establish the United States of Africa. The United States of Africa would be based upon the 1991 Abuja Treaty which established an African Economic Community with mandated institutions such as an African Central Bank, African Monetary Union a Pan-African Parliament and African Court of Justice. At the heart of the economic woes of African nations is currency destabilization.

The effects have been devastating as merchants, consumers and investors of all stripes are unable to plan and engage in commerce due to their inability to depend upon a stable value in the unit of account -- the currency. Quite often, African nations have found themselves in a helpless spiral of inflation which makes trust and unity virtually impossible to foster. The goal of the OAU is worthwhile and would go a long way toward eliminating currency fluctuations due to the fact that a common currency in Africa backed by the tremendous wealth and resources of the continent would be virtually immune to inflation. This would especially be true if in addition to being backed by the enormous production of the continent, the currency was backed by gold and defined in terms of a weight of gold. By tying the currency to gold, which the continent has in abundance, the currency of the entire continent could be stabilized which would produce predictability in business transactions for all and would make the region attractive to foreign investment that often flees when a currency fluctuates in value. This was the case in 1997 when the countries of Southeast Asia were hit by a currency crisis in the region that began with instability in the baht, the currency of Thailand and spread to the currencies of South Korea, Malaysia and Indonesia.

According to the WTO, the Asian currency crisis was the cause in the drop in the rate of growth of international trade last year. This is important to note because regardless as to what policies the WTO devises for its member nations, those policies are not enough to protect those countries from the effects of a currency crisis which are a product of bad monetary policies. The WTO primarily seeks to influence aspects of the fiscal policies of its member nations. It has no directive in monetary matters. The OAU's intention to establish a monetary union in Africa provides the most important missing link in the economic policies of that continent. An African currency that was stable and predictable would rid the country of much of its dependency on foreign nations and international institutions, and would force the U.S. and the rest of the world to deal with it on equal or close to equal terms.

The next three years are critical to the future of the WTO. In that time the most critical policies will be agreed upon by the trade body. In these next three years Africa can positively impact those policies by accepting responsibility for its own internal problems, fostering economic development and organizing itself in a union that represents and protects its interests. Only then, will she be noticed at the next WTO gathering.