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.
