Comparative Advantage Is an Old-Fashioned Trick

Abstract

A convergence of economic imperatives, including the need for raw materials and markets, alongside inter-European power struggles and social factors such as rising unemployment kickstarted Europe’s scramble for Africa. The resulting colonial era has left an indelible impact on Africa’s economic, political, and social dimensions. Much of this legacy is now encoded in the international protocols that govern trade between Africa and the rest of the world. These systems tend to protect the interests of established leaders and have systematically penalised latecomers. This puts Africa at an enduring disadvantage despite its bountiful resources and much-vaunted potential.

In this chapter, we revisit data and anecdotal evidence showing how countries that have ‘made it’ in the global trade arena often counted more on dynamic comparative advantages than on simplified comparative advantage theory interpretations based on their natural resources bounty. We also compare African and Asian countries after the independence movement of the 1960s regarding economic and social indicators, where they are now, and what it will take for Africa to chart a new course to a fairer trade system.

An Interplay Between Commerce and Conquest

David Ricardo, a renowned British classical economist, is chiefly celebrated for his contributions to various economic theories, including wages and profit, the labour theory of value, and comparative advantage. His work on comparative advantage, in particular, has been a cornerstone of international trade theory. In simple terms, Ricardo’s (1817) theory posits that countries can benefit from trading with each other by focusing on making the things they are best at making while buying the things they are not as good at making from other countries. This concept was prominently illustrated in his influential book The Principles of Political Economy and Taxation, where he employed static models involving two countries, England and Portugal. He proposed that even if one country excelled in both cloth and wine production, a division of labour would lead to specialisation in the goods where each country held the most significant comparative advantage. In this scenario, both countries would benefit from trading according to their strengths, even if one country needed to be more efficient in both goods.

The theory of comparative advantage has been harnessed to bolster the doctrine of free trade, asserting that resources should shift from high-cost to low-cost production, ultimately boosting productivity. The theory also presumes that protectionism disrupts market functioning. Therefore, under the auspices of free trade policies, countries are expected to export goods for which they possess a comparative advantage, financing their imports (for those goods and services where they don’t have an advantage) through these exports.

It’s a neat theory. However, it doesn’t consider that the value of exports from developing nations largely hinges on global market demands and the pricing strategies of competing suppliers. Africa has suffered quite significantly from the crude interpretation of Ricardo’s theory. It has justified decades of policy influencers’ insistence that the fortunes of the continent’s economies lie in its natural resources bounty and that its insertion in the global economy depended on exploiting such comparative advantage. Many experts and development-focused institutions were happy to identify the shortcomings of economic progress based on bad governance of such a significant advantage.

Without it being explicit, the theory of comparative advantage served as a basis for perpetuating a colonial model, where commodities were exported against the import of manufactured higher-value goods and where the prices of commodities were decided away from their centres of production and trade. As the architecture of Europe-Africa relations shifted and greater emphasis was placed on trade agreements for their inherent value, the flaws of the theory were thrown into sharp relief.

Ricardo’s theory of comparative advantage was first employed as an economic policy during the period of economic modernisation in the late eighteenth century, as economies transitioned from agrarian and handcraft-based economies to industrialised factory-driven systems. In the 1950s and 1960s, economists delved into the long-term analytical implications of the theory, and it was integrated into neoclassical theory as the latter supplanted classical theory as the predominant paradigm in international economics. While certain incompatible elements were removed, the core of the theory of comparative advantage survived intact, and this modernised neoclassical interpretation argues that free international trade is mutually advantageous for all participating nations. The exchange rate mechanism is posited to automatically deliver these benefits under the sway of free trade (Goldin, 1990).

Economic theories have an undeniable influence on political decision-makers. This highlights the critical link between theory and practice (Schumacher, 2013). Both classical and neoclassical theories, for example, provide workable insights into the conditions and factors that govern international trade, including mobility of capital, transformations of capital and labour, balanced trade, and adjustment mechanisms. However, the theory of competitive advantage has significant theoretical insufficiencies and shortcomings when it comes to real-world application. It therefore needs to be revised to describe and understand international trade better.

Economic policies grounded in an incomplete theory can yield adverse outcomes and unintended consequences due to limited and potentially misleading assumptions. Nevertheless, despite its shortcomings, the theory of comparative advantage has widespread support and has thus, unsurprisingly, wielded undue influence over the development of international trade policies, historically and currently, with mixed results.

