Friday, October 10, 2014
Posted By: Nomonanoto Sidama | At: 10/10/2014 06:28:00 AM
By Teshome Abebe
nazret.com - In my last article titled “A Matter of Conscience or Strategy”, I wrote about wining. In that piece, I suggested that wining is not always being first but doing things better than one has ever done before. In this article, I wish to suggest that Ethiopia is a country that is truly looking to the future. As a consequence, it is indeed ‘a nation in a rush’. Let me explain.
The first principle of economics is that we cannot have everything we want. Because resources are so limited (abundance is not the theme of economic science) compared to our wants, we are all forced to make choices that, by necessity, require trade-offs. This is inevitable at the individual level as it is also true at the national level. And one of the goals of economic policy is to attempt to raise the standard of living of citizens. Whether one agrees with it or not, and there are genuine and differing opinions here, Ethiopia has been attempting to raise the standard of living of its citizens.
One of the key factors in raising the living standards of people is to raise their level of productivity. This is straightforward and simple, and requires no further justification here. Raising the productivity of a nation, however, requires the existence and combination of several factors. For instance, to increase worker productivity, a country has to make investments in education and training, in physical capital (such as machines, tools, equipment, warehouses, roads, airports, bridges, schools, computers and the like), and improve research and development as well. All these increase worker productivity.
Another major component of productivity is the availability and deployment of technology in the production process. But this is easier said than done because it is not as automatic as it appears to be, and depends on another economic principle: incentives matter. Incentives are not as abstract as they appear. Why you get up in the morning and head to work, how many hours you work in the day, how you plan your vacations, how you assist family members and in what manner you do so, why you get married and, in some cases, why you get divorced, how many children you decide to have, and so forth, are all influenced by incentives. I am reminded of my own childhood. The five o’clock wakeups in the morning, the runs to school, the late afternoon rush from school, and the weekend ‘ferekas’ in a commitment to assist parents with farm work, were all influenced by incentives. Under these circumstances, ‘calling’ in sick was a betrayal of the entire community—yours and theirs.
Individuals who have the right incentives to innovate, invent, invest as well as take risks in their future through education or the application of innovation in their products are extremely important if an economy is to grow and develop in the long term. But this in turn requires an economy (market) that is stable, free and unencumbered with unnecessary controls. Such a market, of course, requires political stability, national security, an effective legal and criminal justice system, disease and disaster control, a stable monetary system, and, above all, institutions that are well functioning and with good governance. I emphasize institutions because they have a lasting impact on what is really important. The fact that bad policies could be changed overnight but not bad institutions illustrates that the enduring value of good institutions is superior to policies. Needless to say that an environment drowning in conflict, war, corruption, illiteracy, disease and strangled by regulation and control will not bring about an improvement in the standard of living. Furthermore, Ethiopians do not need a social scientist like me telling them of these truths! What I will state emphatically, however, is that economists of all shades and inclinations have concluded that a root cause of the failure of so many countries to grow out of poverty is political.
So, why is this a story of a nation in a rush? It is so, because Ethiopia is in a rush to develop as fast as possible. The country is attempting to develop it’s rivers, lakes and what remains of its forests; it is attempting to develop its roads, airports, rail links and bridges; it is attempting to improve its schools, universities and institutes; it is attempting to improve its institutions both social as well as political; and it is attempting to develop and improve its health provisions, particularly maternal health. It is attempting to do so with deliberate speed and under conditions of limited resources. In a broad sense, it is attempting to raise the standard of living for its citizens by articulating policies of economic growth and development.
Today, economic development doesn’t necessarily follow a unilinear path of progress like the development from crawling to standing to walking. Different development issues may evolve all at the same time, requiring a plurality of sequences and systems. In addition, the policy of economic growth and development under both the conditions of global crisis as well as global cooperation requires enormous dexterity, intelligence, planning, anticipation and frequent adjustments. In turn, this requires the engagement of every one, including the best and most talented minds that a nation could assemble.
