Countries like the United States, European Union, China and India have vast internal markets. This means they can sustain a lot of their economic activities by trading a full range of goods and services within their own frontiers – internal consumption. They have big populations, and their production capacity is substantial. By this process, they have acquired unbeatable comparative advantage over other countries in the production of numerous goods and services, helped by a continuing stream of research and development.
Of course, these countries can add to their domestic activities by selling to outside markets, which is what Germany, the EU’s most dynamic economy, has been doing for a long time and thus recording positive economic growth even as other EU economies went into recession. But Germany is not alone, leaning on this pattern of efficient production for both the internal and external markets.
There was a time, after the Second World War, when the industrialised countries of the West gained an edge over all others in terms of production efficiency. They were thus in a position to advantageously sell much of their production to the other less developed countries, even as they transformed raw materials imported from these very countries into refined export products. They still have a big comparative advantage to continue doing so, whether for exporting goods or services.
It was a risky step to take from sugarcane production to textiles and garments for external markets, but had we not taken this step of expanding our economic scope, we would not have been there.”
We just have to look at the origins of the numerous goods and services we buy to realise that a whole host of other countries have caught up with industrialised countries in this respect. China, for example, is facing the ire of the present American administration for competitively exporting its home-produced goods and services to the US market. At one time, India was seen as one of the global leaders in information technology and in the production of pharmaceuticals. Suddenly, the whole world became a vaster playground on which to play.
Transforming economic production
Former developing economies have caught up, albeit it is still the US, with Apple, that has spearheaded the technology behind the iPhone, for example. Other advanced countries still maintain an edge over a number of sophisticated products which they sell to outside markets. A lot of the former less developed economies however have entered new markets that looked way beyond them some decades ago. China recently embarked onto the market for producing passenger planes, something that for long has been the exclusive preserve of the US Boeing Co. and the EU Airbus Industrie. Singapore has developed very advanced sea dredging equipment.
Applied effort to break barriers has paid off. We are not surprised therefore when we buy a shirt or other garment at Marks & Spencer London with the label made in Sri Lanka, Vietnam, Bangladesh, Indonesia or Mauritius. Our country has been able to join the others in this kind of activity, because we went for transforming ourselves into a more complex structure of production than what obtained earlier. It was a risky step to take from sugarcane production to textiles and garments for external markets, but had we not taken this step of expanding our economic scope, we would not have been there. The whole of economic progress is centred on this idea of wanting to break off from a given mould and getting to something better, newer, more sophisticated, which Rostow called ‘The Stages of Economic Growth’.
Just imagine that at one time – not long before and after Independence – the provision of financial services in Mauritius was limited mostly to the urban areas in the Port-Louis/Plaines-Wilhems geographic belt. How then did we end up with an international financial centre a couple of decades only after 1973 when most of our own domestic rural areas were previously financially under-served? How come we are serving people and places as far off as London, New York and New Delhi, today, and how come our financial service providers get almost half their value added from outside Mauritius? Not only did we make a break from constraining past policies, we also invited new skills from overseas to ourselves and made transformative use of the existing financial skills in the country to be able to successfully tie up with others outside operating at complex levels of sophistication. It is this that has created a critical mass that might help us forge ahead, adapting skilfully to ever-constraining rules made by the more powerful countries.
Source : Conjoncture (September-October)
(To read the second part next week)