WHY DO WE FEAR THE MARKET?

It has been three decades since economic reforms kicked off with the currency reform of 1987.

Since then government has privatised its large portfolio of companies and broke up the monopolies that these controlled.

For a near bankrupt economy this was just what the doctor ordered.

The truth is government had no room to manoeuver other than shed these haemorrhaging companies, release their assets to productive players in a last ditch attempt to jump start the economy.

This is after the NRA straight out of the bush tried everything from price controls, commodity rationing, barter trade and came up against the reality that the only way to get the economy going was to fire up production, which its derelict companies were unable to do.

So with a lot of reluctance, they turned to the market for help.

"By privatising the companies and liberalising markets they improved the environment for doing business in Uganda...

Coffee farmers started getting paid in cash for their crop instead of the chits they got from the government marketing boards that would take months to be paid out, if ever. We stopped importing sugar, sodas, beers, blue band and even bread because were now producing them locally.  On shoulders of those initial reforms we have seen improvements in everything from banking to telecommunications; from education to health care (if you think our health services are bad now you should have been around in 1987), in everyone of these instances it was the private sector jumping where government was failing.

There have been mistakes of course. Neither the victors nor the bureaucracy they found in place had a clue about what it takes for a market driven economy to work optimally and their role in making this happen.

So they took advice from the donors who were driven by a desire to return the country’s economy to a functioning state rather than trigger transformation.

The trouble with the market is that left to its own devices, it is a terrible distributor of the value it creates, concentrating it with the owners of capital, to the detriment of labour and the poor.

A competent and patriotic state not only restrains the market players’ instincts for primitive accumulation but also facilitates them to be innovative and produce for the larger population.

The colonial state for instance facilitated the extraction of value for the benefit of the capitalists in Europe with little regard to the welfare of indigenous populations. That is how at independence we had about 300 A-level students out of a population of seven million people, if you extrapolate it today, with 40 million population we would have under 2,000 A-level students.

Without investing in people, governments cannot expect to cause economic transformation.

So the inadequacies in government over the last three decades means while we have had the longest continuous stretch of economic growth since the creation of Uganda, this has not been spread equitably.

It’s not difficult to see why this is so.

For starters with seven in ten Ugandans deriving their livelihood from the land, agriculture accounts for under 30 percent of GDP. Agriculture’s share of GDP has fallen sharply from almost 80 percent in 1986 as services and industry have grown as a proportion of the total economy.

In more developed economies agriculture accounts for an even smaller percentage of the economy but so do the people who depend on it for sustenance. Industry has sucked up the labour from the rural areas, which has led to consolidation of farms and greater mechanisation.

Relatedly while most Ugandans rely on agriculture, output in this sector has been anaemic, not keeping up with the growth in services and industry.

As a result in the last three decades the biggest beneficiaries of the economic growth have been urban dwellers, who have not only seen their incomes but also their standard of living rising.

It has been claimed that Kampala for instance accounts for 60 percent of the nation’s GDP since most of the value addition, services and industry are located there. If we were to be conservative and say half of Uganda’s $25b GDP is generated in Kampala and parcel this amongst the city’s two million daytime population the per capita GDP of Kampala is about $6000 almost ten times more than the national figure of $600...

This obvious inequality is being seen as a market failure, being held up as a red flag and reason for a greater state intervention in the economy and even more scary, a return to era of the state enterprise.

First of all what do you expect from a pig than a grunt. The market while being the most effective creator of wealth or growth is the worst distributor of these, as mentioned earlier.

There is nowhere in the world where the market left alone can result in an equitable society. It is the job of government to not only facilitate the development of the market but to distribute its gains to the people.

"If there are huge inequalities in a society, more so in a growing economy like Uganda’s, this is an indictment of government not on the market...

The market is doing fine, as evidenced by the continuous growth over the years. So it is counterintuitive to give more and more control of the economy to the same sector that has failed to facilitate equitable development.

Actually we should be more afraid of greater state intervention (read state enterprises) than the market. The market is the devil we know and the means to leverage it for transformation and equitable development are known and all around us.

There is a role for governments to play in facilitating growth and development by underwriting the security of person and property, infrastructure development and the provision of social services. In addition they can underwrite research and development.

All this on the basis of a national strategies aimed at exploiting our competitive advantages and creating new markets. They need not start state enterprises to do that.

The argument that countries in Asia relied on state enterprises to jumpstart their economies after the Second World War has its loop holes.

The more successful Asian tigers – Japan, South Korea, Singapore and Taiwan, relied on strategic support of the private sector to drive their export led growth agendas.

And secondly if those same countries were to copy what the western economies had done to develop, should they have tried their hand at colonialism and slavery, because it had worked for western economies?