Food prices and the Little Divergence

One of the less remarked upon ‘divergences’ in the economic history literature is the ‘Little’ Divergence between West Africa and Southeast Asia in the twentieth century. Up until around the 1970s, the differences in income between the two regions were not large. But after that point, Southeast Asia grew much quicker. Some Southeast Asian countries—Laos, Cambodia, Myanmar—have followed a more ‘West African’ path, but broadly speaking the divergence in striking.

There is no single explanation for the divergence. One is simply the existence of Japan, which seeded low-wage industries in which it was no longer competitive to Southeast Asia with foreign investment: the so-called ‘flying geese‘ pattern. Since there was no equivalent to Japan in West Africa, industrial capital came mainly from limited domestic sources, and former European colonial powers, neither of which succeeded in implanting cost-competitive manufacturing.

One of the industrialising problems West Africa and Southeast Asia faced together was their relatively high wages, which in turn were the result of abundant land and scarce labour. This factor combination led to a high reservation wage, since farmers could essentially choose to farm as much land as they liked rather than work for low wages in an urban factory. There are some qualifications to be made here—in my latest working paper I offer some scraps of evidence from colonial Dakar to show that nominal wages were highly seasonal, thus making the city ‘Myintian in the rainy season; Lewisian in the dry’. Similarly, in parts of Southeast Asia a low-wage population for plantation labour and urban unskilled work was recruited from China and India, which were land scarce and labour abundant. But overall, it is not wrong to characterise large parts of West Africa and Southeast Asia as forming a ‘land-abundant, high wage’ tropical zone.

What is the problem with high wages? Well, high nominal wages are related a country’s export competitiveness in the export sector, since they are one element of unit labour costs (i.e., how much a business has to pay its workers in order to produce $1 worth of output; ULCs are therefore a product of the nominal wage and labour productivity). But of course there can be a divergence between nominal wages and real wages. We could state a food price dual objective of a developmental state in a land-abundant economy: push real wages high enough to attract workers from farm to factory, but keep nominal wages low enough that output is competitive in world markets. One way to fulfil the dual objective would therefore be to keep food prices low. (The same incentives might apply to extractive or nightwatchmen-type colonial governments as to developmental states: nominal wages formed a large share of colonial budgets, while most colonial governments were more afraid of urban unrest, so a strategy of trying to keep nominal wages low and real wages high might have made political sense for them as well). That said: wages aren’t everything. A while ago, an Australian mining billionaire warned my country that our workers would have to socialise and drink less because they were competing with workers in West Africa who were paid $2 a day. Australians still drink as much as they did in 2012, are still paid very high wages by world standards, and we still export a lot of iron ore. But in an economy that is land-abundant and mainly agricultural, and in which urban manufacturing is likely to be labour-intensive, urban wages are likely to be closely linked to agricultural productivity, and to weigh more heavily on the balance sheets of factory owners than in more capital-abundant countries.

Hence why economic history’s Twitter pope, Pseudoerasmus, asks: should we consider whether food prices act as a constraint on African industrialisation? Labour costs in Africa are high. The price of food in Africa is also high. This is true if we compare the price of the same good in African cities and the US, or if we instead compare to countries at the same level of GDP as the African ones. Thomas Allen calculates that “food prices in sub-Saharan Africa are 30 to 40% more expensive than in the rest of the world at comparable levels of GDP per capita”. Alan Gelb and Anna Diofasi show this in a simple graph (excuse the Stata aesthetics on a religiously R-friendly blog; their chart not mine):

This relationship is quite striking. Allen plots a similar graph, highlighting Asia and the Pacific as well, where food prices seem to be below what one might expect given levels of GDP per capita:

Have African food prices always been higher than in the rest of the world, reflecting some fundamental aspect of their economies, or is it a relatively new phenomenon? To investigate this question I will look at food prices in five tropical cities in the first half of the twentieth century: Dakar and Freetown, in West Africa, and Jakarta, Bangkok and George Town (Penang) in southeast Asia. I take a price series I collected for Dakar and Ewout Frankema and Marlous van Waijenburg’s prices for Freetown, and gather new price series for Jakarta, Bangkok and Penang.

The advantage of choosing these five cities is that all of them were rice-staple cities (i.e., urban unskilled labourers would most likely have consumed large amounts of rice). I can therefore put together a reasonably standard ‘food basket’, that resembles the subsistence basket of the now-standard Robert Allen methodology. That is to say, I calculate the cost of:

  • 184 kilograms of rice (cheapest variety)
  • 3 litres of cooking oil (coconut or peanut oil in Southeast Asia; peanut oil in Dakar; palm oil in Freetown)
  • 3 kilograms of meat (cheapest of fish, beef, pork or mutton)
  • 2 kilograms of sugar

in each city in local currency, which I then convert at market exchange rates to United States dollars. They look like this (the two African cities are plotted in purple and the three Southeast Asian cities are plotted in red). Though it’s a little hard to tell what’s going on, some things jump out: the inflationary period just after the First World War was much more pronounced in West Africa than in Southeast Asia; but the differences were less stark by the end of the Great Depression.

Because this is a bit hard to read, I’ve resorted to something quite aesthetically crude: a colour-coded table. I’ve divided the food basket price in the two West African cities by each of prices in the three Southeast Asian cities, highlighting years where the West African city was more expensive than the Southeast Asian city in red and years when it was cheaper in green:

This table makes it easy to see that generally speaking, Freetown and Dakar were more expensive than the three Southeast Asian towns to which I have compared them, with the exception of Penang, which was somewhat cheaper than Dakar for parts of the 1920s and 1930s.

This evidence, obviously is not conclusive, and I have some more data to collect to flesh out the analysis, but based on series presented above, I’d say that the West African food price problem is not necessarily a recent development, and for that reason it’s worth looking again at the structure of urban food provisioning in West Africa.

Data sources:

  • Freetown — Frankema and van Waijenburg ‘Structural impediments to African growth’.
  • Dakar — Westland, ‘Fruits of the boom’.
  • Jakarta — Indisch Verslag and Statistisch jaaroverzicht van Nederlandsch-Indië, various editions.
  • Penang — Straits Settlements Blue Books, various editions.
  • Bangkok — Statistical Yearbooks of the Kingdom of Siam, various editions.

Website Built with

%d bloggers like this: