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18.09.2014 Feature Article

Defining New Economic Paradigms

Defining New Economic Paradigms
18.09.2014 LISTEN

 “We have made a mistake to choose money, something which we do not have, to be our major instrument of development. We are mistaken when we imagine that we shall get money from foreign countries ‑ firstly, because to say the truth we cannot get enough money for our development, and, secondly, because even if we could get it such complete dependence on outside help would have endangered our independence and the other policies of our country.” ‑ The Arusha Declaration.

Many African patriots, including the eminent Nigerian Economists, Professor Adebayo Adedeji, warned African leaders against accepting World Bank and IMF prescriptions in their quest for economic development.

Many of our arguments were cogent, patriotic and well-founded on sound economic facts and basic reasoning. We argued that the fundamental problem with many economies in Africa is the absence of any discernible structure. So, for anyone to come and talk about adjusting a non-existing structure is fraudulent, to say the least.

Professor Adedeji and his team labored hard to produce a Comprehensive and Holistic Economic Plan titled: 'An Alternative to Structural Adjustment Policy.'

Sadly for us, our leaders chose to listen to their masters in London, Paris and Washington.

The IMF and the World Bank ruthlessly tore through African economics and left in their wake armies of unemployed (unemployable?) youth; crumbling infrastructures; devastated social services, dysfunctional educational system etc, etc.

The onslaught went on for about two decades before the organizations finally admitted their follies (without ever apologizing for the crimes committed against the African humanity).

As Western MNCs rapaciously gobbled up Africa's resources, Africans were fed with nothing but a plethora of acronyms with SAP becoming ESAP becoming HIPC (Highly Indebted and Poor Country) which Ghana, to her eternal shame, embraced!

Few months before the spectacular collapse of global Capitalism, the ex-Chief Economist of the World Bank, Professor Joseph Stiglitz wrote a book, “Globalization and its Discontents,” in which he roundly vilified the IMF whose policies he termed 'bad economics.'

When in the mid 1980s I was asked what I thought about the IMF proclaiming Ghana as the 'Star Pupil' in Africa. My reply was that if you measure economic success by the number of 4-Wheel jeeps on the roads, maybe Ghana is doing fantastic. But if we use indices such like the number of people selling dog chains on the road, the number of unemployed youth, the number of children whose parents cannot afford school fees, the number of citizens needlessly dying because they cannot pay hospital bills then Ghana is an unmitigated disaster.

What pains is that our rulers appear to have learnt no lesson from the disasters inflicted on us by the IMF. Today in Accra, they sit down with a team from the IMF to 'solve' our economic malaise.

The economic fundamentalists (what else to call them?) of the IMF and the World Bank have for far too long hold the high grounds by spewing economic gibberish, unintelligible to the average Kwame. But as Franklin D. Roosevelt succinctly put it, “But while they prate of economic laws, men and women are starving. We must lay hold of the fact that economic laws are not made by nature. They are made by human beings.”

We in Africa have been told so many lies so many times, and it is time we learn the lessons of history. Our economies have been abused as experimental laboratories to try half-baked theories, and we have seen the result in stunted economic growth all across the continent, especially in the manufacturing and the non-extractive sectors.

Let us examine, albeit briefly, the lies (yes, lies) we have been told over the years, and then consider some of the things we can do to improve our economic situation.

1. The Devaluation LieDevaluation is defined as the process of reducing the exchange value of a currency. For years, the lie has been told that devaluation is a huge booster to our economy. How this could be so, no one bothered to tell us. Occasionally, devaluation is used in manufacturing economy to boost export, when it is deemed that the currency is believed to be too strong against those of its trading partners. Even for middle economies (i.e. China and Malaysia) devaluation could also help in boosting exports. They could do this because they have a strong advantage in having a relatively cheap labour.

But for a raw material producing nation like Ghana with virtually no industrial capacity whatever, devaluation cannot help the economy in any tangible way. First of all, we have no control (not even a say) in the pricing of our commodities. These are set in London and New York and are usually quoted in US Dollars or Euros. Devaluing our cedis has no bearing whatever on the forces that determine the prices of say, Cocoa. Devaluation for us means that we are getting less money for our Cocoa and paying more for the thing we buy from outside – which is virtually everything we consume, both domestically and industrially.

Another important factor often overlooked is that our external debts are quoted in dollars, and any devaluation is adding to our debt-burden. How? Again simple logic suggests that we need more local products to service the same amount of debt.

Do you still wonder why Africa's debt is forever ballooning, despite (or is it in spite?) of all the repayments, re-scheduling?

2. The Deregulation Lie – Economics 101 teaches the Theory of Comparative Advantage whereby each nation produces what it is best suited for. This is often cited as a case for Trade Liberalization aka deregulation. Trade Deregulation will be a good idea if every country allows the free flow of trade. Alas, this is not the case, as any child knows.

The Western Countries, shouting the loudest about Free Trade, are the worst offenders when it comes to raising trade barriers to protect their economic interests. European and American farmers and farm-products exporters receive wide arrays of government subsidies. The Asians are no better – Japan has impressive array of bureaucratic roadblocks in place to safeguard her agriculture and agro-industries. Ditto China; ditto South Korea.

