Economic liberalisation in regard to trade and domestic industries is becoming a popular trend in the global political and economic arena. Through institutions of global governance such as the World Trade Organisation and the International Monetary Fund, many developed countries are politically and economically stable enough to restrict governmental regulations and implement more liberal market reforms in order to increase their foreign investment and Gross Domestic Product (GDP). However there has been much debate regarding these kinds of reforms being placed upon developing states, which are not yet economically or politically stable enough for their economies to thrive under these conditions. In these cases, Stiglitz contends that ‘It has become increasingly clear that financial and capital market liberalization done hurriedly, without first putting into place an effective regulatory framework was at the core of the problem’ (Stiglitz, pg.1075, 2000). Supporting this statement, this paper will argue that rather than fully liberalising a developing state’s economy and/or implementing a free market system, a state-regulated market system or ‘partial liberalisation’, is more beneficial for a developing state. This is exemplified in Ghana’s cocoa industry, where liberalisation has occurred on smaller scale, but not on an international scale, where it may be easier for a developing state to be exploited and threatened by more stable states. It will also be explained how different aspects of economics and economic ideologies affect Ghana’s cocoa production, and how it can be improved by making sure regulation is effectively maintained.
The concept of liberalisation often holds positive connotations to individuals and society as a whole. Included in liberalisation is the idea of lessening the government’s control in order to let the market become more fluid and allowing the supply and the demand of the people to balance out the economy (Smith, 1776) and create a ‘vibrant, competitive private agricultural marketing sector, with direct state intervention only in cases of clear market failure’ (Hubbard & Smith, pg. 10, 1996). Milton and Rose Friedman argue that through government deregulation, privatisation and competition through self-interest and voluntary transactions, a free market ‘could coordinate the activity of millions of people, each seeking his own interest, in such a way as to make everyone better off.’ (Friedman & Friedman, 2003). On a global scale, liberalisation ensures more fluid flow of goods and services between states by implementing trade and agriculture reforms that aim to reduce barriers and tariffs between states. However in more developed states, businesses are more able to rely on government subsidies to support them, giving them a clear advantage, as opposed to developing states where there is no access to this kind of support and the reliance upon agriculture is far higher (Mutume, 1999). In contrast to this, a state-regulated, only partially liberalized economy is one where the price signals are designated by the government (rather than determined purely by supply and demand), as well as welfare and regulation provided to allow fluidity of goods, while still managing the way business and trade can operate. In developing economies, regulations can also protect vulnerabilities in financial crises, as well as monitor and regulate the activity of foreign investors (Oatley, 2012). Although some neoliberals argue that ‘economies can hardly be planned’ (Reed, 2008, pg. 1) and that globalisation’s forces are making us more interdependent, Oatley is more truthful to the developing world when he states that ‘no matter how “globalized” the world economy becomes, economic production will always be based in local communities’ (Oatley, pg. 180, 2012).
Marketing boards established in West Africa during and after the Second World War were at attempt at price stabilisation and trade regulation in a very insecure region at a very unsteady time. ‘The marketing boards managed the entire marketing process, buying cocoa directly from producers and selling it to traders and processors at a specified, guaranteed price at least for the whole cocoa season’ (Haque, pg.7, 2004). These boards were initially supported by both the World Bank and the IMF, however as economic liberalisation was on the rise, the IMF and World Bank deemed it essential that these boards were closed down, as there was evidence that the marketing boards were ineffective (Hubbard & Smith, 1996). Ghana’s government-operated cocoa marketing board opened in 1947 as Cocoa Marketing Board (CMB). However, Ghana’s independence in 1957 saw extreme political turmoil, liberalisation and exploitation of its cocoa industry, where not only did producer prices plummet to a low of 29%, but employment within the now corrupt private cocoa marketing sector was promoted for political means (Williams, 2009). It wasn’t until 1983 under the new leadership of Jerry Rawlings did Ghana’s economy and cocoa industry see massive structural reform which included freeing up resources, increasing producer prices, reducing the significant over employment in the government sector and the introduction of the new government institution of Cocoa Board (CocoBod). Unlike the prior neoliberal objective, ‘simply removing the state from marketing systems was not the solution’ (Cullinan, pg. 9, 1999). With farmer revenues now at 70%, as intended in the original CocoBod reform, it is clear that without the agency of the state to manage quality control and export prices, the previous neoliberal policies were ‘uniformly tarnished’ (Amoah, pg. 69, 1998).