The theory’s impact on global trade policies has been well-documented, particularly in trade liberalisation, characterised by dismantling trade barriers, championed by organisations such as the World Trade Organization (WTO), IMF, and World Bank (Shaikh, 2003; Shell, 1995). Scholars argue that trade liberalisation offers nations the optimal path to reap the benefits of comparative advantage-based trade (Kowalski, 2011). Notably, the WTO consistently invokes the concept of comparative advantage to justify its advocacy for unfettered trade and its dedication to realising this vision. This perspective is underscored by the WTO’s official stance, where the theory of comparative advantage is heralded as a potent insight into economics (WTO, 2013). Pascal Lamy, a Director General of the WTO, staunchly defended the theory of comparative advantage in a speech directed to its detractors, stating:

There are those who now call into question Ricardo’s theory that differences in relative productivity between countries lead to their specialisation in production and to trade. Doubt has arisen that this specialisation based on comparative advantage results in higher total output, with all countries benefiting from the increased production. … In my view, the analysis by Bhagwati, Panagariya and Srinivasan should convince us that the principle of comparative advantage, and more generally, the principle that trade is mutually beneficial, remains valid in the 21^st century. (Lamy, 2010)

In contrast to the pronounced emphasis on trade liberalisation within WTO policies, the organisation’s foundational objectives, outlined in the preamble of the Marrakesh Agreement, encompass a broader scope. These objectives cover the elevation of living standards, the assurance of full employment, the sustained growth of real income and effective demand, and the expansion of goods and services trade (WTO, 1994). However, the WTO’s primary focus remains on facilitating unimpeded trade and the reduction of trade barriers, often at the expense of fully realising its other articulated objectives (Ismail, 2005; Rodrik, 2001). This prioritisation can be attributed to the reliance on the theory of comparative advantage, which guides the conclusion that goals like national welfare are optimally attained through trade liberalisation and the abandonment of protectionist measures. Consequently, alternative policy approaches tend to be marginalised. In this context, the pursuit of unrestricted international trade evolves into an end unto itself rather than merely a means to achieve overarching objectives (Schumacher, 2013).

The dominant Western instruments of control encompass aid (as explored in the previous chapter), trade, investment, and technology. Following the culmination of World War II (1939–1945), the Allied powers convened in Bretton Woods, USA, to reshape the global governance framework. It led to the establishment of three pivotal international institutions: the World Bank, the IMF, and the GATT. While the former two institutions were primarily concerned with financial and developmental matters, GATT focused on trade regulations and agreements. GATT was subsequently succeeded by the WTO in 1995, although GATT’s rules remain integral to the WTO system. While ostensibly new creations, these institutions had their roots in the colonial and financial empires of old.

In the nineteenth and twentieth centuries, European and American colonial and financial empires were deliberately structured to serve the interests of the colonisers rather than the colonised peoples. Coercion through political, economic, and military dominance compelled colonised nations to produce raw materials, food, and minerals that were exploited within these empires.

Post-1945, a shift occurred as colonised populations rebelled against imperial rule, and the USA demanded that European colonial powers open their colonies to American trade and investment. This dual pressure ultimately led European nations to grant their colonies political independence. However, while direct financial and trade controls were dismantled, new strategies were devised to uphold existing rules-based objectives, helping the US and European powers maintain their economic dominion over the former colonies.

The landscape shifted again after 1989 with the dissolution of the Soviet Union as the result of a seismic geopolitical shift that saw the end of the Cold War and the reshaping of the global governance agenda. Developed countries redefined their needs and priorities through new international trade agreements.

Trade liberalisation was exalted for the following decades as the ‘engine of growth’ within the Washington Consensus, a prominent pillar of contemporary neoliberal economic ideology. While the notion of unregulated markets thrived during the nineteenth-century zenith of British maritime dominance, the rise of American industrialisation in the latter part of the century spurred protectionist policies against ‘free trade’. A similar surge in state support, protectionism, taxation, and fiscal incentives accompanied Britain’s industrialisation of the eighteenth century.

In his illuminating work “David Ricardo’s Comparative Advantage and Developing Countries: Myths and Realities”, Kalim Siddiqui (2017) offers a compelling account of the Indian textile industry’s historical trajectory, shedding light on the protectionist dynamics that shaped trade relationships in that country. Siddiqui unveiled a vivid picture of the Indian textile landscape in 1750 when it contributed to a substantial portion of the global textile output, predominantly driven by handicrafts and artisanal craftsmanship.

Challenging the conventional understanding of Britain’s industrial ascendancy, Siddiqui’s research highlights a significant departure from the widely held notion that Britain’s productivity surge occurred in the eighteenth century. Instead, he reveals that this transformative growth manifested in the early nineteenth century, a temporal alignment with the implementation of protectionist policies that laid the foundation for the burgeoning British cotton textile industry.

