Trade, Poverty and Pencils

At the time of writing this piece, 13 July 2017, the Great Lakes Summit will be taking place in Munyonyo for two days. According to the website, Kampala will play host to a gathering of politicians, businesses and pro-market advocates from Europe, East Africa and beyond. The summit will explore the vast opportunities for greater trade and investment in the region: and make the ethical case for free trade as a means for poverty alleviation, conflict resolution and social justice”

Many things have been thrown at the issue of poverty since the 70’s. From billions of dollars in Aid, to education and health. The problem persists still, not because the efforts that are being made are not identifying problems (emerging economies like Uganda do need a healthy populace with sound education who can better reach their potential, economically and otherwise), but rather because these problems are part of market systems that are failing and thus they need a market system approach.

At FSD Uganda, much like the rest of the FSD network in Africa, our approach to achieving a deeper broader and more inclusive financial services sector utilises a market systems approach. Where intervention undertaken cause systemic change and allow for policy makers, regulators and financial service providers are well equipped to create an enabling environment that works for the average citizen. The goal is to not only reduce vulnerabilities to shocks due to losses in property, illness or death of bread winners but also increase people’s livelihoods and income.

Nothing does this better than people being able to ply their trade and exchange their knowledge and skills for considerable returns. With Uganda’s Buy Uganda Build Uganda, the sentiment is correct; we need for Uganda to fully maximise the ingenuity of our people and this keeps value within our borders. But at the same time, we must consider the world. Yes, there’s close to 40 million Ugandans that could be seen as a market, but that’s drop in the ocean compared to the 7 Billion plus people on the globe.

One of the most seductive metaphors on trade is the examples aid forth by one of the icons of Libertarian-ism and Nobel prize winning economist, Milton Friedman. That is that no one in the world knows how to make a pencil. Here’s a quote:

“Look at this lead pencil. There’s not a single person in the world who could make this pencil…. The wood from which it is made, for all I know, comes from a tree that was cut down in the state of Washington. To cut down that tree, it took a saw. To make the saw, it took steel. To make steel, it took iron ore. This black centre—we call it lead but it’s really graphite, compressed graphite—I’m not sure where it comes from, but I think it comes from some mines in South America. This red top up here, this eraser, a bit of rubber, probably comes from Malaya, where the rubber tree isn’t even native! It was imported from South America by some businessmen with the help of the British government”

What Mr. Friedman said about the pencil could be said about the global assembly line utilized to make tools we use more than ever to communicate our thoughts in the 21st century: Our smart phones. Yes, Apple is an American company but earth minerals from Congo, touch screen made in Japan, Taiwan and Korea… well, you get the picture. Technology has allowed for us to go across borders, for specialization to go beyond just factory floors but traverse oceans. Globalisation seems to be the inevitable norm for the world.
However, with the recent sentiments of nationalism that are arising from various countries, with fears job losses to immigrants in both Europe and America, one would be right in saying that inevitability of globalization is an over statement. The DHL global connectedness index, that analyses the pillars of international “connectedness” namely the flow of trade, capital, information and labor, indicates that” Actual levels of global connectedness are still only fraction of what people estimate them to be, suggesting an opportunity to correct misconceptions and apprehensions”. Public sentiment is one of worry, about losing ground to the other person coming in to get a share of these.

But should we be afraid?

I think not. First, globalization is still a developing phenomenon. Which is probably a good thing as time allow for cooler heads to prevail. The connected index report 2016 also indicates that Distance still matters—even online. Most international flowstake place within rather than between regions”. So, there’s still time toperfect this. Secondly, trade and value creation are not a finite resource likeland that can be used up or depleted but rather they’re about the ingenuity ofpeople to adapt to and adapt their environment to suit their needs. It’s aboutcreation.

For Uganda, this summit shows that there’s strong interest,not in charity, but in partnership towards creating better products and services for all. This is not a zero-sum game and it’s a great opportunity for us as a country to make corrections to our market systems by improving our balance of payments (exports vs imports) thereby allowing for more value to be created in the country and allow the rising tide we’ll experience to lift all the ships in the harbor.  We first must learn to walk before we can fly.But we must prepare to fly and not be contented with just strolling along in a world that rewards flight. All apologies for the mixed metaphors


Great Lakes Trade Summit Kampala 13-15 July 2017

Global Connectedness Index 2016

Milton Friedman – Lesson of the Pencil

By Joel Muhumuza, Partner Former Support Specialist at FSD Uganda

Related Articles