Why “developed” will remain a dream – An ideological perspective

previously published on http://nairobilawmonthly.com/index.php/2016/06/30/why-developed-will-remain-a-dream-the-script-we-all-seem-to-be-missing/

By Shadrack Muyesu

Having started out on the same platform, we suddenly find ourselves more than fifty years behind the East. Pointedly, our mercantilist policies are to blame, with the biggest symptom being the land problem. As a young nation, we distinguished ourselves as capitalists, but only in theory. Far beyond subscribing to market ideals, the independence government sought to nationalise and regulate state resources, and when it had to distribute them, it did so only to a few “government-friendly” individuals.

Recovered crown land was, for instance, shared out to a handful of Kikuyu henchmen who never developed it, leaving a large number of Kikuyus, the original owners, landless. Public investment in state-run corporations was consistently preferred over private ventures. Such entities emphasised providing cheap services over making profits. Run by unqualified politically correct personnel, the result was lax. Riddled with corruption, these entities degenerated to the fallen institutions we know today.

As it is, Kenya is a lower middle income state, a status which, it must be emphasised, is as a result of economic manipulation in rebasing rather than meticulous planning or working systems. Markedly, the economy continues to grow albeit at a slower rate. We all agree however, that we are far behind and need to grow faster. Public spending on infrastructure is the way we have chosen – a novel idea really, the best even, but with this comes the question of cost. The money we need to fund our projects can only be raised by adopting one of two choices. We can multiply production, create surpluses and thus improve our export revenues, or we can just borrow and bank on returns from wise investment. The former route means restructuring our goals to make food security and tourism our immediate priorities, while leaving grand highways and high-rise buildings for a later date.

Not only long and boring, the later does not offer the allure of easy cash. So we have chosen borrowing.

But should it be so? Unlike the West, our society is predominantly rural with agriculture accounting for more than 30 per cent of our net foreign income. And as Robert Bates argues, when a society is predominantly rural, then the surplus necessary for industrialisation must come from the rural sector; this means the commercialisation of agriculture and the export of finished products as opposed to raw materials.

Cheap pricing and adequate production can, however, not be achieved naturally since we still suffer from an acute lack of technology, which condemns per unit production costs to remain high. We can only achieve this through coercive means. While the application of such coercion was used so successfully to catapult industrialisation in latter industrials, African and indeed successive Kenyan regimes have been reluctant to invoke it for fear of the risk of political incorrectness and urban revolt – a phenomenon best captured by Michael Lipton’s Urban Bias theory.

In his book “Why the Poor Remain Poor”, Lipton correctly identifies shortage of quality affordable foods to be the overriding concern for the city. Containing a higher population of educated persons, the city forms policy and enjoys a higher bargaining clout. This translates to a host of policies that prioritise city concerns while overlooking the villages. Since food prices have to be affordable in the city, the cost of production is dumped with the rural poor – the farmers.

Meanwhile, scare resources, instead of going into “water pumps to grow rice, is wasted on urban motor ways”. And Theodore Schultz (1990) agrees. He notes that agricultural prices are highly distorted in Africa. Why? To “ease the cost of living”, the prices of goods are determined more by legislative action rather than by market forces, leaving us with many subsidised commodities. But the reality is, subsidised consumer commodities mean that farmers cannot get value for their products. As such, they cannot produce enough for consumption and surplus for export, driving the cost of production upwards in the process.

This is the reasoning behind the fall we are seeing for maize prices in spite of the heavy rains and the price wars between cane, tea and coffee farmers and factories. Instead of simply liberalising the market, successive governments have consistently sought to plug dangerous cracks through bailouts!

Reluctant capitalists

We have consistently exported raw or unfinished products only to import the finished goods later at much higher prices, condemning us to perpetually low returns from an agriculture industry with otherwise so much potential. So much is said about the Asian experience, but the one thing they did perfectly, which has so far eluded successive Kenyan regimes, is taking advantage a predominantly liberal worldwide market economy that allowed latter start-ups to import technology, apply it and produce finished products, hence competing favourably with the rest of the world.