Siddiqui (2017) underscores the pivotal role of British protectionism in this narrative, demonstrating how it bolstered the growth of domestic industries while inhibiting parallel advancements in colonial and semi-colonial sectors. He traces India’s evolution from a prominent global producer and exporter of cotton textiles in the eighteenth century to being overshadowed by the UK by the mid-nineteenth century. This transformation was facilitated by Britain’s imposition of free trade in its colonies and semi-colonies, effectively positioning itself as the world’s largest capital exporter by the end of the nineteenth century, with a substantial proportion of British capital invested abroad.

Siddiqui’s analysis lays bare the intricate interplay between economic policy, espionage, and political manoeuvring during the early modern period. This multifaceted approach sought to stimulate domestic industry, particularly in England, underpinning its quest for wealth, power, and dominance over neighbouring nations. Siddiqui underscores the instrumental role of protectionist measures in Britain, elucidating how tariffs, such as the First and Second Calico Acts of 1701 and 1702, aimed at curbing textile imports from India, propelled British woollen and textile production. Innovations such as Hargreaves’ Spinning Jenny and the Arkwright spinning frame further catalysed the quality of British cotton production in the eighteenth century.

Siddiqui delves into the intricacies of this protectionist strategy, revealing how British cotton producers, despite technological advancements, struggled to compete with Indian cotton on price. Consequently, increased protectionist measures were demanded, culminating in heightened tariffs on Indian cotton goods in the 1780s. This protective wall bolstered the British cotton textile industry’s survival and expansion and facilitated significant capital investments. Alavi (1982) highlights the necessity of safeguarding the British industry through substantial duties, with cotton textiles potentially priced at 50–60 per cent lower than their English counterparts. This protective framework eventually gave way to free trade as British industry matured, only to revert to protectionism when Indian textiles regained a competitive edge in the late nineteenth century (Robinson, 1974).

Siddiqui’s exploration extends beyond textiles, shedding light on the decline of India’s shipbuilding industry under the rule of the East India Company. The enactment of legislation in 1813 and 1814, which curtailed Indian ships’ access to British markets, underscores the intricate relationship between protectionism, colonial influence, and economic shifts. These insights echo the sentiments of historical figures such as Jan P. Coen (as cited in Reinert, 2016) and Johan De La Court (as cited in Reinert, 2016), highlighting the interplay between commerce and conquest in international relations.

As Siddiqui demonstrates, protectionist policies, technological advancements, and geopolitical realities work together to shape trade dynamics. Through his comprehensive analysis, he paints a detailed picture of how protectionism and economic imperatives intertwine to mould the fortunes of nations, adding nuance to the broader narrative of international trade and demonstrating how comparative advantage theory can be manipulated.

The Dutch Disease

The potential of natural resource wealth to fuel economic growth, facilitate human development, and generate employment is a widely acknowledged premise. However, this promise has often been marred by adverse outcomes such as poverty, inequality, and violent conflicts. This complex phenomenon has been attributed to what is commonly referred to as the “resource curse”, “Dutch disease”, or, more seriously, the concept of “mineral-based poverty traps” (Morris & Fessehaie, 2014).

The term “Dutch Disease” in economics originated from a phenomenon observed in the Netherlands during the late 1960s and early 1970s (Moisé, 2020). It refers to the adverse effects that a significant increase in revenues from natural resource exports, particularly commodities like oil or minerals, can have on a country’s economy.

The Economist magazine coined the term in a 1977 article: “The Dutch Disease” (Moisé, 2020). The article discussed the economic challenges faced by the Netherlands at that time. Having discovered sizeable natural gas reserves in the North Sea, the country had substantially increased its gas exports and government revenues. However, the influx of revenue had unintended consequences for the Dutch economy.

The rapid inflow of foreign exchange from gas exports strengthened the Dutch guilder (the national currency), making non-resource sectors of the economy, such as manufacturing and agriculture, less competitive internationally. This phenomenon was characterised by a loss of competitiveness in these sectors, as higher currency values made their products more expensive for foreign buyers and imports cheaper for domestic consumers. As a result, the Dutch economy’s manufacturing and other non-resource sectors suffered, negatively impacting overall economic diversification and growth.

The concept of the Dutch Disease has since been widely studied and applied to other countries that have faced similar challenges when experiencing a resource boom. It highlights the complexities and potential pitfalls of managing a resource-rich economy and underscores the need for careful economic management and diversification to ensure sustainable development.

In the discourse surrounding resource-based industrialisation strategies, Morris and Fessehaie (2014) outline three primary lines of critique. Firstly, the contention arises that resource-based industrialisation encounters challenges akin to any other path of industrialisation. Simply possessing proximity to a commodity does not guarantee cost advantages sufficient to nurture competitive resource-based industries in African countries. Infrastructure, human capital, access to capital, and skills development are pivotal in determining final cost competitiveness.

The second critique relates to scepticism towards resource-based linkages and externalities. The argument posits that commodity sectors might not inherently foster these linkages, necessitating a proactive approach to utilise resource rents effectively. The authors advocate for strategies promoting broader, dynamic growth trajectories through linkage development, addressing concerns of resource rent dissipation.

Finally, the authors highlight the dichotomy between resource-based industries and Africa’s factor endowments. This critique contends that resource-based sectors must align optimally with the region’s economic landscape. In this context, The Economist (2015) underscores Africa’s paradoxical natural resources disadvantage in an article citing the “Dutch disease” phenomenon, where booming commodity prices lead to exchange rate appreciation, impeding local manufacturing and trade.

The success of resource-based industries is a complex equation that extends beyond initial skills and capital levels. An array of empirical studies and industry analyses bear this out, highlighting the multifaceted nature of the factors influencing sustained prosperity in these sectors. Technological innovation, market dynamics, regulatory frameworks, and strategic adaptability all play a pivotal role in shaping the trajectory of resource-based industries, challenging simplistic notions, and underscoring the need for a comprehensive understanding of their operational landscape. Furthermore, the experiences of resource-rich countries like Venezuela, Argentina, Malaysia, and Thailand reveal that effective economic policies and entrepreneurship mobilisation are instrumental in fostering the growth of resource-based industries. Such policies have facilitated industrialisation despite initial limitations in skills and capital (Morris & Fessehaie, 2014).

Ferranti et al. (2002) also demonstrate the potential for commodity sectors to stimulate productivity growth, technological innovation, and linkages, given appropriate institutional frameworks and investments in human capital, and show that successful resource-based development hinges on a combination of policy interventions, investment in research, and robust institutions. Chile’s resource-based development trajectory exemplifies the transformative potential of effective policies. The country’s revival in copper production during the mid-twentieth century initially needed more domestic technical capacity. However, Chile invested in skills, research, and exploration to cultivate its mining industry over time. This strategic approach has led to sustained economic growth and diversification (Wright & Czelusta, 2004).

The blind assumption that resources alone are an endowment that propels development is, therefore, simplistic and naïve. Successful resource-based development is not solely determined by geological endowment but hinges on effective policies, investments, and institutions. As Africa stands at a crossroads of opportunity, responsible natural resource revenue management could foster sustainable human development, job creation, and poverty reduction (Morris & Fessehaie, 2014). Ultimately, the resource curse argument needs to account for the nuanced economic character of mineral resources and the concept of resource abundance.

The Challenges of Capital Flight

Africa’s immense natural resources have attracted foreign investment, often channelled through offshore entities, with the British Virgin Islands a common choice. This influx of wealth has disproportionately benefited elites, while the population at large sees slight improvement in their livelihoods. Mismanagement of resources and lack of transparency have cost the continent billions of dollars annually: funds urgently needed for education, health, and infrastructure (Ndikumana & Boyce, 2021).

Extended by offshore opportunities, capital flight has further drained Africa’s resources. Over the past decades, capital flight from several African countries has resulted in a staggering loss of trillions of dollars. Urgent measures are required to curb this financial haemorrhage and repatriate stolen assets (Ndikumana & Boyce, 2021). Capital flight from Africa exceeds inflows into the continent.

The phenomenon of capital flight, wherein significant financial resources exit a country’s economy and find refuge abroad, has garnered substantial attention due to its far-reaching implications for developing countries. The works of Ndikumana and Boyce (2021) shed light on this critical issue, revealing the magnitude of capital flight from several African countries over the 1970–2018 period. Notably, the top five countries affected, including Nigeria, South Africa, Algeria, Angola, and Morocco, collectively lost over $1.2 trillion through capital flight (Ndikumana & Boyce, 2021). This loss of financial assets has profoundly impacted these economies, hindered their development prospects, and exacerbated existing challenges.

The loss of capital is particularly pronounced in countries endowed with abundant natural resources, thereby revealing a correlation between natural resource wealth and capital flight risk. It is observed that six of the top ten countries with the highest capital flight are oil-exporting nations. This suggests that the allure of resource exploitation, while offering potential economic gains, also opens avenues for substantial capital flight, potentially eroding the benefits that resource-rich countries could reap from their endowments (Fig. 4.1).

Fig. 4.1

Total capital flight from 30 African countries by decade ($ billion, 2018). (Source: Adapted from Ndikumana and Boyce (2021))

Addressing the challenges of capital flight and resource exploitation necessitates a multifaceted approach. As technological megatrends reshape the global economy, the paradigm of comparative advantage must adapt to encompass evolving factors such as security considerations, reshoring, and sustainable production practices. Circular economy concepts, emphasising resource efficiency, reuse, and remanufacturing, offer a potential framework for sustainable development, which requires broad societal engagement and policy support.

