AFGHANISTAN NEEDS EXPORTS


U.S. President Barack Obama's “new” policy on Afghanistan has one huge hole. He wants to send in more troops, crush the Taliban, and get out.


But it is very hard to imagine an Afghanistan that is reasonably peaceful and does not generate “terrorism” unless it is reasonably prosperous.


And it is impossible for a country in today's world to be reasonably prosperous without a source of exports or else very high, continuous levels of foreign aid.


No rich country tries to produce everything itself. Rather, it produces certain things in large quantities, which makes for efficiency, and trades those for all the other things its people want.


In this respect, Iraq is much better off than Afghanistan. It has an obvious export, oil. This allows it to import manufactured goods, medicines, and any food items it cannot produce itself.


Before Saddam Hussein, Iraq was quite prosperous and even, in some ways, a model country.


Afghanistan's only obvious export is heroin, and the West does not seem to want to encourage that. There is no other agricultural product with significant potential.


Now, it is quite possible for a country which is poor in natural resources, like Afghanistan, to be prosperous. Look at Japan, Singapore, South Korea, Switzerland, and territories like Hong Kong and Taiwan.


All of these countries base their wealth on exports of manufactured goods and/or on their financial or trade industries.


Afghanistan is not on a major trade route. It does not have the money to get a financial sector going. The only possibility seems to be for it to export manufactured goods.


Like any poor country, it has one big advantage for industrial production – cheap labour. But it also has many impediments to the establishment of industry.


Industry tends to establish where there is already other industry to provide inputs and to buy the output. It is not attracted by unstable, war-torn countries with high levels of corruption and low levels of education.


This is a vicious cycle. Poverty, war, corruption, and the lack of existing industry discourage industry. But without industry, how can Afghanistan become prosperous and stable? Is there a way to break the cycle?


History suggests that there just might be. Back in the 1950's and 60's, when the U.S. felt threatened by the spread of communism, it instituted massive aid programs in both Taiwan and South Korea. Seems it felt a need to prove that capitalism works.


These aid programs were focused on industry.


Allowing for inflation, the amount provided to both would have been equivalent to something like $100 per person per year. This went on for a decade.


And both places did industrialize and went from poverty to considerable prosperity. I would not claim that this proves a cause-and-effect relationship, but it is suggestive.


Large aid flows are being provided now to both Iraq and Afghanistan. In the former, they amount to around $300 per person per year, and in the latter, to about half that. So the levels already compare favourably to those which were followed by industrialization in Taiwan and South Korea.


But Afghanistan, in particular, seems likely to be very difficult to industrialize, and programs in place are not even aimed at industrialization. They are aimed at things like building schools, clinics, and water supplies.


These are well and good, but if Afghanistan has no exports to pay for some imports, the schools will get no books. The clinics will have no medicines. And the water systems will fall into disrepair for lack of parts.


If the West really wants to help, it needs to think about how to let Afghanistan participate in the world economy. This does not seem to be getting any thought at all, as far as I can tell.


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