The most crucial question policy makers attempting to carry out this
economic experimentation of a single currency for the WAMU area should ask
themselves is this: to what extent is the WAMU area an 'optimum currency
area'? Is the WAMU area an 'optimum currency area'? By 'optimum currency
area', it is generally referred to mean as a political economy or a
geographical economic domain wherein the use of one single currency for
different polities would enhance economic well-being and not lead to a loss
of economic welfare. An 'optimum currency area' doesn't necessarily mean the
use of single currencies. It can be different currencies immutably pegged to
one another with flexible convertibility (Kawai, 1987). The idea of 'optimum
currency areas' first found canonical statement in Nobellist Robert
Mundell's celebrated 1961 American Economic Review article, 'A theory of
optimum currency areas'. Since then, it has generated and courted both
oppobrium and admiration. This is not relevant to the case i'll present
here. For the purposes of delineating the case for or against introducing
single currencies in the WAMU area, let us try to assess whether WAMU can
lay claims to being an 'optimum currency area'.
For an area to be declared an 'optimum currency area' - at least in theory -
it has to constitute the following properties:
i) Price and wage flexibility (Friedman, 1953);
ii) Factor market integration (Mundell, 1961);
iii) Financial and capital market integration (Ingram, 1962);
iv) Goods market integration (McKinnon, 1963);
v) Political integration (Kenen, 1969; Cordon, 1972).
One of the reasons why the Euro Zone is currently undergoing an economic
downturn again whilst the US is slowly emerging out of the shortest economic
recession in written history is largely because whilst the latter can claim
- in all honesty - that it is an 'optimum currency area', the former would
be hard pressed to make similar claims. Indeed, educated economic opinion
takes the view that the introduction of the single European currency, the
Euro, is rather premature as EU economies have yet not developed/converged
to the point where a single currency would not result to a general loss of
welfare. That is to say that the EU has yet to become an 'optimum currency
area'. The evidence for this is overwhelming.
Consider the Eurozone's biggest economy, Germany - perhaps, the most
important economy in the Eurozone. Germany is currently facing its worst
economic downturn since the recession caused by re-unification of East and
West German thanks to its inflexible labour markets and rigid labour laws
and their concomitant causal effects like fiscal imprudence. Unemployment in
Germany currently stands at 10%. How did Germany get itself in such economic
quagmire? There is little doubt that it has more to do with fiscal
imprudence (central & regional revenue fell by 5.5% but expenditure went up
by approximately 1.5%) which is both a direct and indirect result of
Germany's inflexible labour market and rigid labour laws - worsened by
intransigent union barons who are loath to labour market reforms. A
labour-employer standoff currently looms as trade unions demand pay hikes of
6.5% when inflation currently stands at under 2%. Employers are understood
to have offered 2.2% pay hikes for the next two years - in line with current
inflationary projections. But unions won't have none of it; and even giving
Schroeder a rehearsal of things to come if they don't get what they want:
strike actions. Even economically illiterate union barons know that price
hikes above inflation compounded by Germany having the shortest working week
in the EU is disastrous in the long-term. None of the unions seem to heed
this simple economic point.
To be sure, labour market inflexibility and rigid labour laws vary across
the EU. France fares better than Germany, which might explain why France is
currently faring better in its economic prospects. The same can be said of
Spain juxtaposed with, say, Greece or Italy. But there is little doubt that
labour market inflexibilities across the EU will ever make it harder for the
Euro to have a huge economic impact in the long run. The irony here is that
it was the stunning success of the pre- 1914 Gold Standard exchange rate
regime that informed and inspired the European Monetary Union, and
consequently the introduction of the Euro. Yet, the main reason why the pre-
1914 Gold Standard exchange rate regime was such a stunning success was the
extent of the flexibility of the labour market and international labour
mobility (Ferguson, 2000). In sharp contrast, the EU as currently
constituted is anything but. The historian, Niall Ferguson, makes this
historical precedence lucidly clear in his seminal work on the history of
wars and economic development and their relation to political authorities,
especially those that are imperial in inclination and design - be they
cooperative empires (as evinced in the case of the EU and the Habsburg
empire), militarily expanded and enforced ones (the British and Russian
empires)and tenuously in-betweens and exceptionals like the US.
The problem with contemporary debates is the extent to which they are devoid
of historical perspectives and intellectual rigour. Those seeking to relive
the EU experience in the WAMU area should simply forget the delusions of
introducing a single currency as a panacea to the complex economic problems
of that sub-region. First, WAMU is even by the loosest of definitions not an
'optimum currency area'. Second, the idea that the introduction of a single
currency in the WAMU area would conjure away the economic woes and malaise
of the sub-region is nonsense on stilts. Given the properties of what
constitute an 'optimum currency area', can anyone seriously suggest that
WAMU comes close to even a conservative application of said prerequisite?
Consider intra- WAMU trade. This is virtually non-existent. WAMU member
states trade more with with, say, the EU than amongst themselves. Compare
and contrast this with the EU. Currently EU members' trade are more intra
than at asnytime in living memory. It used to be the case that in the days
of the empire that Britain's trade was more internationally focussed as
opposed to trading with European countries. Today more than 60% of the UK's
trade is with the EU. Nothing of this random example typifies individual
political economies of the WAMU area nation-states.
The single most important task that policy makers and gov'ts of the WAMU
area ought to be wrestling with is turning their respective political
economies into political economies where the Rule of Law and liberal
economics is not only deep-rooted but, most importantly, observed by ALL
constituents of said polities ( not just the small business enterprises and
the poor) and the process is not distorted or hijacked by state mercantilism
or intervenionism. When the EU was being formed and developing into a
cooperative empire, it was and still remains a priviliged club: entry was by
virtue of political economies deeply rooted in the Rule of Law, democracy,
respect for individual liberties, and liberal economics. One pauses to note
that current frontline EU member states like Spain, Greece and Portugal were
not allowed into this most exclusive of economic clubs because they were in
the early days of the EU brutal dictatorships (General Franco in Spain and
military juntas in Greece and Portugal) that failed the simple tests of EU
membership. Today, these countries are at the forefront of what is narrowly
referred to as 'liberal' Europe. None doubts, however, the extent to which
the EU was responsible for the liberal nature of these formerly closed and
tradionally macho societies. Can the same be said of WAMU, ECOWAS, SADC, OAU
or the African Union?
In sharp contrast, WAMU et al is stuffed with the Good, the Bad and the
Ugly. The Good tolerates, even cuddles, the Bad and the Ugly. In the WAMU
area, as in the rest of the Africa, membership of regional economic blocs
are on the basis of geographical affinity or proximity. Whether a country is
run by bone-headed kleptocrats - like Yaya in the Gambia - doesn't matter at
all. Rather than make WAMU et al privileged clubs, any idiot can steal power
in a relatively democratic country, which has a relatively good tradition
of the Rule of Law, and be accepted with open arms in these pseudo- regional
economic blocs that WAMU and else pretends to be in Africa. Debates as per
whether WAMU needs a single currency is not only premature and wrong-headed
but most importantly a red-herring. What we should debate is the extent to
which respective WAMU member countries' political economies can be deeply
rooted in the Rule of Law and liberal economics. This is the most important
stumbling block to genuine development in Africa. It is what should be
fought for and debated at lenght. Not misplaced entusiasms like a single
currency for a non-existing trading bloc like WAMU et al.
_________________________________________________________________
Chat with friends online, try MSN Messenger: http://messenger.msn.com
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
To unsubscribe/subscribe or view archives of postings, go to the Gambia-L Web interface
at: http://maelstrom.stjohns.edu/archives/gambia-l.html
To contact the List Management, please send an e-mail to:
[log in to unmask]
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
|