The intertwined issues of capital flight and resource exploitation underscore the complexities of economic development in resource-rich developing countries. Strategic resource governance, sustainable economic diversification, and innovative economic theories are imperative for overcoming these challenges and steering these economies towards a more equitable and prosperous future.

The Yoke of the Global Value Chain

Walter Rodney (1972) gave a good account of what he called “How Europe Underdeveloped Africa”. Rodney narrates that Western Europe and Africa had a relationship that ensured wealth transfer from Africa to Europe. The transfer was only possible after the trade became genuinely international, and that takes one back to the late fifteenth century when Africa and Europe were drawn into common relations for the first time—along with Asia and the Americas. Africa helped to develop Western Europe in direct proportion to Western Europe’s underdevelopment of Africa. The first significant thing about the internationalisation of trade in the fifteenth century was that Europeans took the initiative and went to other parts of the world. Europeans used the superiority of their ships and cannons to gain control of the world’s waterways, starting with the Western Mediterranean and the Atlantic coast of North Africa.

From 1415, when the Portuguese captured Ceuta near Gibraltar, they maintained the offensive against the Maghreb. Within the next 60 years, they seized ports such as Arzila, El-Ksar-es-Seghir, and Tangier and fortified them. By the second half of the fifteenth century, the Portuguese controlled the Atlantic coast of Morocco. They used their economic and strategic advantages to prepare for further navigations, eventually carrying their ships around the Cape of Good Hope in 1495. When the Portuguese and the Spanish were still in command of a significant sector of world trade in the first half of the seventeenth century, they bought cotton cloth in India to exchange for enslaved people in Africa to mine gold in Central and South America. Part of the gold in the Americas would then be used to purchase spices and silks from the Far East. The concept of metropole and dependency automatically appeared when parts of Africa were caught up in the web of international commerce.

A handful of European countries decided on the role to be played by the African economy. In many ways, Africa was considered to be an extension of the European capitalist market. As far as foreign trade was concerned, Africa was dependent on what Europeans were prepared to buy and sell. At the same time, Europe exported goods already being produced and used in Europe to Africa, including Dutch linen, Spanish iron, English pewter, Portuguese wines, French brandy, Venetian glass beads, German muskets, and so on. Europeans could also unload the goods from the African continent back in Africa once they had become unsaleable in Europe.

Essentially, Europe had the authority to dictate what Africans should export, showcasing their dominance. Nevertheless, to assume that Europe possessed an unassailable military might would be wrong. In the early years of trade with Africa, it was the novelty of what European manufacturers offered, even although goods were often of poor quality, that attracted Africans. Esteban Montejo (1968), an African who ran away from a Cuban slave plantation in the nineteenth century, recalled that his people were enticed into slavery by the colour red. He said:

The scarlet did for the Africans; the kings and the rest surrendered without a struggle. When the kings saw that the whites were taking out these scarlet handkerchiefs as if they were waving, they told the blacks, ‘Go on then, go and get a scarlet handkerchief’, and the blacks were so excited by the scarlet they ran down to the ships like sheep, and there they were captured. (Montejo, 1968)

Class divisions, too, contributed to the ease with which Europe imposed itself commercially on large parts of the African continent. The African-centred class situations, characterised by communal and flexible social structures, unintentionally played into the hands of Europeans during the era of colonial trade, who leveraged their understanding of hierarchical structures and economic divisions inherent in their own societies to weaken African structures. In many African societies, where class distinctions were more fluid and based on factors such as lineage and age, the lack of a rigid economic hierarchy made it challenging for local communities to negotiate with the more stratified European colonial powers. Europeans, using their economic and technological advantages, exploited these internal dynamics. They often engaged with specific groups or leaders within the African societies, taking advantage of existing power structures or creating dependencies, which enabled them to establish and control trade relationships to their benefit.

The more centralised and hierarchical nature of European societies allowed for a more cohesive and systematic approach to colonial trade, giving them an edge in negotiations and economic exploitation.

The historical ramifications of the transatlantic slave trade have indelibly marked the collective consciousness of both European and African societies, giving rise to profound feelings of guilt and moral responsibility. While recognising their active participation in this reprehensible enterprise, European nations confront the stark reality of their complicity while African societies grapple with the knowledge that certain factions within their midst collaborated in facilitating the operations of slave ships.

Three factors delineate the intricate contours of the Euro-African relationship: an inherent power disparity, historical and cultural interlacement, and the legacy of colonial discourse.

