by Federico Tadei (University of Barcelona)
This blog is based on the author’s article which has been published on The Economic History Review: https://onlinelibrary.wiley.com/doi/10.1111/ehr.13107.
It has often been claimed that the structure of export trade between Africa and Europe during the colonial period depended on the colonizer’s identity, with the British relying on free trade and the French, in contrast, making greater use of their political power to establish trade monopsonies and acquire African goods at prices lower than those available in world markets. However, was this actually the case? Even in the British colonies, trading companies with de facto market power operated since the nineteenth century, even though discriminatory tariffs and official monopsonies were introduced only in the 1930s.
Whether the British colonies enjoyed the benefits of free trade more than French colonies is thus an empirical question. Were the British effectively relying more on free trade? Was the market power of trading firms operating under the two colonial powers different, and, did producers in Africa who lived under British rule benefit from higher competition among trading companies by receiving higher prices than those living under French rule?
To answer these questions, I measure the degree of trade competitiveness under the two colonial powers by computing profit margins for trading companies operating in British and French African colonies. I use African export prices and European import prices for various agricultural commodities exported between 1898 and 1939, and estimate trade costs between Africa and Europe. The rationale behind this methodology is simple: with free trade, the profit margins of trading companies should be close to zero.
Having constructed profit estimates, I test whether the market power of trading companies was determined by the identity of the colonizer. For example, did the British rely on free trade more than the French, or was market power affected by other factors, such as local conditions in the colonies, which facilitated or prevented the establishment of monopsonies?
The results show that, on average, profit margins in the British colonies were lower than in the French colonies, suggesting a higher reliance on free trade in the British Empire. However, if we compare the two colonial powers within the same region, it appears that the actual extent of free trade depended more on the conditions in the colonies than on the colonizers’ formal policies. Profit margins were statistically indistinguishable from zero in British East Africa, suggesting free trade, but equally large in both British and French West Africa, highlighting that West African colonies experienced substantial monopsonies both under the British and under the French (Figure 2).
Why were profit margins lower in East Africa than West Africa? To answer this question, I explore how the implementation of monopsonies was affected by the history of trade relationships between Africa and Europe, and the type of producers. In West Africa, the long history of trade and the higher level of commercialization reduced the operational costs of monopsonistic trading companies. Contemporaneously, most agricultural production came from small African farmers with little political power who lacked the ability to oppose the establishment of monopsonies. In contrast, in East Africa, the modes of production were more heterogeneous, and European settlers and plantation companies played a more significant role than in West Africa. When agricultural production was governed by Europeans who had much greater political influence compared to the colonial and metropolitan government, the cost of enforcing monopsonistic practices increased.
Overall, the results challenge the view that British colonizers were champions of free trade. Besides formal policies, other factors operated to determine the actual extent of free trade in the African colonies. The level of profit margins was influenced much more by local conditions in Africa (history of trade and the presence of European producers), than by the identity of the colonial power. The British did not necessarily rely on free trade more than the French; they did so only when implementing monopsonies was not a viable option.
To contact the author: email@example.com, @FedericoTadei