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21.02.2000 Feature Article

THE PARADOX OF PLENTY AND OUR ECONOMIC GROWTH

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SANTA CRUZ, USA. February 21, 2000: Among all the social sciences, probably none excites more passionate and diverse debate than Economics because we find ourselves dealing daily with it irrespective of where we are - in the kitchen, in school, on the streets, in the office, at the factory floor - largely because of the fundamental problem of scarcity of resources to satisfy unlimited human wants and thus the need to make choices. Thus for the role Economics plays in our daily lives and living, everyone thinks they have an opinion, even on economic matters that require expert advice from people that are technically grounded to offer such advice. This does not mean that one needs a Ph.D. in Economics before one can have an opinion on economic matters. Yet while Economics shapes a lot of our daily decision-making processes, good Economics such as the one found in very good textbooks is, on the average, very difficult sometimes even for people with Ph.Ds. in Economics. For instance if one were to conduct an opinion poll on the streets of Accra for example about the causes of the economic problems in Sub-Saharan Africa in general and Ghana in particular, chances are that one would come up with a plethora of reasons as diverse as the number of people polled. In the same token if the pollster were to ask how these problems could be best addressed, the chances are that there would be a litany of suggested solutions too, but those that would be able to come up with integrated solutions that address our problems in a functionally practical way would be few. Would such a poll pull any surprises on Ghanaians? Hardly. After all even those we pay to find solutions to our problems - actually those who "convince" us that they have solutions to our problems - have demonstrably shown that either there are no easy answers to our problems or like the vast majority of the populace, they have no new ideas to address our mounting problems. But does that mean that our problems are insurmountable? Absolutely not, irrespective of how overwhelming they may seem. The only disturbing problem is that there appears to be a small group of "Konongo Kayas" perched atop our decision-making echelon, who have monopolized the decision-making process in the country, and who, in spite of their obvious failures and shortcomings, have insulated themselves from good advice, especially if this advice is seen as not coming from their constituency.

But as Ghanaians, especially those of us placed in advantageous and privileged positions with the capabilities and capacities, we have a moral obligation - not only to ourselves but to our fellow citizens especially those who cannot participate in the politico-economic discourse through no fault of theirs, and also to the generations unborn - to speak out and make our ideas available however shriveled our voices may be. So this write-up is just an attempt by one Ghanaian - a son of nobodies - to contribute to the debate about how Ghana can develop (maybe faster than its current pace).

WHY ARE WE POOR? How many times have we not dissected this very question whether in our quietude, in groups or whether the discussion is formal or informal (I in particular I have had several sleepless nights wrestling with this questions)? Yet at a fundamental level such a fundamental question is so hard to deal with. There are so many reasons one can assign to our economic problems, - one could write a thesis about them - and it would be an exercise in futility for one particular person to talk about them all. In this light the intent of this write-up is not to provide a know-all diagnosis of Ghana's development problems, but to identify few of them that do not normally capture our imaginations. In particular I intend to talk about how abundant natural resource endowment, our position vis-`-vis other countries, entrepreneur-professional composition, risk taking behavior (or lack of it) and fatalism may have contributed to our slow pace of economic development. From economics point of view, it is well too-known that such factors as quality education, especially primary and secondary education, lower fertility rate, judicious government spending, better maintenance of the rule of law, lower rates of inflation and improvements in terms of trade, openness of the economy, better financial institutions, low incidence of corruption, etc enhance economic growth and thus it would be redundant to talk about these factors here. These are being mentioned here as anecdotes for those who may not be all that familiar with the arguments. I should also mention attitudinal behavior especially work ethics and time management. The Paradox of Plenty It is poignantly paradoxical that despite all the endowment of rich natural resources, the vast majority of our people continue to wallow in abject poverty. According to World Bank estimates, in 1997 about thirty-one percent (31%) of Ghanaians was below the POVERTY LINE, infant mortality was 69 per 1000 live births, twenty-seven percent (27%) of children under 5 years suffered from malnutrition, only fifty-six percent (56%) of the population had access to safe water and the illiteracy rate of the population aged 15 years and above was thirty-six percent (36%). Certainly these are not figures to be proud about, not even by a government that wants Ghanaians to be thankful to it for "saving" us from economic Sodom. But there are economic reasons why a resource-rich country like Ghana may grow slowly. Three main reasons have been suggested for this paradox. First, it is suggested that greater resource abundance can lead an economy to shift away from competitive manufacturing sectors, which generate most of the externalities necessary for economic growth. Is this not how Ghana's economy has looked like over the years? Second, some economists give a political reason for this paradox: resource booms tend to put large amounts of resources in the hands of the state and thus create the incentives for political agents to engage in rent-seeking behaviors as opposed to productive activities that spur growth. Rent-seeking behavior results from the complex interplay between politics and economics. It includes bribes to government officials, time and resources spent on lobbying legislators and the public for favors, the open-secret quid-pro-quo 10% of contract awards, the "Fa woto begye Golf" of the Acheampong era and many more. Third, it is suggested (by Harvard's Sachs and Columbia's Rodriguez) that resource-rich countries may grow more slowly because these countries are likely to live beyond their means. This is because natural resources industries, for its reliance on exhaustible factors of production, cannot expand at the same rate as other industries. In the steady state, the production of natural resources tends to approach zero. Invariably, what the over-abundance of natural resources does is to make a country complacent and gives it a false sense of security and assuredness. It can make the citizens unimaginative and un-innovative. And so as someone rightly observed, in the 17th century Ghana exported gold, cocoa, timber and human beings. Today, Ghana still exports gold, cocoa, timber and human beings. This observation is a truism. The over-abundance of natural resources has apparently made Ghana a religious believer in the classical Ricardian concept of "natural" comparative advantage which postulates that resource-rich countries like Ghana should produce goods which they are good at producing (in our case raw materials - cocoa, timber, gold) and exchange it with other countries for what they're good at producing. While this theory still has a lot of merit in today's world economy, Ghana has certainly failed to realize that it cannot and should not rely on its "natural" comparative advantage in cocoa, timber and gold production to survive. We need to "create" a different comparative advantage, by taking advantage with the rich resources we are blessed with. After all the concept of comparative advantage should not be static. We live in a world in which international relations are more or less shaped by economic Darwinism - where economic competition determines which countries join the Elite's Club and which ones become drawers of water and hewers of wood. Unfortunately in this economic arrangement, morality and emotive appeals do not matter and even if they do at all they are on the back burner. Those countries that survive and would survive are those that, with a sense of vision, can change and adapt to the ever-changing world by constantly mixing up their menu of options to create comparative advantages for the time.

Bad neighborhood There is a saying that "show me your friend and I can show you your character". A modified version of this saying can be 'show me your neighbor and I can show you your level of economic development'. One reason - very subtle though - that Ghana's economic growth has been very slow, I think, has to do with geography. By this I mean Ghana's geographical location physically. Does it matter that Ghana is in its present geographical position? I think so. Does it matter which countries are our neighbors? I think so too. One of my personal theories about why African countries are relatively poor is that each country is surrounded (bordered) by an equally poor or a relatively poorer country or countries. As a result there are no "neighborhood economic role models" for our governments and people. African Governments look at their neighbors and realize that they are doing better comparatively and so they do not become highly challenged and or motivated enough to do much more better. I have heard on several occasions about Ghanaian officials trumpeting official triumphalism by comparing their political and economic achievements to countries like Sierra Leone and Liberia etc. If one takes a look around the globe and one would see that there is some truth to this theory, except for cases where governments or countries decided to pursue policies of isolationism and autarky or command economic systems. For instance, Japan's economic development rubs or did rub off on neighboring countries like South Korea, Malaysia, Singapore, etc. In fact, South Korea sees Japan as a constant challenge and economic competitor so it is always striving to "beat" Japan and this challenge has made South Korea what it is today. There is intense economic competition among the ASEAN countries - each country trying to catch up with the ones in front or do better than them. Look at Western Europe and the near convergence of their economies - each country strives to outdo the others economically and this is healthy. There is no secret that US economic success rubs off on Canada and Mexico. The situation is different in Mother Africa. Our countries are not engaged in any economic competition amongst themselves. They do out-compete one another as far as economic development is concerned, even though in politics - they outdo each other in coup d'etats; rebel activities - because of the success of Museveni for example, others (Congo, Sierra Leone etc) thought (and some still think) that they should "go to the bush" in order to win political power; Rawlings "political metamorphosis" rubbed off on Gambia's Yaya among others. In all human social settings we are influenced by our neighbors and our surroundings - we consciously or unconsciously try to catch up with the Joneses. That's probably a truism! African countries need more economic competition among themselves. I think that if we had about 5 developed economies or what I would like to call "growth poles" in Africa - one each in the west, East, south, north and central Africa - the rest would be challenged and be pulled along. Other scholars have talked about geography-related problems of the slow growth in Africa. Sachs and co. in particular talk about "the curse of the tropics": Africa's tropical climate causes poor health and so reduces life expectancy. The climate also leads to leached soils and heavy but unreliable rainfall that can cause severe soil erosions and thus puts constraints on agriculture. But geography must not be seen as a destiny. We must see it as a challenge whose significance can be overcome by modern science and technology.