Inherent Power Disparity

An inherent and enduring power asymmetry lies at the heart of the African-European relationship. An explanation encompassing the fusion of economic and power dynamics is imperative to grasp what underpins this imbalance. While the economic facet undoubtedly exercises a crucial influence, it is just one element within a broader, multi-dimensional schema.

Historical and Cultural Interlacement

The roots of the African-European relationship extend over a century and are interwoven with the very bedrock of institutional frameworks, cultural milieus, and societal behaviours endemic to both sides. Untangling the complex skein of dependence that characterises one side and the overbearing dominance emblematic of imperial culture on the other necessitates protracted and concerted endeavours. Even with advances since the onset of Africa’s wave of independence, inaugurated by Ghana’s autonomy in 1957, the journey towards autonomy remains prolonged and demanding.

The Persistent Legacy of Colonial Discourse

An enduring legacy emanates from the discourse and negotiation paradigms shaped during the colonial epoch, constituting a critical facet warranting meticulous examination. Within their original contextual dimensions, three pivotal terms: ‘preference’, ‘reciprocity’, and ‘non-reciprocity’ have been assimilated into the parlance of the World Trade Organization (WTO).

A dissection of historical discourse evinces that terminologies such as ‘preferences’ are rooted in the colonial framework, wherein African entities were coerced into subserving foreign objectives at the cost of their intrinsic well-being. This alignment was often to satisfy Europe’s strategic imperatives, which, as catalogued by Tandon (2015), include facilitating the supply of inexpensive commodities to fuel European industries, engaging in fierce competition with other imperial powers, creating markets for manufactured goods, and establishing control over monetary systems and credit, forming the bedrock for capital accumulation.

To fulfil these needs, European powers undertook a series of actions, including employing military might to reshape pre-colonial societies in service of imperial goals, establishing systems of imperial governance at the political level, and constructing intricate financial, banking, transport, and insurance structures, to facilitate the movement of goods to and from the colonies. In addition, Europe instituted a ‘preferential’ framework at the economic level, granting colonial produce preferential access to specific markets, such as England, over others, like Japan.

However, the concept of ‘preference’ was not a genuine concession to Africa, as it is often portrayed today. Instead, it represented a concession by Africa to Europe—an inherent trap in its very conception. During colonial times, countries like Uganda prohibited the export of their coffee or cotton to potentially more lucrative markets where prices were higher, like Japan, because of these ‘preferences’. This was in direct conflict with the principles of free trade (Tandon, 2015). Nevertheless, Africans were led (and continue to be led) to believe that their survival hinged on the ‘preferences’ they (supposedly) enjoyed in the European market. This situation is akin to a debt-laden enslaved person who relies on the ‘preferences’ bestowed by the master for survival in service to the master.

This unsympathetic treatment of Africans is all the more astonishing when you consider that many African countries, along with other colonies (not the USA), played a pivotal role in sustaining Europe during World War II. The substantial loss of life among soldiers from the colonies on various war fronts contributed to significant physical devastation in African nations, with proxy wars waged in the colonies to satisfy European demand.

The pernicious effects of an unfavourable trade system on Africa are glaring. Waves of industrialisation in the West, followed by countries like Japan and others in East Asia, have brought elevated economic growth and higher per capita incomes to these regions, introducing greater complexity into value chains. These economies predominantly export manufactured goods rather than primary commodities, underscoring their compelling industrialisation trajectory, while many African countries continue to focus on commodities as their primary comparative advantage and are falling further behind (Siddiqui, 2017).

Developed countries embraced protective industrial policies throughout their early industrialisation phases, diverging from an open trade approach, employing interventionist trade policies, consolidating their industries, and attaining confidence before adopting a free trade stance. However, today’s prevailing mode of engagement with the global economy hinges on participation in global value chains (GVCs).

The post-colonial era witnessed a complex transformation as complex value chains burgeoned in trade and manufacturing, gradually evolving from mostly national or regional networks to assume a more global form as GVCs or global production networks in the twenty-first century (Nathan, 2018). Since then, GVCs have been criticised for exacerbating the exploitation of international labour cost disparities by leading firms from developed economies to reap extraordinary profits or rents. As such, the evolution of capitalism, characterised by imperialism, extends beyond the export of capital, an observation that resonates with Lenin’s understanding of imperialism.

In recent decades, advanced economies have seen a substantial decline in the share of manufacturing, from 31 per cent in 1945 to less than 16 per cent in 2010. Simultaneously, services have risen as the paramount sector, constituting over 70 per cent of GDP in 2010, up from 41 per cent in 1945 (Siddiqui, 2017). Comparatively, between 1980 and 2010, the trajectory diverged for African and Latin American countries. While Asian nations experienced a growing share of manufacturing, industrialisation slackened in Africa and Latin America, marked by a decline in industrial growth. Regrettably, Africa’s economic reliance has disproportionately leaned towards the primary sector for income and employment. To access the advantages of GVCs, Africa is pressured to liberalise trade and investment policies, bolster intellectual property rights, and abandon state-supported industrial initiatives.

