About me.

Andrew M. Mwenda is the founding Managing Editor of The Independent, Uganda’s premier current affairs newsmagazine. One of Foreign Policy magazine 's top 100 Global Thinkers, TED Speaker and Foreign aid Critic

Monday, August 29, 2016

America’s harmful threats

Why U.S. resistance to the proposed ban on second hand clothes is a danger to our future prosperity

On August 17, Daily Monitor published an article titled “US envoy warns on ban of second hand clothes.”  The U.S. Ambassador to Uganda, Deborah Malac, made the warning during a “courtesy call” on our Speaker of Parliament, Rebecca Kadaga. Malac warned that a ban on second hand clothes would jeopardise Uganda’s benefits from AGOA. Never mind that this decision was adopted by regional heads of state as part of the East African Industrialisation Policy.
Kadaga assured Malac that Uganda’s parliament had “thwarted” the proposed policies on second hand clothes. She also said second hand clothes are a major source of jobs for many Ugandans and also offer cheap alternatives to our poor citizens who cannot afford new clothes. I will return to this shortsighted view of “cheap” alternatives and jobs later.

Having been assured, Malac was “quick to say she had simply paid a courtesy call” on Kadaga and the meeting ended. But not before she had flattered her host saying: “It was interesting to see that parliament was vocal on the issue of police brutality.” This was strange given that the biggest culprit on such brutality is the USA where police officers are videoed almost daily shooting and killing civilians, especially black people – or may be in Malac’s world, black lives don’t matter.

The U.S. envoy’s warning was one of those stories our media consider unimportant, perhaps tacked away on page seven (I read it online). Yet this “courtesy call”, the threats from Malac, and the assurances of Kadaga form the core of what has kept our country in perpetual poverty. If this had been about democracy and human rights, it would have made front-page news and a topic of discussion by our pundits on radio and television, stirred animated debates on social media and maybe a demonstration.

This disregard for international trade as a foundation of growth in favour of democracy and human rights shows how development discourse has diverted African elites from the core challenges of development in their countries to peripheral issues that have little or nothing to do with development. Trade; especially international trade, is the corner stone of prosperity. It has a division of labour, a hierarchy: some countries produce cotton; others weave cloth while others market high fashion. What a country earns depends on its place in this value chain.

For instance, those who sell cotton, as Uganda has done 1903, earn less than 2% of the final value when Louis Vuitton, Giorgio Armani or Dolce and Gabana sell their designer clothes. Those who make cloth, like Sri Lanka, earn about 15%. What we call “development” is the process of upgrading from selling these low-skills and therefore low-value commodities (goods and services) to high-skills and therefore high-value commodities.

Uganda’s parliament should resist U.S. Ambassador Deborah Malac’s warning that a ban on second hand clothes will jeopardise Uganda’s benefits from trading with America. In opposing the ban with threats and bribes, the U.S. is asking Ugandans to continue specialising in being poor.

For countries to upgrade themselves along such a value chain, they need active state policies to encourage investment in industry, skills acquisition, mobilisation of long-term capital, tax incentives, etc. The aim of such policies is not just to attract investment but also to shield local infant industry from the cold winds of international competition. The state in Japan subsidised Toyota, a private company, for 20 years before it broke even. The same happened with Sam Sung and Hyundai in South Korea. We have been taught that public money should not be used to prop private companies and our elite would resist any such efforts.

Yet there is no way Uganda can develop a textile industry when USA and China are dumping cheap second hand clothes and subsidized textiles respectively on our market. Every country that has sought to upgrade its products along the aforementioned global value chain has made a serious tradeoff – as the example of Japan and South Korea above attests. Without exception, industrialising countries have to consume expensive poor quality domestic goods in the short term as they build economies of scale, improve skills and other competences to upgrade their quality of output and reduce the price of such goods in the long term.

Developed countries always lecture on the importance of comparative advantage in international trade. They ask poor nations to specialise in production and export of raw materials (where poor nations have comparative advantage) and import finished industrial products (where rich nations have comparative advantage). This is because, except for goods like gold, diamonds and oil, the price of unprocessed products suffers a long-term tendency towards declining terms of trade.

Therefore in proposing an industrial strategy to facilitate our nations to upgrade from selling raw cotton to selling finished garment, our leaders were actually proposing a strategy of making the first baby steps to future prosperity. They are proposing that our citizens should upgrade their skills from being peasant-farmers tilling land with a hoe to industrial workers working on machines that make clothes. In opposing this strategy with threats and bribes, the U.S. is asking us to continue to specialise in being poor.

This brings me to the shortsightedness of Ugandan legislators, a shortsightedness that is understandable but tragic. Uganda’s MPs represent many traders who earn a living selling second hand clothes. They also represent millions of poor consumers who use second hand clothes because brand new ones are too expensive. East Africa’s industrialisation strategy of banning second hand clothes, therefore, inflicts immediate harm on these two groups. However, in the long term, this industrial strategy promises to create more jobs and bring the region more value.

Development – like its precondition; capital accumulation – requires foregoing today’s consumption in order to enhance it tomorrow. You postpone buying a fancy car today and invest in an apartment or financial portfolio from which you can draw future streams of income. For a country to upgrade from being cotton-farming to an industrial nation requires short-term trade-offs. A country develops or stagnates if and when it is willing to pay the short to medium term costs of such a transition.

Our countries will remain poor if our politicians do not allow these short-term tradeoffs. To export value added products tomorrow, we must sacrifice today. It may be in the interest of the US to promote use of second hand clothes in Africa. Perhaps this benefits American traders in these clothes, American charities, and shipping companies etc. These may be lobbying their government to put pressure on us to accept their demands. That is understandable; America has a right to promote her interests. The danger is for our MPs to take a short-term view of this problem and join hands with America to the detriment of our future prosperity.



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