Fatalism In an earlier article entitled "Fatalism and the politico-economic entitlements in Ghana", and published by The Ghanaian Chronicle few months ago, I talked in depth about this problem. This is an excerpt from that article: "Unfortunately, and dangerously, however, most Ghanaians have been attacked by the virus of FATALISM. What is FATALISM? The dictionary explanation is that it is "the belief that all events are determined by fate and are hence inevitable" (Webster's New World Dictionary). In my simplest philosophical and contextual description, it is a belief system that makes one looks at one's problems as being too overwhelming and beyond one's capabilities, thus one resigns oneself to fate. In many ways, fatalism leads or can lead to "internalized prejudice" or what is commonly referred to as inferiority complex. Interestingly, fatalism cuts across all walks of our social spectrum - both the "educated" and the "uneducated"; the rural dweller and the urban dweller; the Ghanaian at home and the Ghanaian in Diaspora; can all be victims of this psychological virus. It can be found at all levels of our government structure - both traditional and post-traditional ("modern" as some may choose to term it)." Those interested in the said article can get a copy from the back issues of The Ghanaian Chronicle. Those with computers and have access to the World Wide Web can read the article online at http://www.ghanaweb.com/GhanaHomePage/ghana/gh_features.html or http://www.ghanareview.com or http://www.ghanalounge.com or http://www.ghanacybergroup.com

Investment minds versus Commercial Minds I have said time and again that for Ghana to make significant headway in its economic endeavors, a significant portion of its citizens should cultivate "investment minds" instead of "commercial minds". Most of us are probably interested in having a good time, driving the latest BMW or Benz, dressing flashily. Most of us will probably buy a car before we have invested money in our children's education, will buy a TV before we have bought our children quality books that stimulate the mind. Not that there is something with driving the latest BMW or Benz cars around or wearing the flashily Italian designer shoes, but the fact is that in refusing to engage in investment activities in our country, we deny ourselves and our country the multiplier effects such investment behaviors could generate in our national economy - we lose the opportunity of creating a job or two that could help move some people from the clutches of poverty; we lose the chance to play a positively catalyst rose in socially transforming our communities and neighborhoods. Some of us do not have "investment minds" because we do not want to take the risks that come with entrepreneurship and long-term investment behavior, and our time horizon is short. Let me remind you of two of my favorite adages: "you will never discover new oceans unless you have the courage to lose sight of the shore", and "risk must be taken for the greatest risk in life is to risk nothing." Entrepreneurs versus Professionals. There is no question that one of our problems is the smallness of the entrepreneurial base of our economy. It is common knowledge that both entrepreneurial and professional skills are important components of an economy's human capital stock, but they influence the level of technology and aggregate production in potentially different ways Entrepreneurs accumulate human capital through work-experience intensive process whereas professionals' human capital accumulation is education-intensive. Moreover, the returns to entrepreneurship are uncertain. Entrepreneurial skills generate new ideas, innovations, products etc, while professional skills help to facilitate economic transactions. However both skills are very important in the process of development. Skill-biased technological progress leads to changes in the composition of human capital: as technology improves, individuals devote less time to the accumulation of human capital through work experience and more time to the accumulation of professional training. Thus entrepreneurs play a relatively more important role in low and intermediate-income countries and professionals are more relatively abundant in richer countries. One thing is clear: countries that have too little of either entrepreneurial or professional human capital may end up in the development trap.

If this article has added to your list of reasons why our country is slow in its economic development then I has achieved its intended purpose.

Maxwell Oteng
Maxwell Oteng, © 2000

The author has 28 publications published on Modern Ghana. Column Page: MaxwellOteng

Disclaimer: "The views/contents expressed in this article are the sole responsibility of the author(s) and do not neccessarily reflect those of Modern Ghana. Modern Ghana will not be responsible or liable for any inaccurate or incorrect statements contained in this article."

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