Liberalising economies completely and having free market systems in developing states has failed them and often creates more loss and instability. Liberalisation is significantly damaging and exploitative to a developing economy through exploitation against stronger, already-established economies that are often largely subsidized. In the case of trade liberalisation, exemplified by the World Trade Organisations Doha Development Rounds in 2001, negotiations were made which required the developing world to reduce its trade barriers and tariffs in order to liberalise their markets to more foreign trade and investment and to “better integrate the more disadvantaged into the global economy” (IMF, 2011). However, often in these pressures from neoliberal organisations such as the WTO or the International Monetary Fund, there are no labour protection safeguards implemented in participating states, meaning there is possibility for exploitation, as well as stronger states (who in 2001 refused to relinquish their own subsidies) leading the negotiations and leaving developing states with no voice. In developing states where social welfare and protection are scarce, it is crucial that ‘governments must craft consistent global financial regulations to prevent a race to the bottom, where capital leaks out to the areas of the global economy with the weakest regulation’ (Rudd, pg. 75, 2010). Unfortunately it was calculated that after the eighth trade agreement in 1995 which aimed at reduced prices paid for imports by developing states, ‘the result was that some of the poorest countries in the world were actually made worse off’ (Stiglitz, 2003). The conditionality associated with such liberal policies far outweighs the benefits that the developing world receives.
The liberalisation that occurred post WWII was significantly detrimental to Ghana’s cocoa industry. The opening of trade barriers to international imports resulted in a tidal wave of new goods into Ghana, making the competition between domestic and international products particularly harsh, meaning producers are often selling less or at a lower price (Melamed, 2005). Although market liberalisation aims at ‘productive efficiency through an alignment of domestic prices with world prices and to give cocoa farmers improved prices…There was, in fact, some contradiction between the two goals since the increased production from liberalization would lower the world price, thereby lowering the price the cocoa farmer actually received’ (Haque, pg. 8, 2004). Without state support, Ghanaian farmers do not have access to capital or technology in order to improve productivity or quality. This internal liberalisation also included the introduction of private Licensed Buying Companies (LBC) that can in fact compete for producer’s business. The concentration of cocoa production in Ghana is less prominent in rural areas; therefore these buying companies tend to cluster in more concentrated production areas, leaving rural producers with longer waiting periods until their cocoa is taken to quality control and exporters. On top of this, other developed states are heavily subsidized, such as farms in the United States receiving $256 billion in 2013 (EWG, 2013), leading to an extremely unfair and unequal market (Melamed, 2005). Additionally, soft commodities such as Cocoa require constant attention to the production and quality control process (Williams, 2009). This indicates that without state-regulated quality control and pricing, cocoa producers and farmers are can receive less based on the lack of appropriate pricing dependent on its geographical origin (Fold, 2001) and that ‘private actors can exploit an origin’s reputation by marketing sub-par product for the premium quality price’ (Williams, 2009). These liberal ideologies and policies altogether assume that creating a competitive market will add incentive for greater productivity and efficiency, and ignore the consequences and circumstances of differing markets (Stiglitz, 2000).
Ghana’s state-regulated market system in its cocoa production has led it to be one of the fastest growing economies, and the world’s third-largest cocoa producer (Haque, 2004). In Ghana, where cocoa exports can make up to 30% of total earnings (Haque, 2004) and employ up to 60% of its population (Williams, 2009), it is important not to fully liberalise its economy, as it is the only cocoa-producing country that has not done so (Anang, Adusei and Mintah, 2011). CocoBod’s role in plant breeding, price determination, quality control, market intelligence and extension services are crucial to Ghana’s cocoa industry growth. For example, in other countries, cocoa can be produced at 1800kg per hectare in Malaysia and 800kg per hectare in Cote D’Ivoire. However, in Ghana, land where cocoa is produced on smaller land mass and production can be as little 360kg per hectare, it is obvious that increased land size would improve productivity of cocoa though, due to cocoa farmers do not have capital to purchase such land, as well as there not being enough forest land for them to purchase. Therefore, the analysis shows that increased use of fertilizer and insecticides helps to ensure maximum capacity of premium quality beans, and so the government has introduced “spraying gangs”- government-sponsored employees that come and spray land where cocoa is being produced, at no cost to the farmer (Aneani, Anchirinah, Asamoah & Owusu-Ansah, 2011). On a higher level, it is also important for CocoBod to ensure that export prices are predetermined, ensured for the whole cocoa season, and not vulnerable to the harsh competition of the global trading arena. It is in the government’s interest to ensure and maintain these aspects of production, for example in origin and quality, origin plays a large role to the global cocoa industry (as facilitated by Cadbury), and therefore origin and quality must be properly regulated in order to receive the premium price. These kinds of certifications through government regulation can help to make sure that producers stay high on the value chain and receive optimum producer price and equity, as is the aim of protectionism and partial liberalisation. It is therefore imperative that on the global economic agenda, governments work ‘to negotiate international rules defining the respective rights and obligations’ of each states needs (Oatley, 2012).
Stiglitz asserts that ‘the international economic architecture must be designed to “work” not just in the presence of perfect economic management, but with the kind of fallible governments and public officials that in fact occur in democratic societies’ (Stiglitz, pg. 1075, 2000). Market liberalism not only reduces this kind of positive government influence, but forces developing states’ highly-relied upon industries into a whirlpool of global vulnerabilities. Ghana is a prime example of the benefits of a government-regulated market in a single industry and that although the CocoBod’s initiatives are not yet uniform to all farmers, the price appreciation and benefits from the government’s moderation far prevail over the negative pressures of market liberalisation.
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