For instance, multinational corporations have found it more lucrative to outsource certain production stages. This model has allowed companies to conserve capital investments while suppliers manage production, providing heightened flexibility. Such practices are not confined to manufacturing alone; electronic companies have also adopted them, indicating the broader applicability of this approach.

An active industrial policy is essential for developing African countries aiming to leverage GVCs. Establishing specific production capabilities is vital for effective participation and GVC integration. Notably, WTO negotiations typically focus on tariff and quota reductions, differing from the proactive industrial policies pursued by developmental states. These states concentrated on designing, regulating, and coordinating industrial development within their borders, fostering technological upgrading, and learning through GVC engagement.

Furthermore, sectors wherein developing nations possess comparative advantages, such as agriculture and clothing, often benefit from more extensive worldwide protection than other sectors. Agreements like the Bali and Nairobi WTO declarations strive to reduce bureaucratic obstacles and compel members to undertake regulatory reforms, fostering compliance. These agreements also target the elimination of export subsidies in agriculture by 2020 for industrialised nations and by 2023 for developing countries.

GVCs play an increasingly central role in the global economic landscape, with UNCTAD estimating that over 80 per cent of world trade is organised through GVCs. The International Labour Organization (ILO) highlights that more than 400 million jobs in the OECD and Asian economies are tied to GVCs, accentuating their significance (ILO, 2015).

Key to a GVC is the segmentation of production tasks, encompassing design, marketing, manufacturing, and branding. This segmentation arises from specialised firms producing various components, driving outsourcing. The development of ICT and the container revolution have amplified production coordination, overcoming geographical distances. The rise of manufacturing capabilities in low-wage developing economies further reinforces this trend.

Offshoring of production involves diverse forms of international arbitrage, including labour cost differentials and the strategic utilisation of knowledge. Knowledge, embodied in technology and design, enables the mechanics of GVCs. However, knowledge distribution inequality begets an imbalance in capturing rents within GVCs.

More recently, the reshoring of production has sparked deindustrialisation across several less-developed countries, particularly in Africa, South America, and Central Asia. Globalisation’s structural change has yielded mixed outcomes, influencing industrial employment and macroeconomic stability. Additionally, fragmented GVCs and just-in-time production models incur environmental costs, often excluded from product prices, thus distorting market dynamics.

But international relations are evolving. In the current era, multilateralism faces increasing legitimacy challenges, reflected in the WTO’s marginalisation, the rise of bilateralism, and trade tensions between major economies. Protectionist policies have also gained additional momentum. In Africa’s context, its marginalisation throughout successive waves of change juxtaposed against Asia’s ascent raises pertinent questions. Policymakers and scholars in Africa seek to glean lessons from Asia’s experiences, navigating the complexities of their ‘late’ industrialisation status (Oqubay, 2020).

A Different Path: Lessons from Asia and Ireland

Asia’s transformative experience highlights the central role of the state, strategic industrial policies, and purposeful global integration in fostering industrialisation and development. Africa’s aspirations would benefit from adopting a similarly proactive approach, leveraging institutional innovations, and reimagining global trade dynamics for mutual progress.

Asia’s remarkable journey towards industrialisation hinged on the sustained development of technological capability and learning. The state’s multifaceted role—from leader and catalyst to supporter of economic progress—was pivotal to this success, although its roles varied across sectors, countries, and developmental stages (Chang, 2002).

Moreover, Asia’s experience underscores that while openness is conducive to industrialisation and transformation, it must be paired with strategic actions and effective industrial policies (Hausmann & Rodrik, 2003). Therefore, for African nations aspiring to industrialise and advance along the development trajectory, robust state support is imperative to enhance technological capability and learning. Equally crucial is the guidance of an engaged and supportive state operating within a strategic industrial policy framework.

Challenging prevailing biases that misrepresent Africa as a perpetual tragedy and the tendency to homogenise its diverse countries impede accurate understanding and inhibit dynamic learning (Killick, 1980). The experiences of Asia demonstrate the importance of insertion into the global economy and an open macroeconomic policy environment. Unlike African counterparts, Asia’s well-structured states and cultures facilitated independent policy formulation and pursuit of national development objectives.

A critical lesson for Africa from Asia’s journey is that global insertion must be strategic, involving purposeful integration rather than passive engagement. Openness creates an enabling environment for market development, accompanied by effective industrial policy implementation and an active state (Amsden, 1989).

