Conference on Multinational corporations in Africa

DAKAR

/i/ 5f>

UNITED NATIONS

AFRICAN INSTITUTE FOR ECONOMIC DEVELOPMENT AND PLANNING

tintât

:s/2562-2

-7 OCT. 1971»

'-to

CONFERENCE ON

MULTINATIONAL CORPORATIONS IN AFRICA

(Dakar;

2$tb September - 5th Octoher,

1974)

MULTINATIONAL CORPORATIONS AND ECONOMIC DEVELOPMENT IN AFRICA

by

f.e. banks

Nationalekonomiska Institutionen The University of Uppsala

(Sweden)

JULY 1974

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Page 1

"One of John's basic philosophies that

drew me into this complex is that when¬

ever you develop something in a country,

you pump monies and know-how back in ^- bootstrap a country as I would say it."

Ex-astronaut Walter Schirra

1. Introduction

The John being referred to in this quotation in John-McCandish King, self-style philanthrophist and one time associate of Bernard

Cornfeld of IOS, who

founded

the 'complex' that Schirra is talking

about for the _purpose of tax avoidance on a grand scale ^- not only

for

himself, but for

anyone

else who

may have

felt

a need

for

these

services and could pay for them. Although I intend to mention en

passant the topic of 'bootstrapping' in the second part of this paper, I would like to begin by making my basic approach to the subject of

multinational corporations clear to the reader. As I say in my recent

book on the world copper market, "...I don't belong to the school of thought that considers imperialism by individual corporations to be

a matter for serious contemplation - especially in these days when

a call by such companies for gunboats simply results in the phone

being hung ^{up on} the other

end".-^

^{As a result of my extensive} studies of the various primary commodity markets, I have come to the interest¬

ing conclusion that we now live in a world where, when the multina¬

tional firm climbs into the ring with a national government, any

1/ Banks, P.E. "The World Copper Market: Àn

Economic

Analysis",

Ballinger Publishing Company, Boston, 1974-

c3/2562-2

Page 2

national government, it does so with the unhappy knowledge that when

the hattle is over, it will almost certainly he designated the Loser.

I am sure that Anaconda, Kennecott, Roan Selection, Union

Minere,

and a very large number of oil companies will support me in this matter,

At the same time I want to emphasize my endorsement of the con- tention of the Chilean Economist Ricardo French Davis—7

2/

that for¬

eign capital "cannot, has not, and should not" play a decisive role

in the development of the less developed countries

(LDC's).

It seems reasonable to me, for example, that since much of the foreign in¬

vestment and loans to LDC's originates in slack, disorderly societies

on the _verge of their own takeoffs into self sustaining

decadence,

if it is true that they have anything of overriding and indispensible

- significance to donate the rest of the world, both they and ^every¬

body else would probably be better off if they first used it at home.

Foreign capital cannot, has not, should not, and most likely will

not play a decisive role in the Third ¥orld because of some serious ethical shortcomings on the part of its 'mobilizers', representa¬

tives, and publicists. But this is not to say that it has no role

to play, because it has. The last sections of this paper say some¬

thing about my concept of this role.

Before going to the problem itself, this seems to me to be 'to

time to make a few unpopular remarks about ^some of the literature dealing with international corporations, as well as its authors. Al¬

though it is true that my few encounters with the officers of multi¬

national corporations have provided me with some amazing new insights

7j ^Davis,

R.F. "La Inversion Extranjera ^{en la} America

Latina",

El

Trimestre Economico

(Mexico) Jan-Mar, 1973.

&S/2562-2

Page 3

into the depths of human obtuseness, the fact of the matter is that

I see no reason

why,

as a group,

these

gentlemen should be lumped

into the same category as rock stars, procurers, war criminals, pornographers, and other celebrities popularly thought to live lives

characterized by the best in money and leisure, access to the corri¬

dors of power, and whose daily routine involves little or no

work,

but a great deal of exposure to the admiration of charming and im-

■•J ...• . ».*

portant people. If multinational corporations were in the habit of chaining their employees to their working places, but their direc¬

tors wore G-strings and traveled between continents by kayak, I frankly doubt if these organizations would have much of a future as

a topic for the international seminar circuit. Much of what is

now offered as impartial research on the subject is actually no more than the distilled, envy and resentment of half educated academic social climbers exploiting the generosity and naivete of the various foundations.

