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Book Review: “Medemer”, A Book by Dr. Abiy Ahmed (Part III)

Book Review: “Medemer”, A Book by Dr. Abiy Ahmed (Part III)

Assefa A. Lemu Nov 28, 2019

 

Part III: The Fracture of Ethiopian Economic System and Its Maintenance Option

Chapter Eleven: The Achievements of Ethiopian Economy and The Challenge of Quality of Development (Pages155-164)

In this chapter (readers may access review of the preceding chapters here http://aigaforum.com/article2019/Book-Review-Medemer-by-Abiy-part2.htm), the Author recognized the economic development and social change achieved in Ethiopia in the last twenty eight years. He says,  the gross domestic product which was $7.9 billion dollars in 1991 was increased to $84.4 billion dollars in 2018, which is more than ten-fold. The number of population living below poverty line which was 44.2 % in 2000 reduced to 23.5% in 2016. The per capita income which was $164 in 1993 increased to $883 dollars in 2018 and average life expectancy which was 47 years in 1980s increased to 65 years in 2017. He also says the education coverage has been increased.

According to the Author, the achievements in the economic and social sectors happened mainly as a result of public investment in social services and physical infrastructures. The conducive international political environment also created an opportunity for the economic and social development of Ethiopia. As a result, Ethiopia got huge amounts of foreign aid and loans. The finance collected by domestic banks also supported the development of Ethiopia. However, he says, the economic and social developments have problems of quality. He listed high cost of living, unemployment, mismatch of saving and interest for investment, mismanagement of public projects, weaknesses in export sector and shortage of foreign exchange, budget deficit; slowness in structural transformation, contrabands, and illegal trades as a symptoms of lack of quality of the development.

 The Author identified two main symptoms of what he said the disease of Ethiopian economy: (1) lack of fair benefit from the development (large gaps in wealth and income among the citizens) and (2) macro-economic problems (budget deficit, debt burden, mismatch of saving and investment, problem of trade balance, and shortage of foreign exchange).

In economics, there is a theory of immiserizing growth proposed by Indian-born American economist Dr. Jagdish Bhagwati in 1958. The immiserizing growth theory refers to the situation where economic growth could result in a country being worse off than before the growth. According to this theory, the economic growth may bring about an increase in level of production in the growing economy and the wealth effect may even be positive but there can be a decline in the welfare of the nation and the lives of the majority may become worse off than before. In other words, the economic growth makes people more miserable. This may happen because various reasons including the deterioration in the terms of foreign trade.  Even though the Author didn’t refer to this theory, his argument show that the economic growth achieved in the last 28 years in Ethiopia was immiserizing growth where few got the benefit and the majority became more miserable. Validating or refuting this argument requires detail research.

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Chapter Twelve: Causes of Fracture of the Economic System (Pages 165-196)

According to the Author, there are three causes of fracture of the Ethiopian economic system. These are:

1.     Inadequacy of Market- Inadequacy of market happens in the market led economy where goods and services do not follow the principles of supply and demand. The inadequacy of market in Ethiopia is related to weak private sector, lack of productivity, competitiveness, and profitability. To correct the inadequacy of market, the government needs to take policy and control measures. The author says government must not leave the economy to the market; rather the government must continue interfering in the market in selected and strategic areas.

2.     Inadequacy of Government- Inadequacy of government is related to the problems caused by a government either when it interferes in the market and makes mistakes or when it fails to discharge its responsibility because of negligence and imbalance of production and distribution of wealth happened. The monetary and fiscal policies that government uses may  positively or negatively affect the way market operates and the way wealth is distributed. The Author says the illegal relationship between business persons and high government officials, in other words, corruption and favoritism which he call theft, and government intervention in the market are the two main inadequacies of Government.

3.     Inadequacy of System- According to the Author, establishing a system is about establishing rules of the game. He says per Medemer’s understanding, lasting and healthy economic development will be achieved with the participation of government, private sector, non-governmental organizations (NGOs), and education institutions. It seems that the idea of private sector-led economic development which brought proven economic development in the Western world has not been appreciated by Medemer. Medemer wants the collaboration and coordination of what it calls the main actors of the economy: government, private sector, NGOs, and education institutions.

