Sourcebook on economic literacy for trade unions in Africa Mohammed Mwamadzingo Alice Gondwe-Siame International Labour Organization Norwegian Confederation of Trade Unions Copyright © International Labour Organization and Norwegian Confederation of Trade Unions 2008 First published 2008 Publications of the International Labour Office enjoy copyright under Protocol 2 of the Universal Copyright Convention. Nevertheless, short excerpts from them may be reproduced without authorization, on condition that the source is indicated. For rights of reproduction or translation, application should be made to ILO Publications (Rights and Permissions), International Labour Office, CH-1211 Geneva 22, Switzerland, or by email: pubdroit@ilo. org. The International Labour Office welcomes such applications. Libraries, institutions and other users registered with reproduction rights organizations may make copies in accordance with the licences issued to them for this purpose. Visit www. ifrro.org to find the reproduction rights organization in your country. Sourcebook on economic literacy for trade unions in Africa Norwegian Confederation of Trade Unions, 2008 International Labour Organization, Bureau for Workers’ Activities, 2008 ISBN: 978-92-2-121665-0 ISBN: 978-92-2-121666-7 ILO Cataloguing in Publication Data The designations employed in ILO publications, which are in conformity with United Nations practice, and the presentation of material therein do not imply the expression of any opinion whatsoever on the part of the International Labour Office concerning the legal status of any country, area or territory or of its authorities, or concerning the delimitation of its frontiers. The responsibility for opinions expressed in signed articles, studies and other contributions rests solely with their authors, and publication does not constitute an endorsement by the International Labour Office of the opinions expressed in them. Reference to names of firms and commercial products and processes does not imply their endorsement by the International Labour Office, and any failure to mention a particular firm, commercial product or process is not a sign of disapproval. ILO publications can be obtained through major booksellers or ILO local offices in many countries, or direct from ILO Publications, International Labour Office, CH-1211 Geneva 22, Switzerland. Catalogues or lists of new publications are available free of charge from the above address, or by email: [email protected] Visit our websites: www.ilo.org/publns and www.lo.no Printed in Kenya Sourcebook on economic literacy for trade unions in Africa About Norwegian Confederation of Trade Unions The Norwegian Confederation of Trade Unions (LO-Norway) is Norway’s largest and most influential workers’ organization. About 850,000 workers are affiliated to the national unions, which in turn are affiliated to LO. Fifty per cent of LO’s members are women. In some unions, women make up three quarters of the membership. About Bureau for Workers’ Activities The Bureau for Workers’ Activities (ACTRAV) is the main link between the International Labour Office and workers. ACTRAV coordinates all the activities related to workers and their organizations, both at headquarters and in the field. The International Labour Organization (ILO), whose executive secretariat is the International Labour Office, is the only tripartite agency of the United Nations. In it, governments, as well as employers and workers, are represented on an equal footing. They benefit equally from the services of the Organization. ACTRAV’s mission is to maintain close relations with the trade union movement throughout the world, and to provide trade unions with the support of the International Labour Office in endeavours to strengthen their influence by promoting activities that defend and advance the rights of workers. About LO-Norway and ACTRAV iii Sourcebook on economic literacy for trade unions in Africa Table of contents About Norwegian Confederation of Trade Unions ................................ iii About Bureau for Workers’ Activities ..................................................... iii List of tables and figures ...................................................................... vii Preface ................................................................................................. ix Acknowledgements .............................................................................. xi Abbreviations and acronyms ............................................................... xiii Description and structure of the sourcebook ........................................ xv PART I: Introduction to economics ....................................... xviii Unit 1: Introduction to key concepts .............................. in economics 1 1.1 Definition of economics ............................................................1 1.2 Why is economics important? ...................................................2 1.3 History of economic thought ....................................................3 1.4 Branches of economics: Microeconomics and ............................ macroeconomics ......................................................................5 1.5 Ideological structure of economics ............................................8 1.6 Economic systems .....................................................................9 1.7 Concept of wants and needs ..................................................10 1.8 Concept of goods and services ..............................................11 1.9 Why all the tables and charts in economics? ..........................12 1.10 Concept of interdependence .................................................12 References ..........................................................................................20 Part II: Elements of economics .................................................22 Unit 2: Key principles of microeconomics ........................................23 2.1 Basic economic concepts ........................................................24 2.2 Nature and functions of product markets ................................34 2.3 Factors of production and factor payments .............................48 2.4 Market failure .........................................................................54 References .........................................................................................60 Unit 3: Key principles of macroeconomics .......................................63 3.1 Background to macroeconomics .............................................63 3.2 Concept of economic cycle and key macroeconomic indicators ................................................................................64 3.3 Measurement of economic performance .................................76 3.4 Monetary policy: Money supply and money demand .............83 3.5 Fiscal policy ............................................................................89 3.6 Economic growth and productivity .........................................97 3.7 Open economy: International trade and finance ...................103 References ........................................................................................126 Table of contents v Sourcebook on economic literacy for trade unions in Africa Unit 4: Economics of the labour market .........................................129 4.1 Introduction .........................................................................130 4.2 Labour and the micro economy ............................................130 4.3 Labour unions and wage determination ...............................148 4.4 Labour and the macro economy ...........................................151 4.5 Labour and public policy .....................................................159 References .........................................................................................165 PART III: African political economy........................................168 Unit 5: Key principles of political economy ....................................169 5.1 What is political economy? ...................................................169 5.2 What is power? .....................................................................170 5.3 Stages of the African political economy .................................172 References .........................................................................................185 Unit 6: Contemporary issues in African political economy ............187 6.1 Africa’s development potential and challenges ......................187 6.2 Search for development strategies for Africa’s potential .........189 6.3 Obstacles to Africa’s economic development ........................197 6.4 Making development agenda work for Africans ....................198 References .........................................................................................235 Glossary of economics and political economy terms ..........................237 Index .................................................................................................257 vi Table of contents Sourcebook on economic literacy for trade unions in Africa List of tables and figures List of Tables Table 2.1: Production possibility table .............................................27 Table 3.1: Selected monthly economic indicators in Kenya, 2007-2008 ......................................................66 Table 3.2: LUSE closing stock prices as at 29 July 2008 ....................71 Table 3.3: International ranking of HPI, 2006 ..................................81