Similarly,

it is amazing for me to find so many people from highly developed countries writing about international corporations who

are against all corporations, international or otherwise - in

fact,

against the industrial ethos in

general.-^/

^The apparent stage of development that seems to be the ideal of many of the younger econo¬

mists who have taken to the pulpit t'o rail against the sins of IIT

or Standard Oil is a combination of Tahiti and 14th century Hungary.

This may seem like a trivial point, but in fact it is extremely im¬

portant. What it means is that in place of the multinational corpora¬

tion, ^many of them would be perfectly willing to accept no economic

progress at all - that is to say, pastoral societies inhabited by

I hapen to be strongly in favor of the industrial ethos, but against the incompetant and socially wasteful way it is prac¬

ticed.

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4

nomads. In _my humble opinion it is these people, and their sponsors - many of whom are the way they are because of serious but identifiable psychological difficulties - who must stand as one of the greatest

obstacles to the modernization of the less developed countries.

2. Some Background

Many of the large international firms began operations in Africa slightly after the cresting of late 19th oentury'imperialism. Although

there were excellent economic reasons to explain their appearance and expansion

(such

as the proliferating'industrialism in

Europe),

I

find it difficult to make a case for their being part of some sort of political and economic masterplan designed to create integrated

economic unities of the type that the Portuguese government did some

speculating on in the not too distant past. What seemed to have

taken place instead was that this or that mineral would be discovered, usually close to the surface of the earth, and enough would be removed to satisfy industrial demand in some country or another. A situation

never seemed to exist, for instance, where calculations bagan with

a consideration of just what raw materials were available, and the

cost at which they could be removed, and then some kind of optimal level of exploitation and development from the point of view of the home country was worked out.

Tracing the activities of multinational corporations in Africa is a simple job, but the space available here hardly allows for a

comprehensive oversight. Instead I would like to confine myself to

the large mining companies of central Africa who, in most respects,

were typical of multinational firms, and in particular firms that

were integrating backward into their source of supply.

'

The arrival of these companies involved the importing into Central Africa of an entirely new technology ^- a technology that, of

course, changed over time. In the beginning it consisted of European

CS/^562-2

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capitalists, technicians, and

administrators. There

were

also

European skilled and semi-skilled, and perhaps ^{even some} unskilled

labour? and large amounts of African

unskilled labour. Por the

var¬

ious firms involved, this initial

structuré

^was ideal. In

particu¬

lar it allowed the various managers of these firms to develop to

the fullest those feelings of self esteem that form such an impor¬

tant part of the psychological makeup of most individuals. In addi¬

tion, because of the peculiar social set-up existing in that

part

of the world, they were

able

to exercise no

small

aihount

of personal

power over both their subordinates and the inhabitants of the region

in which they were operating.

They also seemed to be in possession of an ideal instrument for promoting corporate efficiency - if efficiency is actually the right

word to use here, ¥hen world consumption of minerals slumped,

the

African unskilled labour could be furloughed back into the domestic

subsistence economy, while the

European

employees could on

occasion

be kept in line via threats of replacement by Africans.

Eventually,

in Central Africa

(and

also in South

Africa), overall size and

pro¬

fitability became such that it was possible to build up communities

that in many respects were more European than African. These out¬

posts of high consumption were to become in many respects a reminder

to the local populations of just what th'^y were missing in so far

as the material side of life was concerned. They also provided sore indication of what the future might look like.

According to the official spokesmen of the various firms, all

that was being - and would be done - was intended exclusively for

the enlightment and moral uplift of the local populations. But

since these things included such irregular practices as forced la¬

bour, the arbitrary displacement and discharging of workers, and in particular the transfer from the industrial countries of stupid and socially wasteful industrial practices overseered by incompetant and

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dissipated technicians

and administrators, the opinion was occasion¬

ally expressed that these

companies

were

less altruistic than they

claimed to he. Regardless of what they

actually

were,

however, they

eventually lost control

of events. In the end they frittered away

their time with what they had come to think

of

as

major industrial

projects hut which, given

the

resources

and possibilities of the

region, were no more

than routine expansions and replacement of capa

city. Eventually, when

it became apparent that they

no

longer had

any economic purpose to ^serve,

they simply disappeared from the

scene.