In the context of dynamic industrial policy, Dani Rodrik (2017) underscores that conventional narratives about trade’s benefits to developing economies omit a vital aspect of their success. Prosperous countries like China and Vietnam employed a hybrid strategy combining export promotion with policies that challenge contemporary trade norms, such as subsidies, domestic content requirements, intellectual property, and selective trade barriers.

Rodrik advocates reimagining multilateral rules for Africa to enable greater policy flexibility and promote economic diversification. This includes broadening the scope of the WTO’s ‘safeguards’ clause and incorporating a ‘development box’ in trade agreements, empowering poorer nations to carve out autonomous economic paths.

Historically, during industrialisation, countries freely exchanged innovations as they prioritised their economic progress. However, the past century has witnessed a shift as developed nations zealously safeguard their intellectual property. This property consciousness has engendered an inequitable distribution of knowledge, with developed countries sharing amongst themselves while building barriers around their innovations. The present system of monopoly control over industrial knowledge (by most accounts, the developed countries hold about 95 per cent of all patents worldwide) is one of the main reasons for the delayed or retarded industrialisation of Africa.

At the WTO, the USA and the EU have consistently blocked any changes, allowing the above trajectory to prevail. African countries have fought for trade to be treated as a means towards an end: development. Each victory towards that goal, the most significant being the WTO Doha Round, has been met by a complete blockade of possible changes and implementation (Chow, 2019).

President Michael D. Higgins (2023), in an inspiring speech reflecting on lessons from a colonised Ireland, emphasised that Europe and Africa need a renewed relationship, departing from colonial models that imposed rent-seeking dynamics. He underscored the need to reshape international relations to foster equitable development.

The legacy of colonisation in developing countries, particularly in Africa, has been extensively studied. The colonial venture followed the decline of the slave trade, its abolition, and the rise of the European industrial revolution. It involved a complex interplay of economic, political, and social forces. One key aspect often overlooked is how colonialism entrenched rent-seeking behaviour among local elites, especially in the extractive sector (Frankel, 2012).

The ‘Scramble for Africa’ resulted from a convergence of economic imperatives, such as the need for raw materials and markets, alongside inter-European power struggles and social factors like rising unemployment in Europe. European agents competed fiercely to occupy different parts of the continent, often through exclusive trade claims, tariffs against rival European traders, and control over vital commercial routes (Inikori, 2002).

The arbitrary drawing of national boundaries during colonisation led to enduring ethnic conflicts due to forced separations and assimilation of ethnic groups within newly created states (Herbst, 2000). Although colonialism has ended, its repercussions persist. Elites in some African countries maintain ties with former colonial powers, perpetuating corrupt practices that drain the region’s resources. Instances like the Panama Papers highlight how these elites divert enormous sums of money, exacerbating poverty and impeding development (Ndikumana & Boyce, 2021).

Colonialism also led to the formation of single-crop economies in agriculture-dependent societies, leaving African economies vulnerable to market fluctuations and crop failures (Frankel, 2012). Initially applied to Middle Eastern oil-rich nations, Rentier state theory has been extended to resource-rich countries in Africa, Asia, and Latin America, highlighting how unearned income can hinder governance and suppress democratic aspirations (Aidi, 2019).

Towards a Fairer Trade System

Strategic alliances such as bilateral trade agreements and investment treaties wielded by Western countries amplify their economic interests, perpetuating the status quo. Yet, the intellectual property system is a relatively recent addition to capitalism’s evolution. It contradicts principles of fairness and endangers marginalised populations. The commodification of knowledge is a threat to the global commons, epitomised by the control exerted over seeds, vaccines, or biodiversity.

Developing nations must re-evaluate the intellectual property regime’s impact on their development trajectories to chart a more equitable course. These countries can reclaim agency in pursuing sustainable development by building on the scientific knowledge derived from climate change, showing the damage each region and trajectory has caused the planet. As the intricacies of trade and development intersect with the environment, a recalibration is imperative for a more just and inclusive global economic landscape.

Colonisation’s far-reaching impact on Africa encompassed economic, political, and social dimensions. The effects persist in economic exploitation, corruption, and resource mismanagement. Addressing these challenges requires acknowledging historical injustices, effective policies, and a different approach to international cooperation. Europe and Africa have a chequered history requiring a mindset that incorporates these three elements.

Moreover, the prevailing economic development theories, particularly the concept of comparative advantage, have been instrumental in shaping policies for resource-driven economies. However, the experience of many African countries, which have diligently followed Western development advice, raises questions about the effectiveness of these theories in achieving sustained economic transformation. The concentration on raw extraction and the limited value addition have left countries vulnerable to external market fluctuations and resource depletion.