Monday, July 14, 2014

KICK SENTIMENTALITY OUT THE WINDOW, TO FIGHT POVERTY

In the aftermath of the budget speech many commentators have questioned the wisdom of imposing taxes on agricultural inputs. They complain that these taxes will make it more difficult for rural populations the majority of who derive their sustenance from the land. They argue that government is offering no or little support to agriculture and should not tax the farmers.

They may very well be right.

The taxes, more specifically VAT on everything from hoes to machinery, may increase their costs, may very well make agriculture unviable for many and may even jeopardize food security (though I highly doubt it).

On a broader level there is the question of poverty it's prevalence and our efforts to alleviate and, hopefully eventually eradicate it.

The way we measure poverty -- people who live on less than a dollar a day, suggests that most of the poor are in the rural areas and mostly in the north and the east. By this measure the country has been doing famously in lowering the proportion of the poor among us -- we down to about 20 percent from two decades ago when about half the population lived below the poverty line.

Of course the anecdotal evidence suggests otherwise.

"It's safe to say our measure of poverty is more statistical than anything -- if you put your head In a fridge and your feet in a furnace on average you will be ok; are colored by the local and international politics and really don't get to the bottom of the issue, which is how do we raise incomes across the board and when we do so how can we ensure that the people keep more and more of their expanding incomes, the true measure of poverty eradication...

We are obviously going about it the wrong way. If you wanted to alleviate sadness in your life wouldn't it make sense to aim for more happiness, which is the opposite of sadness, rather than aim for less frowning or pouting?

So the question then becomes how do we increase the wealth of our people? 

Straight off the bat we need to recalibrate our economic classifications, it takes more than earning a dollar a day to vault out of poverty. Also that poverty is not just a rural phenomenon -- some of the worst occurrences of abject poverty can be found barely meters off Kampala road.

Studies have shown that improved education leads to higher incomes. It is also obvious the healthier you are the more you can work and therefore the more you can earn. And of course the better the social -- security and institutions, and physical -- communications and energy, infrastructure the better the general economy can grow and therefore allow more and more people to benefit.

But we also know that often times the 80/20 rule or variations of it will apply in the distribution of income and wealth: twenty percent of the population will earn or control 80 percent of the income or wealth. Utopia is a fantasy.

Since we are now aiming for more wealth rather than less poverty it would be instrumental to study the top 20 percent, in the hope that we can trickle down a bit of their knowhow for the benefit of more people. Also in the process while we might not shatter the 80/20 rule at least we will have grown a bigger pie so that everyone has more.

A look down the ranks of the largest tax payers will show up some differences from our farmers. To begin with they pay more taxes, infinitely so seeing as our farmers pay none at all, and they have not collapsed. How do they do it?

Our biggest companies leverage partnerships with investors, banks and because of their size, even governments. Farmer Mukasa, Okello or Asedri trying to eke the last drop of nutrients from his plot is at a decided disadvantage in trying to go it alone.

But the first companies were not created or sustained out of camaraderie of their founders but out of a need to mitigate against risk. They were compelled to do so.

Our farmers have remained largely subsistence. Why bother getting more organized when you have a tax free status? They need some compulsion to get organized, produce more and keep more -- by the way the tax laws are rather lenient with people amassing assets.

People are quick to point out that western governments are lenient on their farmers in order to keep them in business. That does not mean their lands, inputs and incomes are not taxed.

But they also forget the history of the agricultural revolution. The western farmers with less than ideal climate and soils were forced to be more organized to grow food to not only last through the year from one season but also to feed the thinkers and soldiers. We obviously do not have the advantage of poor weather and marginal soils but nevertheless need an external compulsion to get the falling productivity of our lands up to a place where we can seriously talk about poverty....sorry, wealth creation for all...

Another way to increase national productivity would be to enslave all the marginal workers -- read the rural population, aggregate their lands and set up huge agroprocessing industries where they can work. This might do nothing for improving welfare for the general population but would have the statisticians licking their chops at the ballooning per capita incomes.

Viewed against this, taxation does not look so bad, does it?

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