By this time there had been ^a

considerable change in the techno

logy of the area. In particular

there had been

a

large scale

move¬

ment by Africans into many of the

so-called skilled jobs. Most

important,

there had been

some

changes in the psychological climate

surrounding these employments: on the basis

of experience it seemed

clear that Africans both could and would fill these positions with¬

out there being any substantial loss of efficiency.

There had

nc ;, however, been a

displacement to

any

significant degree of European

technicians and administrators by Africans. It is here, in

fact,

that we get our explanation of why the discussion

of multinational

firms in Africa

(and.for

that matter a large part of the

Third World)

takes the particular form that it does. Economic development means

industrialization; industrialization means

technicians; but with

certain exceptions

(such

as the United Arab

Republic)

non-white

Africa is without technicians, I would suppose that at least one half of what has gone wrong, and will continue to go wrong, with

economic development in Africa is a direct consequence of this situa¬

tion.

To point up what I am trying to say, it might be instructive at

this juncture to consider the case of Japan, For very important

economic reasons Japan desires both foreign investment and loans,

C

s/2 56 2-2

•Page 7

and. as a result - to a limited extent - will accept outside ownership.

At the same time they have made it clear that they will not accept large numbers of foreign managers, engineers, and the like ^{- nor}

need they accept

them,

since they themselves have a

mòre

than ample supply of these professionals. This simple fact makes a subsidiary

of some multinational corporation in Japan quite a different thing

from a subsidiary of the same corporation in Africa or some ' other less developed part of the world. If we can assume, as I hope

(and think)

we can, that ex-astronaut Shirra's concept of 'bootstrap¬

ping1 a country means something else to his employer and people like his employer than to himself, and that there is ^{no reason} to think

that the typical multinational corporation has any a-priori desire

to 'bootstrap' country X to a different degree from country Y, then

I think we are justified in postulating that the country that can expect the deluxe version of this treatment is the one in which peo¬

ple like the former celestial explorer's mentor not only supply cash

and equipment, but also physically contribute their own special talent

and personalities in a supervisory

and/or

executive capacity. This country, or continent, will be the one that wants and needs foreign investment, but cannot provide ^{- as} Japan ^{can -} complementary techni¬

cal and administrative personnel.

Before continuing along these lines I would like to make some more or less general remarks about the so-called 'foreign investment decision'. The incentive for this discussion was provided by Carlos P. Diaz Alejandro in one of the few readable essays on the topic of multinational corporations and economic

development.^/

4/ Alejandro, Carlos

P. Diaz, "Direct Foreign Investment in Latin

America" in 'The International Corporation', A Symposium edited by Charles P. Kindleberger. The M.I.T.

Press, 1970.

Alejandro

says "By training not only its own cost accountants, but also its

own cadres of copper technicians and engineers, Chilean bargaining

power is increased vis-à-vis the foreign companies,"

(This

is essentially what I have said in the above

paragraph).

Furthermore

"Tax disputes can be handled with richer data. The logistics and mysteries of international merchandising may become less over¬

powering".

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Page

8.

3. The Foreign Investiment Decisions

In this section the foreign investment decision will he dis¬

cussed from the point of view of some elementary project analysis.

This approach is taken since a corporation planning to invest abroad should make such an analysis, and in fact probably bases its invest¬

ment decision on a 'rate of return' that is derived from such a calcula¬

tion. Assuming that the host country can also make such a

calculation,

the claim will then be made that this should be the central device in the negotiations leading to the specification of the rights and res¬

ponsibilities of both parties.

To begin with we must recognize that most large firms have, at

least conceptually, a choice of places to invest. The ideal situation calls for cost benefit techniques being used to distinguish between a number of possible projects

(e.g.

^copper mining in Zaire, Iran, or Central

America)5

but in fact things usually work out so that once the investigatory process has begun for some particular project, and

a certain amount of resources have been committed to this process, and

at the same time it _appears from rough calculations that a competitive return will be available from the project, most alternatives are con¬

veniently forgotten. The reasons for this are the shortage of manage¬

ment time and ability, as well as the

(from

the corporate point of

view)

irrational tendency of project analyzers to become psychologi¬

cally more committed to one type of project than another.