Francis Fukuyama assesses Asian success to be hinged upon five primary factors, all of which have been missing in our own system. He talks about the need to import technology; the need to invest in sustainable human capital to apply this technology by exporting cheap labour to industrialised nations to learn then come back; the need to invest in technical education; the need to export finished products; and most importantly, the need to allow market forces to apply in a capitalist environment. But as already shown, our regime is mercantilist; a reluctant capitalist at best.

Developing the theory of coerced development I had mentioned earlier, it’s perhaps time we recognised that socialist central planning catalysed industrialization in a single generation for many second generation industrial states. The Soviet Union realised this through squeezing its agriculture in a regime of, according Fukuyama, outright terror in the 1920s – a process that had taken early industrials centuries to accomplish through non coercive means.

Although “uncommunist”, Far East regimes were not immune to coercion either. Successive authoritative regimes consistently sacrificed social justice at the altar economic success. Successive governments applied draconian policies so as to reduce consumer demand and enforce a culture of saving. It is this culture, though unpopular to start with, that guaranteed surplus and provided capital for public investment. China has actually enjoyed an average growth of 8pc per annum even though it’s a one-party regime. Josef Stalin used exactly the same system when he forced savings of the industrial working class after people moved to the city. He increased taxes and made mandatory the act of saving with saving schemes. The subtle wisdom in all this is that when people are allowed to earn their money, it’s easier to tax them more.

The role played by “benevolent dictators” in the economic resurgence of nations such as Ethiopia, Rwanda, Libya and Egypt means that the successes of authoritarianism haven’t been savoured by the Far East states alone. Places such as Chile, Taiwan and South Korea actually experienced slower growth after they had democratised! Emergent Western states were also not as democratic when they started out and grew so rapidly to gain First Word status. In “Indianomix – Making Sense of Modern India”, Vivek Dehejia and Rupa

Subramanya acknowledge this fact when they write: “periods of very high economic growth in the 20th century are associated with autocratic, not democratic regimes”. They go as far as invoking these principles as an explanation behind the slow growth of India relative to China.

Parallel to coercion, our proudest moment as a nation undoubtedly came with the promulgation of the Constitution, 2010. Beyond all else, this Constitution affirmed our status as modern democracy by guaranteeing the rule of law and the protection of human rights. On this alone, we were elevated to the same pedestal as progressive Western regimes. The latent features of democracy, however, mean that we condemned ourselves to the slow industrialisation of early Western industrials. While good, democracy is not only deceptively slow, it is also quite counterproductive in multi layered cultural societies such as ours – a fact which Fukuyama himself acknowledges.

Democracy is pillared on public participation. Where, as in Kenya, the public remains primitive (poor, uneducated, uninformed and dominated by subsistence growers and workers as opposed to entrepreneurs) any participation from them is toxic. But that’s not all. Extensive democracies result in large governments which are expensive to run. Money that should fund growth ends up in recurrent expenditure. Lastly, judging from the Kenyan experience, within a primitive society, democracy hardly punishes socio-economic crimes such as corruption – a dark hole that consumes more than a quarter of our budget every year!

It’s not the purpose of this article to denounce democracy. In any case, an attempt at such denunciation would risk the wrath of our “constitutional elites”. The article only observes that democracy is a better consolidator of industrialisation and a very poor catalyst to such industrialisation. In reverse, autocracy is a better catalyst of industrialisation and a very poor consolidator of it.

Far East regimes such as South Korea are deemed to have developed due to their dictators’ policy choices, yet the invocation of such remains impossible with the continued presence of the constitution. A clipped presidency and separation of powers means that even the democratic alternative power of “executive orders” is very hard to invoke. It’s too late to do away with democracy but we can at least modify it. For growths’ sake, amending the Constitution to reduce the size of government and increase presidential powers is not implausible. But first we need to have the right person in place lest we surrender national resources to an unworthy character.

The long and short of it is that, in so far as two very critical points are concerned, the investment module and the nature of government, Kenya has dropped the ball. We cannot continue to rely on external resources while we overlook rallying our internal resources. As history has consistently proven, agriculture ought to have been the focal point of our economic growth, maximum benefit from which can only be achieved through a faithful adherence to capitalist – not mercantilist – ideals. Market coercion can only be realised by an authoritarian regime, not the “robust democracy” with which we pride ourselves.

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