It is only in Africa that we believe those who do not practice what they preach and continue to believe that our economic future could be left to the whims and caprices of a mirage called market forces.

Deregulation can and has killed the little infant industries that we have with its attendant high rate of unemployment.

3. The Privatization Lie. Someone has, correctly, pointed out that the presumptive institutional superiority of private over public enterprises has no theoretical basis. Sadly, this has not dissuaded African governments from embarking on the fire sales of our national patrimony.

Since our local capitalists lacked the capital to buy these enterprises, it means that our national assets are being stripped and sold to foreign interests mostly Western multi-nationals as recently happened, when Ghana Telecom was sold to a Dutch subsidiary of Vodafone. Even the United States, the home of the economic fundamentalists have industries that are considered 'strategic' and are 'no go' areas for foreigners, yet we sold a strategic asset like GT for peanuts.

4. The Tight Credit Policy Lie. Those who came to lecture us believe in the sanctity of tight credit policy. This, they believe improves the macroeconomics performance. This is another fallacy.

In the short term, a tight credit policy might help control inflation but, in the long run, it does severe harm to the economy. How do you run a company or a national economy without money or with money available only at exorbitant rates?

Tight credit policy invariably leads to inflation. It also leads to loss of investment and production. It distorts the economy simply because only speculators, drug pushers, and commercial activists can afford to borrow money at the rate the banks are demanding.

We all see that among the first thing the Western nations did at the whiff of economic trouble was to pump money into their economies; yet we continue to listen to their lies.

The Interest Rates Lie – The Liars from the Bretton Wood institutions always call for higher interest rates in order, they say, to boost savings. The question is thus provoked: How do you save, when you are not earning, or, if as pointed out supra, SAP programmes are inflation-inducing, why save in an inflation-ridden economy?

High interest rates discourages investment and production because there is hardly a genuine business one can one do to realise the thirty plus percent interest rate the banks demand. What can you produce and sell in today's Ghana and still make enough money to pay the thirty+ percent interest rates?

High interest rate encourages speculation. Speculation raises the demand for foreign currencies, further accelerating the devaluation of our currency. Do you still wonder why the Cedi is sinking?

We also have to ask: In an economy with very high rate of unemployment, who do these economic fundamentalist expects to save? The poor are too poor to save and the noveaux rich are into lives of wanton consumption and, of course, they do not save their monies in the badly eroded local currency.

Again whenever their economies are in trouble we see Western government hurrying to reduce their interest rates to spur investment and consumption. Yet, they keep telling us that low interest rate is not good for our economies. In order to stimulate their production, we have also seen many of them pressing their money presses into higher gear. This is antithetical to what they have preach to us over the years.

The question SAP apologists failed to answer is for whose benefits are economic policies made? What is the point of having robust macro-economic indices when the majority of our people are impoverished? What is the point of having high economic growth rate when most of our people are badly malnourished, with no access to food, good shelter, education and quality health? Where is the sense in having two digits growth rate when our unemployment rates cry to high heaven and many of our children are selling dog-chains and iced-water in the sun?

African leaders and elite have listened to Western advice for far too long, it is time they sat down and started asking themselves some hard questions. The economic chart drawn up by the IMF did not work for over two decades; there is no reason to believe that it will work now. It is time our leaders construct new, original economic paradigms to lift us from the economic morass in which we have been for so long.

We are not been unduly pessimistic, but experience they say is the best teacher. IMF prescriptions never grew any economy, there is no reason to believe that it will grow the Ghanaian economy. What will happen is our officials will wine and dine with the IMF team, at the end of which they will agree on how to screw us more tightly from every available orifice.

Femi Akomolafe Books (Africa: Destroyed by the gods,” and “Africa: It shall be well,” are now available for sales at the following bookshops/offices:

  1. Freedom Bookshop, near Apollo Theatre, Accra.
  2. The Daily Dispatch Office, Labone - Accra
  3. WEB Dubois Pan-African Centre, Accra
  4. Ghana Writers Association office, PAWA House, Roman Ridge, Acra.

Here are useful links:

  1. Africa: it shall be well: http://alaye.biz/africa-it-shall-be-well-introduction-in-pdf/

Africa: it shall be well is available for sale on Kindle books at this link: https://www.createspace.com/4820404

A FREE Chapter of 'Africa: It shall be well' could be downloaded here: http://alaye.biz/africa-it-shall-be-well-a-free-chapter/

 

  1. Africa: Destroyed by the gods (How religiosity destroyed Africa) http://alaye.biz/africa-destroyed-by-the-gods-introduction/

Africa: Destroyed by the gods is available for sale on Kindle books at this link: https://www.createspace.com/4811974

A FREE Chapter of 'Africa: Destroyed by the gods' could be downloaded here: http://alaye.biz/africa-destroyed-by-the-gods-free-chapter/

Femi maintains a blog @: www.alaye.biz/category/blog
Twitter: www.twitter.com/ekitiparapo
Gmail+: www.google.com/ +Femi Akomolafe
LinkedIn: www.linkedin.com/ Femi Akomolafe
Facebook: www.facebook.com/ alayeclearsound dotbiz
Website: www.alaye.biz

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