Wednesday, May 02, 2007

Rich Canadian Bloggers and Nigerian 'Tea-leafs'

May Day brings the usual flurry of Blog posts about labour. Even in the richest continent in the world, North America, which I was sorely tempted to comment upon in one particular case from a gentleman ‘libertarian communist’ in Canada writing from a country that enjoys the conditions of the alleged ‘downtrodden masses’ of Canadian workers, whose connection to extremes of poverty seen in Africa, Asia and parts of South America seems somewhat remote.

It’s amazing how a loss of perspective on what real poverty is like can lead educated people in the rich countries to imagine that a family with the appurtenances of among the best living standards in the world are somehow on the brink of starvation and cataclysmic alienation, not seen anywhere in their country except in the desperate lives of the victims of severe drug and alcohol abuse (both of which cost more to sustain for a month than the annual income of a landless peasant in Sudan, to mention only one of many places).

However, I resisted the temptation as you can see, but you can read Le Revue Gauche here.

Instead, I noticed an editorial, no less, in the Nigerian Tribune (Ibadan), close to the financial news and the usual indicators of modern consumption, and thought it was about the desperate poverty of the landless or unemployed, the victims of a corruptly managed economy. Here is a single paragraph from it:

“Nigerian Workers Still Searching for Succour

BUT as most social scientists like Adam Smith have postulated, the real wealth of any nation is not in the tangible resources like gold, silver or crude oil. The wealth of a nation is not in the quality or arability of its land. The real wealth can only be found in the quality of its human resources. A highly cultivated human resource, in terms of good and quality education, highly enhanced salary package and functional social amenities, will, without doubt, be highly motivated and resourceful and very productive. Conversely, a workforce that is poorly remunerated will only produce a very low yield. In both cases, the society is at the receiving end. In other words, the quality (and lack of it) of any workforce will translate into the prosperity (and otherwise) of that particular society.”

I picked this paragraph because the editorial drags Adam Smith into its serious rant against the rulers running Nigeria, if that is the word for it (I think the cockney slang for thief, as in ‘tea leaf’, is more closely associated with the nature of too many in the enterprise known as ‘government’ and officialdom in that country – if they are ‘running’ anything it’s more like ‘running off’ with the loot).

I accept that not everybody is a ‘tea-leaf’ in the government administration of Nigeria, but too many are ‘tea leafs’ and too many of their rivals for office want to graduate to becoming ‘tea-leafs’ as soon as possible.

But that is not my main point. Some of the ideas in the editorial that are linked to Adam Smith are not quite correct. For instance:

the real wealth of any nation is not in the tangible resources like gold, silver or crude oil.”

Smith’s criticism of the ideas behind mercantile political economy were about the notion that ‘wealth’ consisted of money, which in those days was in the form of gold and silver coinage and bullion. He said ‘no'; money was not ‘wealth’. He defined wealth as the annual output of the ‘necessaries and conveniences (and amusements)' of life, i.e., the real goods produced by labour and capital each year. Their money equivalents facilitated exchange, that’s all. They were not wealth because wealth was a flow not a stock or money.

A country that aimed to fill strong-boxes of gold and silver (or today, treasury bonds) and considers that it has achieved real results was fooling itself, argued Smith, because the policies that accumulated money as wealth were quite different from the policies that created employment for productive labour, and from the division of labour, greater output. In fact, Smith showed that the pursuit of nominal money inhibited real growth and, crucially, the spread of opulence to the labouring majority.

In this context, of course, crude oil output is real wealth.

The real wealth can only be found in the quality of its human resources.”

Again this misdirects the emphasis placed on labour by Smith. Labour, as human capital (he was one of the earliest to recognise the importance of investment in human capital), is important if as resources they are going to help a country ‘progress to opulence’, but they are not real wealth in themselves. They help produce real wealth, in association it must not be forgotten, with capital-stock. Without both together, wealth is not produced, as the stagnant economies of many countries amply, though sadly, demonstrate.

The editorial writers develop their points to argue for higher remuneration for labour and a higher standard of living because such recognition of the quality of labour ‘will translate into the prosperity (and otherwise) of that particular society’. But, I fear that the editorial writers have got the direction of causation the wrong way round – and Smith would have told them so too – ‘highly enhanced salary package and functional social amenities’ are funded by prosperous societies and are not (and certainly not ‘without doubt’) initiated by somehow ‘enhancing’ the salaries of labour.

If only it was that easy, then many countries might not be in the mess they are. But editorials on 1st May are not written with an eye for scholarly exactitude. They are written to rally/curry favour with/assuage consciences/have a go at others/sound concerned, and so on. Fine.

But if they must drag in Adam Smith, they should present his ideas as he intended.