The basis for the investment decision by the firm is an analysis based on cash flows. The point that I am trying to make here, however,

is that the host government should make the same type of calculation!

and in addition should make a social calculation.

(For

instance, ^the

wages paid to local employees are a cost for the multinational firm,

but a social 'benefit' for the host_ country! and the same is true for taxes.

Similarly,

profit made on extracted raw materials is a benefit for the firm, but there might be a user cost for the host country in

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Page 9•

•that these extracted resources will not "be

available in the future

when they could, perhaps, he

used

^even more

profitably.-^ ^{And so} on.)

Pôr the'sake of simplicity I will avoid

further reference to social

calculations, but the reader

should remember that they should be made

when

possible.^

We can now consider the following

table of cash flows

ï

Periods t t+1 t+2

t+i ..,t+T

q ^

a^j

^{^} »•••••<>•

a^ •®o®«o©oo a^

^

• •

Outflows :

I

»

• «

amo ",,,ami amT

b1Q ...b1

^±

...b^

Inflows: ^. •

• •

b' -,

-n'

no

...bni bnT

Wet Inflow

(Quasi-rent) e^ ...e| e£

Discounted Wet Inflow

eQ e^ ...e^

Cumulated Discounted

...•Ei E^

Wet Inflow:

Under outflows we have such things as

the cost of inputs, work¬

ing and fixed

capital, ovorhoad, taxes, fees, etc. Under inflows th

largest entries would

normally result from sales. It can also be ~..e

case that b ,

no' ^{•• •• «}7bn.T—1m j 0,7 and bnT^_ is the value

of the irstalla

b/ See Banks, F.E. "A Wote on Some Theoretical Issues of Resource

Depletion",

Journal of Economic Theory (Forthcoming) for more on

the subject of user cost.

6/

At

the

same

time the reader should be made aware of the fact that

these can be extremely

difficult calculations to make.

CS

/2 562-2

Page 10.

at time T, which, is taken as the terminal

period,

or the

last period

for which a calculation is made. Net inflows for, e.g., period t+i

are -sn a.. — <sr> b.. ⁼ e!. Discounted net inflow for this period

3=1 ³¹ j?1 ^3*

_

1

would then he

e^

=

e!^/(l+r)1, where r is the discount rate. This dis¬

count rate might he the aversge rate of return for similar operations

in the country in qestion, ^a 'shadow' or 'accounting' profit rate, etc.

Now it can he easily proved that if the cumulative net present

value at any point turns positive

(and,

trivially, does not become nega¬

tive

again)

the net internal rate of return is at least equal to the

discount rate. If for

example'

the values in the ahove tableau provide

a positive cumulative rate of return

(discounted)

for the year

t+T—1,

and the enterprise was liquidated the following year, with the net

inflow in that year positive, then the project will have produced an internal rate of return larger than the yield that these resources would

have shown had they been used on other relevant projects ^— which is

what the discount rate is all about. The point of all this is that the accountants and project analysts of the host country, and the management

of the firm, should ^— on the basis of what each party believes to be

the correct information - attempt to work toward a value of the not in¬

ternal rate of return. They should in fact work until they get a value

that is very close, and which both sides can regard as satisfactory^-

The idea then is that there is some combination of taxes, subsidies, compulsory reinvestment criteria, government guarantees or risk sharing,

and so on that can provide the firm with the rate of return that will justify its making the investment being examined, and at the same timo

will not cause the host country to be 'exploited'. It should also be noted that the economists involved in this analysis can concentrate on

essentials, and need not be concerned with the avalanche of complex but unusable and pretentious theories telling us why there is something in¬

herently good or bad about foreign investment.

CS/2'562-2

Pagp 11.

It may be the case however that the above table — which

essentially shows the cash flows of the subsidiary in the currency of the host country - might have to be supplemented 'by another. As the reader probably knows, the subject of the pricing of the transfer of

goods, bervices, and technology between corporate subsidies in diffe¬

rent countries

(which

is generally called transfer

pricing)

is receiv¬

ing a growing amount of attention in the literature. In contrast to many of the other topics being taken up by our scholarly publications,

this

_is_

an important item since it is a key component in determing just how much of earnings and capital are being repatriated or shifted.

(There

is, for example, a transfer pricing component in such things as licensefees and

royalties).

