Tuesday, July 13, 2010

ONLY FOOLS DON’T CHANGE THEIR MINDS

At the launch of the book “Uganda’s Economic Reform” last week President Yoweri Museveni said that a return to a more active role in the economy by government is being seriously considered, he however played down fears that this would constitute a policy reversal, a return to the inefficient, finance sapping parastatals of yesteryear.
One can understand what is prompting this thinking . In his recent countrywide tours the President could not have helped noticing how the economic recovery of the last 25 years has disproportionately benefitted the urban over the rural areas - the last I heard more than 70% of Uganda’s economic activity is concentrated in Kampala.
This should come as no surprise. A laissez faire economy as we have been laboring under since the late 1980s, tends to concentrate rather than distribute resources.
During the period government has extricated itself from doing business through privatization and liberalization a situation which has led to an upsurge in production, greater job creation and high tax revenues.
Prior to this government’s experience with business was woeful, with parastatals unable to operate on their own steam, proving a constant drain on government resources and making the management of the macro-economic environment impossible .
So to rein in government expenditure and therefore inflation and to increase production the lode stone of the parastatal sector had to go. And that logic still holds.
However, the predictable consequence of letting the private sector decide on the allocation of resources means they are often unwilling to venture into uncharted territory and markets and are reluctant to make the large scale investments that will have a transformative effect on the large parts of the economy.
Capital they say, is a coward gravitating only to areas where profit is assured like the retail, transport and basic services sectors and avoids areas where heavy investment is needed and the risk is higher – heavy industry and infrastructure development.
Inevitably the more densely populated, better facilitated urban centers are the major beneficiaries in a laissez faire economy.
Historically the state in the more developed economies, has intervened to smooth out the market uncertainties through favourable – often illegal, economic policy, setting up corporations, forming partnerships with the private sector and/ or facilitating the private sector growth through subsidies, underwriting research & development and infrastructure development.
The argument by third world commentators is often, if they are doing it why are they stopping us from doing it as well. As valid an argument as any other.
Economic history will show that the developed economies were very protectionist of their nascent industries and continue to be so for “strategic” sectors of the economy and the same history will also show that no economy has managed any reasonable development without government intervention.
Businessmen however will cry foul, protesting they are unable to spread the love more evenly. They will point to poor transport networks, inconsistent power and the high cost of finance as being at the root of this failing. And they will be right. The concentration f the benefits of two decades of economic growth are more a function of government rather than business sector failure.
So given the government’s history in and out of business, a return to the days of the parastatal will only make economy watchers like myself superstars when predicted failure materializes.
Why? Because nothing has changed. Parastatals saddled with motives beyond commercial success will suffer doubly so in an environment of frequent load shedding, high transport, unproductive labour and extortionist credit. And because by definition they will be too large to fail, constant government babying will only exacerbate their inefficiencies.
But we all agree government needs to be more involved in directing the economy. What then should the nature of this involvement be?
To begin with government needs to invest more time in the formulation of a long term national development strategy, beyond the papers it generates to get donor support .
Because it is this strategy that will inform interventions in infrastructure, research and development, human resource advancement, investor incentives and private sector collaboration, with the long term view of moving us from “Third world to first in one generation”
At an even more basic level can government improve the road network, get the railway going, provide consistent and inexpensive electricity, improve the quality of education and health services, eliminate corruption, expedite the judicial process…

Published April 2010, New Vision

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