Bates: Markets and states in tropical Africa
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Bates. 1981. Markets and states in tropical Africa: The political basis of agricultural policies. Berkeley: University of California Press.
Part I: Government Intervention in Major Markets
When post-colonial governments gained power, they took control of states economically dependent on producing and exporting primary products, especially food goods. Desiring rapid development, they implemented policies to shift resources from agriculture to industry and manufacturing. In part I of his book, Bates explores the results of this state interference in agricultural markets. He points out that farmers "stand at the intersection of three major markets" (pg 3): The market for agricultural output (food), discussed in chapters 1 and 2; the market for agricultural inputs (fertilizer, tractors, credit), discussed in chapter 3;, and the market for consumer goods (things that farmers wish to buy), discussed in chapter 4.
The Market for Agricultural Outputs
Industrial Motivations (ch 1)
Post-colonial governments typically inherited a the same type of institution from the colonial regime: A state marketing board that purchased all cash crops and exported them itself. Colonial regimes often established these monopsonies to help stabilize crop prices. Post-colonial regimes quickly learned that state marketing boards provided a ready source of revenue that could be tapped to fund industrial and urban development. By purchasing cash crops domestically and selling them at higher world prices, they could keep the surplus. This surplus was used to finance ultra-cheap loans to industry, and it gave industrialists a reason to want domestic prices for cash crops to stay low (to maximize the difference between domestic and world prices).
Also, the state wanted to develop domestic processing industries. For example, instead of exporting coconuts, a domestic firm would extract the oil, thus increasing domestic value added. So industrial groups had a second reason to want the domestic price of cash crops to stay low.
As Bates interprets these facts, "What these examples do illustrate, and what is important here, is that governments are willing to undercut the interests of rural producers to promote the development of industry" (25). Moreover, due partly to its monopsony status, the bureaucracy became very inefficient (27).
Pricing Policies (ch 2)
Urban workers demand increases in real wages, or else the government faces urban unrest. The government could raise wages, but that would discourage foreign and domestic investment in new industries. Governments tried inflation, but that didn't work either. Governments could also try to co-opt or repress labor, but that rarely works well. So governments have instead sought to increase real wages by keeping the price of food low. Combining this argument with the previous section's, we conclude that both urban workers and industrialists want the government to keep domestic crop prices low.
As Bates writes, "Pricing policy finds its origins in the struggle between urban interests and their governments; and in the political reconciliation of that struggle, it is the rural producers who bear the costs: they are the ones who bear the burden of policies designed to lower the price of food" (35).
Governments use two strategies to keep food prices low.
- Use exchange rate (appreciation) and tariff policy to promote imports (of food) while discouraging or ban exports. Thus, when world prices are lower than domestic prices, foreign food floods the market, lowering prices. When domestic prices are lower than world prices, domestic producers can't export and get more money.
- Since state bureaucracies have a legal monopsony on all food production, they can buy it below world prices and sell it cheaply in urban centers. The main problem with this technique is that most food goes directly from farms to farmers' markets, bypassing the official monopsony. (Bribery of the bureaucrats plays a role here.)
Elite farmers (more on them in later sections) are not usually affected by these policies. "Where the elite engages in the production of a food item, policies are not employed to depress its price" (43).
The Market for Agricultural Inputs (ch 3)
By manipulating the market for agricultural inputs, governments gain another means of keeping food prices down. Thus, fertilizer, seed, and tractors can be imported duty-free, and farmers can have access to subsidized credit. There's a catch, though: most farmers don't get to take advantage of these policies. Generally, these policies are used to win the political support of the most important ("elite") farmers, and of urban elites (who go out and start farming only because they can get large subsidies from the friends in the capital). Thus, most farmers remain screwed; their inputs aren't much cheaper by these policies, but they still can't get market prices for their output.
"Using political connections to secure land, publicly subsidized credit and forgiveness of debts, publicly subsized and allocated fertilizer, and highly favorable terms for the importation and financing of capital equipment, influential members of the urban elite with close ties to the managers of the public bureaucracies have thus entered into food production in the northern savannah areas. . . . A major consequence of government efforts to promote food production in this area has been the development of disparities of wealth, social status, and political power within the savannah region" (59).
The Market for Consumer Goods (ch 4)
Farmers are further screwed because the state is highly protective of local industries, which means that farmers have to pay above-market prices for manufactured goods. Its import-substitution strategy means that domestic producers are protected by high tariffs. Further, domestic producers are protected from domestic competition by their policy-making friends in high places.
"Characteristically, industries in Africa are dominated by a few large firms; sometimes they are dominated by a monopoly; and often, the major firms are government-owned. Under such sheltered conditions, inefficient firms survive. And consumers, including farmers, pay higher prices" (76).
Comment and Criticism
Bates could easily have framed his argument through an Olsonian lens. There are many poor farmers, and they have difficulty organizing to secure a collective benefit. There is a smaller, wealthier group of urban industrialists. There is a midsized group of urban workers. Just as Olson would predict, the smaller the group, the greater the benefits it secures for itself.