^{The new table shows} cash flows from the

subsidiary to the parent, in the monetary unit of the parent. In this

case we haveï

Period

Outflows s

Inflows:

Net Inflow

(Quasi-rent)

Discounted Net Inflow

Cumulated Discounted Net Inflows

t t+1 t+2

d1

⁰

d11 d12

4

^ko

f1o

•

f_ho

;

e '

o

e ...

o

E

o

t+i ...,,t+T

dii d1.T

• o c

"^ki

^{* * * '}

dkT

f f

1i 1T

o a o S>•

hi h'T

e! fT

e^

....o....

ey

E E

i T

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Page 12.

One of the interesting points about this table is that many of

the outflows anA inflows _appear as outflows in the previous table.

For instance, if the financing of the subsidiary came directly out of

the equity of the parent _company, this would be an outflow in

the above table. On the other hand, such things as management and en¬

gineering fees, various commissions, amortization and interest on the

debt of the subsidiary to the parent, dividends, etc. which were out¬

flows in the first table, are inflows in the second. Also, if some of the input to one subsidiary comes from another subsidiary, this

would have to be priced and the relevant cash flow transformed into an

entry in the second table.

- There is also the problem of getting a net rate of return from

this table, and this is approached in the same manner as with the first.

It should be observed, however, that the discount rate used in the se¬

cond table would most likely be different from that used in the first.

For example, ^one candidate for the second table would be the profit rate for the parent firm in all its operations. Some question remains,

at least at the present time, in my mind as to how the host country

could treat a situation where there are large differences in the rate

or return between the two tables. Off hand I would have to say that

the rate of return given in the first tahle should be given priority,

since it deals with .domestic resources,

hut

this matter will have to

be taken _up somewhere else.

4. The Crux of the Solution;

The nextr step is to pick up the discussion begun in the last paragraphs of the second section of this paper. If it is true, as I

think it is, that economic development in Africa has not gone the way it should because of a shortage of technicians, then it seems obvious that the desirability and scale of foreign investment should turn on the remedying of this shortage.

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Page 13.

How I am sure that some people - perhaps even many people -

feel that this assignment is a proper function of the schools and uni¬

versities. These people happen to "be wrong. One of the most distin¬

guished mistakes made by the so called experts in the debate on econo¬

mic development was to assume that in lesser developed countries the

education of technical and managerial personnel could be carried out by the traditional instruments of the educational system, and to con¬

tinue making this assumption in the face of so much evidence to the contrary. It should be apparent by now that eleven or twelve years*

of

primary and secondary schooling, plus three or four year of

higher

education, followed by even a comparatively short

period of unemploy¬

ment, fractional employment, or even the pseudo

full employment

so

common these days in both less developed and highly developed

countrie

simply results in more of those disguised welfare cases of the type

that one encounters so often working in the economics departments of

most of the leading American and European Universities. As with sport proficiency in technical and administrative matters comes from day

in

and day out training that includes frequent periods of high tempo ac¬

tivity. As far as I have been able to tell, only active participation

in the operations of fairly successful industrial

(or public)

organisa'

tions can provide this background.

I also feel that this conclusion could have been deduced simply

from a close examination of what the traditional educational systems

in some of the major industrial countries have actually achieved, as compared with what they say they have achieved. In thinking about the quality of the engineering education that I received in the United

States I have recently come to the conclusion that, if it was typical,

it could hardly have, by itself, provided the average American

with

a material standard much higher than that to be found in Southern Europe

The level of living in the United States - such as it is - can in fact

be largely attributed to the education obtained by about fifty per cent of the American labour force

(which

is approximately the

size of

cs/2562-2

Pago 14.

the productive

part)

within the industrial and commercial sector, largely in the form of 'learning "by doing'.