In a rush, the nation is attempting to produce young women and men with the combination of talent, hunger and opportunity to build the country anew. I believe that my generation had the talent and the hunger, but not the real opportunity. It has always been the case, and the past several decades have provided proof, that talent flows to those who nurture a culture of achievement, an opportunity for growth and individual possibilities, as well as provide a measure of safety and security. The student movements of the sixties and seventies provided the initial impetus for change before that was hijacked and snuffed by the only organized group in the country at the time—the military. It is now up to the new generation to finish what was started then, and the generation after that to consolidate whatever gains achieved. John Schulian, a sports writer, quotes one of his subjects as having said, “We all grew up poor, and poor boys fight the wars for their country.” The war we tried to fight was poverty, underdevelopment and backwardness. Poverty in Ethiopia is everyone’s war, and everyone must fight it. This task will not be easy or straightforward. As in the past, we can be sure that the complexities for achievement will continue to multiply exponentially as production processes become more intellectualized, more environment friendly with more non-waste technologies; and information, education and medical services become dominant forms of consumption as in already developed societies. The progress the country should be making in all forms of technologies; information processing; telecommunication systems; political and civil rights; and financial innovations are daunting, and will, in part, determine if the war on poverty will be won.
As a result, and gradually, the breakneck speed at which the nation is seemingly attempting to fix things and catch up to the rest of the world by ‘doing things better’ is getting noticed. Multinational corporations have begun racing to take advantage of the prevailing low cost of labor, and some have even located their operations there. Addis Ababa itself is hosting so many international conferences that the shortage of good hotels has become a new concern. While most direct foreign investment is in and around Addis itself, there are a few agri-business interests that are scouring the country looking for ‘cheap’ land leases so that they can grow whatever it is they cultivate and sell in the international or home country markets. A recent report in Harpers magazine outlined how one such entity developed tracts of land for rice production intended for foreign markets.
The justifications for such deals include: that they create job opportunities for the locals, that they help develop land which otherwise would have never been developed, create a form of technology transfer, and help earn foreign currency when the produce is sold to overseas markets. Rather than debate the merits of these arguments and arrangements in this piece, one can genuinely make the case that for economic development to be broadly shared and of lasting consequence, it would have to be based on the proper ‘exploitation’ of resources as opposed to development by expropriation. Yes, it is possible to have economic development and growth in either case. A case in point is the United States and Europe. The United States benefited from free labor as it was developing, and Western Europe had its colonies, which supplied all needed raw material! But economic development that is thoughtful and takes local interests into account would have more lasting value and generate greater multiplier effects than development and growth gained by expropriation.
A second, and related point to consider is that financial capital (as most real estate, farm, horticulture investments seemingly are) is more mobile than industrial capital, and when truly liquid, it easily flows into new spheres, including migration from one country into another. The wages associated with such enterprises are generally lower than wages in entities with industrial capital. At any rate, one thing is for sure: economic growth and genuine economic development bring about economic transformation; and economic transformation and comfort in what used to be familiar cannot coexist. The shock of the new becomes the order of the day.
I am certain that those who manage economic policy in Ethiopia will agree with me that economic growth without simultaneous improvements in wage rates is not broad based. The evidence in Ethiopia is that the double-digit growth rates of GDP in the past and the current high growth rates have not improved average wage rates. In fact, real average wage rates (income) have been eroding. In so far as the aim of economic policy is to simply create jobs, perhaps that is acceptable. But sooner or later, the benefits of economic growth have to be translated into an increased level of real wages (income), for there isn’t, theoretically speaking, a shortage of jobs. Just a shortage of jobs at a given wage rate!
What is Ahead?
During the coming years, Ethiopia will be compelled to build its capabilities in all spheres. What appears to be progress can be halted or even destroyed by events outside of the control of policy makers (the Ebola crisis in West Africa comes to mind). Because of its proximity to geographic centers of conflict and geopolitical upheavals, the modest gains can evaporate overnight turning expectations into crisis. In such situations, it is important that the government has the capacity to respond. For instance, the current gains in mortality rates along with the inability to control population growth could overwhelm the health sector as well as the school delivery mechanisms, which I believe has already led to a disparity in the level and quality of education throughout the system.
What is essential in countries like Ethiopia is the ability to respond in a situation of crisis so that the modest gains can be sustained. In my opinion, the rush for economic growth and development should be viewed as a chosen national crisis, a crisis which requires the intervention of government along with its external development partners to plan, organize, and execute desirable policies and actions while maintaining a degree of economic sovereignty. (Those countries that have retained their economic sovereignty by not opening up their financial systems have remained unaffected by the financial crises of the past several years, and have even shown consistent high level of economic growth.) Friends of Ethiopia need to assist by letting the people and their government embark on development initiatives using the methods and foundations that apply to their particular circumstances rather than insist on particular theories or systems. In return, it is not unreasonable to have a vision of and expectation that Ethiopia will follow a more resolute path of political reform and pragmatic policy of inclusion so that every citizen has the opportunity to contribute as well as become a beneficiary of the new promise of a nation in a rush!
Teshome Abebe is Professor of Economics, and may be reached at:firstname.lastname@example.org