According to the Author, the fractures of Ethiopian economy will be treated by fully utilizing the capacities of the economic actors (education institutions, NGOs/civic organizations, government, and private sector) and by using the principle of Medemer. Out of these actors, the Author considers government as the main force of development (page 189).

Chapter Thirteen: Forces of Production As Potential of the Country (Pages 197-215)

According to the Author, forces of production- human resources, natural resources, financial and physical capital- are the potential of the country. However, unless there is accountable system which protects these inputs from embezzlement, their existence alone cannot increase productivity. That is why the lives of citizens of some of the countries which have rich natural resources like petroleum worsen rather than improving. He also says the existence of good management alone doesn’t lead to prosperity. The development of the potential of a country depends more on the forces of production rather than on the management efficiency. Especially, natural resources and labor have significant contributions for prosperity.

The Author regurgitates EPRDF’s approach to achieving development through Agricultural Development Led Industrialization (ADLI), which mainly focuses on harnessing the three available resources- land, water, and labor- and then transforming to industrial development.

He says, following the land policy which came as a result of “land to the tiller”, an increase in the number of population happened in 1960-1985 Ethiopian Calendar (page 198). The proclamation to provide for the public ownership of rural lands of Ethiopia was issued in Yekatit 1967 Ethiopian Calendar(on March 4, 1975). Therefore, the statement he made about the population growth either has factual error or typo. In addition, he didn’t explain how the public ownership of land resulted in population growth. He also says economic development is the prerequisite for peace and security of Ethiopia (page 203). This is just echoing EPRDF’s policy of Developmental State.

The Author says the youth and productive manpower could be used to bring social and economic development and considers the number and composition of population as sources of national potential. He discussed the challenges to meet the growing demands of youth and weaknesses in the utilization of natural resources. In short, the Author’s perspective of economic development is not different from that of EPRDF. For example he says 1) Ethiopia should follow youth focused economic development otherwise the jobless youth will be disappointed and disturb the peace and security of the country; 2) agriculture is the mainstay of the economy and need to be modernized and made market focused.

Chapter Fourteen: Structural Transformation of the Economy as a Springboard (Pages 216-238)

The Author says the structural transformation of an economy mainly happens between agricultural and industrial sectors as a result of the movement of labor from rural to urban. He argues, agriculture is dependent on natural resources like land and water and applying technology and labor will not make its productivity to go beyond its last threshold. In fact, every production has a threshold where an addition of a factor of production results in decrease in the marginal output of a production, if all other factors of production stay constant. This is called  the law of diminishing returns and he didn’t explain what makes agriculture different from other sectors in this regard.

He says, the transformation of agriculture to industry is inevitable and that is why agriculture is called “growing mortal”. He also says, if structural change is to be made in Ethiopian economy, it must be made first in agricultural sector. This is another regurgitation of EPRDF’s policy because EPRDF has been promoting this idea and to this end established the Agricultural Transformation Agency (ATA)  in December 2010 which also serves as the Secretariat of an Agricultural Transformation Council chaired by the Prime Minister.  It seems that Prime Minister Dr. Abiy Ahmed is trying to sell EPRDF’s ideas by rebranding and repackaging. 

Other subjects discussed in this chapter are:

1.     The challenges of industrial development which are related to skill and productivity of manpower, distributions of factories, domestic market, foreign exchange, and competition in the foreign market;

2.     Technological development which is related to equipment and tools, human skill, system and process, decision making, communication flow and storage; and

3.     Building knowledge based economy.

Regarding industrialization, the Author recommends labor intensive and capital saving industries (page 221). He says, Ethiopia has large and inexpensive labor force but compared with other countries the skills and productivity of Ethiopian labor force is low.

According to the Author, 28 years ago the Ethiopian Government asked itself how to get the citizens out of famine and poverty, how to provide services that improve their lives. But today, the question posed by the citizens to the Ethiopian Government is to have a political economic system that can enable them to convert creativity and assiduity to prosperity. In his opinion, the backlogs of poverty could be cleared and prosperity will be achieved through Medemer philosophy. This implies the relationship between Medemer philosophy and Prosperity Party (PP).

  To be continued…. Part IV: ‘Medemer’ and  Foreign Relation

 

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