NRM DAY: THE LIBERALISED ECONOMY IS THE GIFT THAT KEEPS GIVING

Yesterday we commemorated the National Resistance Movement (NRM) day.

This time 39 years ago, the NRM had taken over control of a country riven with political instability and an economy that was barely on its feet.

As President Yoweri Museveni’s government tried to establish control over all of Uganda, the resuscitation of the economy could not wait.

"The economy had regressed to below 1970 levels, industrial production had collapsed, infrastructure was dilapidated and barely any new capacity had been added in two decades, coffee dominated the economy, providing most of the tax revenues and almost all export receipts...

This would have been all very fine if the population growth had followed the economy’s negative trend, but there were twice as many Ugandans in 1986 as at Independence, putting increasing strain on a stuttering economy.

From a purely intellectual level the solution was simple, increase production to create jobs, mobilise tax revenues to support, much needed infrastructure rehabilitation and key social services.

Easier said than done.

At the time, government had dozens of companies doing everything from supermarkets to fishnet making, that were producing below capacity, remitting little to no revenues to the treasury, while their payrolls and running costs were putting immense pressure on the budget. They were mismanaged, had fallen into disrepair and to resuscitate them would cost a lot of money. Monies the government did not have.

Initially, government since there was little tax revenue coming in, thought it could print money and finance the rehabilitation of these industries, get production up and running and everything would be ok. But the laws of economics will not be mocked and they soon found themselves battling runaway inflation, which frustrated any efforts to get the economy up and running again.

At the height of the inflation pressures , prices were doubling every three months.

Inflation the increase in prices, is a disincentive to production. Because it is difficult to plan for the future, discourages consumption, putting a ceiling on demand, hence frustrating expansion of production. A vicious cycle.

So to get the economy up and running they had to source funding abroad. The external funders were not our mothers. There was little charity to be had. They offered to lend us the money, on condition that we liberalise the economy, especially by breaking up the state owned monopolies, selling them off and opening up their respective sectors to competition.

The idea was that if we instituted these reforms, they would have a better chance of getting repaid.

While foreign capital with greater pools of money to back it up, ended up taking the juicier companies, removing the yoke of state owned monopolies, gave opportunities for Ugandans to go into general trade and industry.

Now the retail trade, transport, real estate development and most other economic activity is dominated by private players and the Ugandan consumer is the better for it, enjoying wide availability and choice of almost any commodities.

This liberalization of the economy, which unlocked individual initiative, has made the general economy more robust and able to weather the occasional storm, may be the biggest economic legacy of the NRM in general and Museveni era in particular.

I shudder to think what would have happened if government still had a monopoly over supermarkets, transport, telecommunications and banking, how things would be today.

The critics argue that today the economy does not work for the everyday man,  that a few people – mostly the urban elite, are benefitting disproportionately from the economic gains of the last four decades. And they will be right.

But their recommendation to disband the market economy and revert to a more centrally controlled economy would be wrong and setting the economy up for failure.

First of all, the market does not promise equitable distribution of benefits. In fact, left to its own devices it will ensure that the rich become richer and the poor become poorer. The promise of the market is that in the right environment, it grows the wealth of the economy. There is no other known mechanism that can do that more efficiently.

The distribution of this expansion of wealth lies solely with the government.

If the private sector is failing to grow wealth, blame the government for not creating the conducive environment for them to thrive. In an environment where the economy is growing consistently, but the income and wealth disparities are widening, blame it on the government.

Government through the taxation of economic activity funds, the maintenance of peace and security, building of infrastructure, social services and other public goods. In so doing they not only enhance the enabling environment for the private sector to thrive, but also improve the citizens capacities to take advantage of the improved economic situation.

So from the above, if an economy is working and but not for the everyday man its an indictment on government and not the market.

The people calling for a return to the controlled economy, think, wrongly, that the economy collapsed in the 1970s and 1980s for lack of money, and now since the government revenues have risen 100 fold they can take back the “commanding heights of the economy”.

That’s the reason they tell us all.

Me thinks, failing to operate in a competitive environment, they want government to get back into business so that criteria, other than merit and performance – like family and tribe, can once again apply to accessing opportunity.