On the other hand the former Russian engineer V, Kravchenko has described, to some extent, in his "book his pre-World War II edu¬

cation in the Soviet Union. The training that he received _was, to put it

mildly,

vastly superior to anything obtainable in all except

one or two institutions of higher learning in the U.S. Still, at

least qualitatively, this extremely impressive academic apparatus is only beginning to make a largo scale impression ^on the products of Soviet industry, and Soviet economic life in

general.-^

Under the circumstances I would like to argue that in return for a 'competitive' net rate of return ^- which I _presume that the host government would somehow have to be a party in establishing, and per¬

haps even guaranteeing — the multinational firm would accept the res¬

ponsibility for providing a thorough industrial apprenticeship for an

increasing number of workers in the host country| and even more im¬

portant assist in complementing the training of those residents of the host country whose academic training has a technical or adminis- trative orientation.-^

8/

_{By now I am sure that many} readers think that

jJ

The purpose of the above is not to denigrato all traditional educa¬

tion. Obviously primary and a large part of secondary education is still necessary in the sense that, in so far ^as the exports in the

measurement of human capital have boon able to determine, those ^con¬

tinue to yield a high rate of both social and private return. But

some question marks seem to always appear whenever the topic of the social rate of return 011 higher education is raised. Strong claims

arc now being _{made by} various economists that this social rale of return is not particularly highj and in the United States the same

may well be true for university education.

8/

It is well known that many multinational firms prefer to use as few local nationals as possible in their operations on the grounds that such individuals are loss competent or loyal than their own nationals,

and as a result business risk is increased. Leaving aside the ques¬

tion of loyalty, it should probably bo freely admitted that local personnel are in many ca.sos less competent , and that business risk is increased. But multinational firms will have to make allowances for this fact by providing facilities to train these locals up to what they regard as a minimum standard.

CS/2562-2

Page 15.

I am overstating my case 5 just as others probably imagine that the rapidly expanding literature on the 'transfer of technology1 covers in detail the points that I am only skimming over hero. In the face

of these possibilities I can only say that on the whole there are no

subjects ihJthe entire field of development economics that ore more

neglected than those having to do with determining the adequate num¬

ber of technicians and administrators to reach and support a given

level of development, together with establishing

the

optimum methods

for training these individuals. As for the 'transfer of technology',

its fascination with such matters as machines, licences, patents,

industrial secrets and the like makes it quite marginal to the busi¬

ness at hand.

5. Some Economic Theory and African Reality;

I would now like to supplement the highly informal discussion

that I have carried out above by introducing, also at an informal lr/ol,

some concepts commonly associated with the well known growth model of

W.A. 'Lewis

^

^{Since the Lewis model is} probably the best known of

those dealing with economic development and less developed regions,

there is hardly any reason to do more than summarize its assumptions

and results at the present time. Basically this construction assumes that a less developed, country can bo divided into two sectors, a modern

(M)

sector, and a traditional or

agricultural (a) sector. It is then

postula/fcod that the Ar-sector contains a manpower reserve that can be transferred, without cost, to the M—sector as employment expands

in

the M—sector.

(Without

cost since Lewis assumed that the

marginal

product in the A-Sector was zero, and thus when someone left the total product would not fall, and moreover his former consumption or "sub¬

sistence boundle" could in principle also be transferred

intact.)

'The engine of development in the case of countries

of

the type to

be

found in Africa would be the export of primary commodities, which

would lead to the import of capital goods to compensate for the low

oj

Lewis, W.A. "Economic Development with Unlimited Supplies of Labour", The Manchester School, 22, May 1954»

CS/2562-2

Page 16.

skill levels of indigenous labour;, and this in turn would lead to the creation of largo numbers of jobs either in the further processing of primary commodities or in import substitution.

What has happened to complicate the use of thiG model,

however,

has been the sustained migration from the traditional sector to tho modern sector that is not in _response to any 'legitimate' economic forces. Employment in industry, commerce, and tho public sector has

often moved extremely slow, as has investment in these sectors; but

the physical displacement of persons has had a tendency to speed up.

What has also taken place is that wages in the M-sector have been ne¬

gotiated for adjusted up to a point incommensurate with the 'theore¬

tical' wage that is justified by the actual supply of labour. This results, in turn, in a further incentive, for people to leave tho A-soctor and try thoir luck in the M-sector; for political reasons governments must engage in higher levels of nonproductive expenditures in urban areas; and on top of this increasing labour costs increase the temptation in the M—sector to substitute capital for labour.

Several solutions suggest themselves here. The first is more

productive investments in the M-sector for the _purpose of absorbing

some of tho employed or partially employed. If this investment could,

in fact, be made as easily ^as it comes to mind, then there would be no such thing as underdevelopment; and so it will not be tadcon up here.

