Tuesday, May 23, 2017

THE CHAOS THEORY AND HOW WE GOT TO WHERE WE ARE

I happened upon “Chaos Theory” not in a classroom –Thank God! But in the pages of Michael Crichton’s “Jurassic Park”. It is basically that small changes can lead to large unintended consequences. That a butterfly flapping its wings in Japan can cause a storm across the world in New York.

This was the week to examine the chaos theory as it applies to Uganda’s economy specifically.
Former Democratic Party Chairman Boniface Byanyima passed on last week and at a vigil for the pioneering politician, President Yoweri Museveni revealed that Byanyima worried that Museveni was tending towards communism and tried to dissuade him.

It was fashionable for any young political firebrand of the time to flirt with communism, the theory that all property should be publicly owned and everyone paid according to their ability and needs.

"It is doubtful whether Museveni, if he  had hang on to his communist credentials would still be in power today or whether the economy would have been resuscitated after 1986....

On the other hand his knowledge of dialectical materialism, which is the Marxist theory that provides that changes in political and historical events come as result of a struggle between social forces based on material needs may have helped his analysis of the situation and ditched any past romance with communism.

In 1986 the country’s coffers were empty after almost two decades of misrule. However there was an urgent need to get the economy ticking again if only to sustain the regime in power. The critics of capitalism or the free market economy are numerous, but there has been no other system in human history able to create economic growth at the rate at which it has happened since the Second World War.

By adopting a series of IMF and World Bank prescriptions – privatisation of state enterprises, liberalisation of markets and emphasis on a stable macro-economic environment two things were achieved. First, that the aid taps started flowing helping rehabilitate the infrastructure and give confidence to private investors to follow suit. Secondly by breaking up the state monopolies and opening up the economic space, private initiative long suppressed by inefficient government entities, was unleashed.

But also communism was crumbling at the time, whereas the collapse of the Berlin Wall was still three years away the signs were already evident in the USSR and behind the iron curtain in Eastern Europe. The USSR could scarcely bankroll the communist experiment when bread lines were forming at home.

The economy only recovered to its 1970 levels just before 2000.

Prior to that butterflies flapping wings had brought forth the Euro in January 1999; in Afghanistan had led to attack on the Twin Towers in New York on 9th September 2001; which accelerated the dotcom bubble burst and which led to the global financial crisis in 2008.

These event far from our shores have led to a build-up of the military industrial complex and a more inward looking population in the donor nations, leading to a turning off, or at least, reduced aid.
Increased revenue collections – thanks to our commitment to macroeconomic stability, meant that as the aid taps run dry we could at least tread water as we re-calibrate how development will be achieved in the brave new world.

Also the rise of China, which in the late 1970s begun to look for other ways to catch the mouse beyond a dogmatic adherence to communism, meant that there more alternatives for aid and foreign direct investment.

And the last week the IMF said they had downgrade their growth forecasts for Uganda this year to 3.5 percent from five percent on account of the poor harvests and less than planned roll out of key infrastructure investments. They added though that they see growth returning to the six percent level within the next two years.

We are at cross roads. Our emphasis on infrastructure development while long overdue are now happening and the benefits will begin to show themselves shortly.

Urgently we need to improve the environment for businesses to thrive and create the much needed jobs for the hundreds of thousands of new entrants to the job market annually.

"I sense a tendency to think the government will create the jobs, which goes against hundreds of years of economic history and good development sense...

Governments do not create jobs and by extension wealth, the civil service should not be the biggest employer in an economy. But rather governments should create the environment that allows businesses to create the jobs.

Let us not look to exceptions to the rule to justify our planned economic adventurism, stick to the time tested road  -- maintain macroeconomic stability and remove the barriers to business,  and it is almost a mathematical certainty that we will pull out of our current economic malaise.

That and the hope that the right butterflies have already flapped their wings.

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