Re: Free Market Not Essential for Economic Growth

Tue, 22 Jan 2008 Source: Atta-Quayson, Alhassan

I wish to express my gratitude to the GhanaHomePage for the opportunity given Mr. Kwami Agbodza, myself and numerous others for this intellectual discourse. It is good to note that this is not a usual rejoinder where Mr. Agbodza is expected to be attacked vehemently. Rather, issues shall be put in their rightful perspective for the benefit of the general reading public.

First and foremost, sustainable development is not and cannot be essential for economic growth in Ghana or elsewhere, as alluded to by Mr. Agbodza. The reverse is rather the case all over the world where economic growth has been crucial to sustainable development. It is worth noting also that, free market, far from being an impediment to democracy, good governance and sustainable development, has rather been in co-existence and in most cases enhanced democratic dispensation, good governance and sustainable development. This can be substantiated by economic systems that exist in developed countries in North America and Europe. Mention could also be made of Japan, Australia and the Asian Tigers which include Taiwan, Singapore, Hong Kong and South Korea. It is quite important to recognize market-liberating efforts being made by emerging markets like China, India, Mexico, Brazil, Chile, much of Southeast Asia, countries in Eastern Europe, the Middle East, parts of Africa and Latin America.

Whiles the Asian Tigers quickly switched without hesitation from import-substitution policies coupled with controlled markets to the pursuant of an export-driven model strongly based on free market (institutions), the last category of countries, ranging from China to some parts of Latin America, has been found to be embarking on market-liberating policies over the last ten to twenty years.

Back home in our country, Ghana, prior to the Worldbank/IMF sponsored economic reforms in the 1980s, there existed quite a number of problems that led to the hard-felt hardships across the country. Prominent among these were political upheavals and controlled markets (prices) of some key commodities, particularly exchange rate. As history informs us, this led to the overthrow of Acheampong’s government.

Controlled prices of foreign currency not only curbed importation of some commodities but led to a dramatic falls in both the value and volume of cocoa beans, the major export commodity, exported by Ghana. Ghanaians reverted to smuggling goods especially cocoa beans across the borders to Cote d’Ivoire, in order to multiply their earnings. This habit significantly cut down the amount of foreign exchange available for official transactions, leading to the reduction of imports, which hit manufacturing enterprises dependent upon imported equipment and raw materials especially hard. As we can all see, today we import any and everything ranging from tooth paste to tooth pick. Memories of economic hardships which resulted from market controls are certainly not good.

After the reforms in the 1980s, efforts have been put in place by previous and current governments to liberate our markets in order to disallow the happenings of the 1960s and 1970s. The financial sector has witnessed a lot of reforms among other sectors and the outcome of these is there for everyone to see. It is these efforts that the Institute of Economic Affairs-Ghana (IEA), in its own small way, appears to be supporting, so that just as the Chinese and the Indians are sustaining their growth and development, Ghana shall also achieve sustainable growth and development.

As a matter of fact, free market, which could be defined as a market in which prices of commodities and exchange are arranged completely by the mutual consent of producers and consumers, is very crucial to growth and development of every economy. However, just as the IEA survey reports, it must be supported by strong institutions which protects physical and intellectual property rights as well as appropriate interventions by government. This is because there exists some inherent weaknesses in free markets which could lead to misallocation of some resources and unequal distribution of wealth. Free market should not be understood as an extreme of a continuum where there is no government. Rather free market do exist and must exist with government for efficiency of economic activities and a more equal distribution of wealth.

In conclusion, I wish to call on all Ghanaians to support these reforms to ensure democracy, good governance and sustainable growth and development which Mr. Agbodza and indeed Ghanaians are looking up to.

Alhassan Atta-Quayson M Phil Student Economics Dept., U G

Views expressed by the author(s) do not necessarily reflect those of GhanaHomePage.

Columnist: Atta-Quayson, Alhassan