Another possibility consis.ts of productive investments in the A-sector for tho purpose, interestingly enough, of instituting a cost

(a

'psychic'

cost)

that individuals in this sector will bo faced with should they

consider moving to the M-sector.

(They

would be giving up a larger

income).

^In addition, an exportable agricultural surplus might be cheated.

CS/2562-2

Page 17.

Some difficulties immediately present themselves. African agricultural productivity seems to he the lowest in the world, and as

a result it would he extremely difficult to convince most politicians

that there was any real future in this direction. It has heen suggested

more than once,'however, that despite present low yields, prospects

are in fact considerable. What then is the problem? The problem is that although agriculture can be made very labour intensive, high yield, highly profitable agriculturo

requires

the same

systematic in¬

puts of modern technology and organization as high yield industry.

Agriculture, in other words, also needs more

technicians

§ and

it is

not unthinkable

(at

least to

me)

that these technicians

could also be

make the assumption that this is not possible on a large

scale, it

should be remembered that extensive investments in agriculture entail

a very high cost in foreign exchange,

(it

seems to be the case in

Africa that there will have to be large expenditures for irrigation, transport, and the

like).

Just hoir much of this

unglamorous

and

(at

least

initially)

low productivity investment the various

national

and

international aid organizations would be willing to undertake is ^un—

certain, but assuming that it is not ^a great

deal,

the

other

source

of financing would appear to be increased exports - or at least re¬

venues of some sort from the export sector. Thus even investment in agriculturo ^- or the 'rediscovery' of agriculture as some people have

chosen to call it - might entail a higher level of industrial activity.

10/

Vegetables grown in several less

developed countries (among them Senegal)

are flown daily to Europe. The management

of these

'agricultural firms' are, as far as I know, either associated

with or identical to various European enterprises. I have also

been told that there is an enormous potential for this typo of operation, both at the supply and demand end.

The relevant

question then is how is it possible for this low yield agricul¬

turo to suddenly assume a character that allows it to supply, at

moderate prices, markets thousands of kilometers away? The

answer is that ^some relatively simple innovations and reorgani¬

zations were introduced by outsiders to take advantage of what

must havo been an intrinsic high yield situation that the local population was not aware of.

obtained via the same Sowover if wo

CS/2562-2

Pago

18.

As indicated, ^{one of the} assumptions of the Lewis model is that tho public authorities aro instrumental in offooting tho trans¬

fer of labour between sectors. Many of us who have tried to extend this model havo generally reasoned as follows s it is too much to rope for that, when a worker leaves the countryside and moves into tho city, his consumption 'bundle' would move along with liim thanks

to tho altruism of his relatives. Instead tho government was seen as stopping in and taxing' away at least a part of this bundle, and

then via one mechanism or another using it to pay wages in the M—sector,

Wo know better now. Governments have only a limited cap tity

to obtain revenue from the traditional sector. Moreover, there is

no certainty any longer that government expenditures display the

economic rationality that we once were inclined to give them credit for — although it must be admitted that they possess an entirely

understandable inner logic. Various political _pressures, for example,

result in a growing priority for urban infrastructure. The civil service must expand to take in school leavers, and traditional educa¬

tion must also _grow since populations are growing. Wages increase despite an excess supply of workers, and military expenditures also show a tendency to increase, and all those and other things take place at tho cost of productive investment and overall economic balance. What this means is that most African countries really have very little freedom to decide whether or not they are interested in accepting foreign investment ^- if, that is, they are committed to any sort of economic development. The freedom they do havo is to take adequate precautions that, to ^use the words of President

Alvarez of Mexico, these multinational companies do not enrich them¬

selves on the backs of tho local population. In my opinion this by itself is a very great deal of freedom'.

CS/2562-2

Pago 19.

6. Summary and conclusions

Multinational companies have a bad record in Africa and else¬

where₅ and there are apparently

still

a number of -unsavory characters

associated with the management of some of these organizations. But

I boliove that these firms are no longer capable of imperialism in

the classical sense - nor, for that matter, the neoclassical.

Moreover,

by the exorcise of a certain amount of caution, energy, and imagina¬

tion, host countries can constrain those firms in such a manner that ^- although they make a satisfactory profit - they do not exploit the

host country and make an important contribution to the development

process. Again, in my opinion, the most important contribution is the training of technical and administrative personnel.