Blogger eugene plawiuk said...

"A country that aimed to fill strong-boxes of gold and silver (or today, treasury bonds) and considers that it has achieved real results was fooling itself, argued Smith, because the policies that accumulated money as wealth were quite different from the policies that created employment for productive labour, and from the division of labour, greater output"

To that I would add that countries that produce only stock values, and investments in the stock exchange as well as playing the money markets are not productive. That would fit with Smith and Keynes

7:18 pm  
Blogger Gavin Kennedy said...

I agree.

Money instruments are not wealth. Like money, they facilitate exchange. Smith was extremely suspicious of joint-stock companies, immportalised in Daniel Defoe's 'Stock Jobbers' satire.

When capital is combined with labour to produce the 'necessaries, conveniences and amusements' of life that covered costs and profit, productive employment was created.

Poverty produces poverty, increases it too. Wealth creation reduces poverty, and wealth creation in markets reduces poverty better than any other arrangement tried so far. It is by no means perfect, but the alternatives are worse in practice.

7:56 pm  
Blogger eugene plawiuk said...

The markets in Africa, those that are authentic expressions of the marketplace are farmer/producer cooperatives, village production run by women, where Maize, for example, is raised and processed, and their access to the world market is limited. On the other hand joint state capitalist enterpriser's trying to reproduce the industrial model of production have failed, despite funding and political backing of the IMF and World Bank.

I will always support direct producer cooperatives as the real market, ala Adam Smith.

4:05 am  
Blogger Gavin Kennedy said...

The IMF and World Bank model economies based on neoclassical economics and recruit staff qualified in such, mainly mathematical, techniques. Being agencies operating at government level, they deal with and through governments, which in the non-developed and non-developing world are largely corrupt and/or ineffective

Britain developed without foreign aid and macro-interventions. Studying how European countries developed over time scales of two or three hundred years shows that markets on the smaller scale experienced in the 18th century, though interlinked internationally. (

Consider how Smith (Wealth Of Nations, Book I.i.11: p 22)describes the manufacture of a common woollen workman’s coat) proliferated and slowly raised labour productivity (division of labour and new forms of technology – electricity after reliable steam engines), and from frugal savings, not prodigality on luxury consumption, mobilised the capital to fund the necessary capital.

Smith considered that it was the human desire to ‘better themselves’ (from the ‘womb to the grave’) that drove individuals to undertake these activities. There is more to gain by mobilising local markets and individuals within them, as you mention, than large scale projects for which there is a disconnect between them and the fabric of society.

Governments do their job best when they restrict it to defence and security, justice and protection of private property, education and health, and necessary public works and their maintenance. They should ensure the environment in which individuals and families can develop their affairs and not impose centralised ideas and programmes for which there is not yet sufficient people who are motivated and able to operate them.

I suspect there are many areas of overlap in our thinking – and many gaps too – and I suggest you browse through the work of people like Karol Boudreaux at George Mason University, whose team is looking at small scale enterprises in Africa, illustrating what I think small market development can achieve.

You can find her programme at:

1:05 pm  
Blogger eugene plawiuk said...

Thanks for that tip I am going to blog on their report on coffee production in Rawanda which points out that it is being run by Village cooperatives. The cooperative commonwealth is the market place. By the way I had come across your blog before you commented on my piece and I found it inspirational, since you correct many misconceptions about Smith and his revolutionary ideas.
We may disagree on some points but I think you will find we also agree on many. Including Smith's importance and how he has been misinterpreted by the Statists right and left. Ironically not by Marx though.

1:46 pm  
Blogger Gavin Kennedy said...

Yes, I am sure we could agree on the elements of quite a lot of we have covered, though not on the left political slant you place on them, much as I can agree with their free market instincts of some rightwing people but not their politicisation of markets.

As for Karl Marx, he took a lot from Adam Smith and, as he would have said, 'inverted' his ideas. He took his own economics into a cul de sac, with 'answers' to everything, but many of them wrong.

One biographical issue he was wrong totally. He said Adam Smith was Adam Ferguson's 'pupil', based on Ferguson publishing his account of 'alienation' from the division of labour in 1767, before Smith published Wealth of Nations in 1776.

The facts are Ferguson acknowledged his debt to Smith, and Smith gave the bulk of his lectures on the division of labour from 1751-64 at Glasgow University, available in Lectures on Jurisprudence (Oxford University Press).

Incidently, Smith did not hold to a labour theory of value, except for 'rude' society (hunter-gatherers), but not for societies after the invention of property (shepherding, agriculture, and commerce).

Howevr, these are topics that may come up in future. Let's concentrate on commercial markets, prevlaent before 19th century capitalism, and the basic road to economic development.

9:26 am  

Post a Comment

<< Home