CHAPTER 8

THE INDIGENOUS :

CAPITAL AND PRODUCTION

A. THE “ECONOMIC PROBLEM” People have unlimited wants; they want many things, ranging from autos, TV sets, clothes, houses, to trips to the moon. However, the resources required to pro- duce these are limited. These resources, in economic jargon, are termed fac- tors of production. Economists identify four of them: labor, land, capital, and the entrepreneur. Because factors of production are either limited or scarce, econom- ics is the study of the allocation of scarce resources to meet the infinite and com- peting wants of people. Every individual and society, at one point or another, faces what is alterna- tively called “the economic problem”—allocating scarce resources to satisfy many wants. An individual’s income, for a time, is fixed and must be allocated among many needs. One may choose to spend more on food and less on clothes or vice versa. Similarly, a society may choose to allocate more of its limited resources toward the production of bombs and less on the provision of bread or vice versa. The nature of this economic problem for a society is encapsulated in the fol- lowing questions:

1. What to produce? Guns or butter? 2. How much? 3. For whom?

At one extreme, a central planning agency may attempt, without much suc- cess, to make these decisions for society as a whole in what would be called a planned or command economy.1 The former eastern bloc or socialist countries in Eastern Europe, the Soviet Union, China, and Albania are examples of such economies. In such an economic system, the state owns the means of production,

1 There are other variants of this paradigm of which one is statism (or dirigisme). It is tan- tamount to state direction of economic activity. Statism is not necessarily associated with one particular ideology and can occur under socialism, Marxism, and even right-wing fascism. For example, the economies of Ivory Coast, Malawi, and apartheid South Africa, often character- ized as “capitalist,” were all dirigiste because of the pervasive presence and control by the state.

311 312 INDIGENOUS AFRICAN INSTITUTIONS determines what to produce, and establishes state enterprises to produce them. prices are fixed by the state or government. If a commodity is in short supply, it is rationed by the government by means of chits or ration coupons. At the other extreme, no central agency but, instead, private individuals deter- mine for themselves what to produce, how much, and for whom in what is called pure . Capitalism, by the strict economic definition, simply means an economic system whereby the ownership of the factors of production and deci- sions pertaining to production and distribution are made by private individuals, not the government or the state.2 Individuals interact freely at the marketplace to sell or services they produce and purchase those that they need. Through these interactions, the “economic problem” is solved. The actual solution does not take place overnight or under the supervision of one individual or government agency. Rather, the market solves the “problem” by trial and error, through a signalling process. The market transmits price signals to millions of consumers and producers who make or adjust their economic deci- sions (how much to purchase and produce) on the basis of these price signals. For example, if there is not enough of a certain commodity, say gasoline, that con- sumers want, its price would rise. The rise in price would send signals to both consumers and producers. The high price would induce consumers to reduce purchase or economize on the use of gasoline; for instance, drive less and at lower speeds, use the public trans- portation system, purchase a fuel-efficient automobile, etc. Producers, on the other hand, would see in the high price an opportunity to make greater profits. This will induce them to produce more of the respective commodity. The curtailment of consumption coupled with expanded production, would, other things being equal, drive down the price. If the price falls sufficiently, con- sumption would be stimulated, and supplies would be somewhat reduced. The lower price would not provide much of an incentive to sell greater quantities of gasoline. The increased consumption and reduced supplies would start pushing prices up. Through this constant upward and downward movement of price, how much of a commodity should be produced is brought into balance with how much consumers are willing to purchase. In this way, the “economic problem” is solved. The process never ends, but is aided by continuously adjusting prices. The process can be interfered with by preventing prices to adjust through the imposition of maximum prices (price ceilings or price controls) and minimum prices (price floors or price supports). Such interferences, oftentimes unwarranted and ill-conceived, obstruct the balancing of what consumers want (demand) with what producers offer (supply). The results are either chronic shortages or sur- pluses. The existence of these imbalances in any economic system is indicative of a waste of resources.

2 Marxists, however, define capitalism differently—as an economic system based upon the exploitation of labor for the creation of surplus value (profit).