GLOBALZATION AND ETHIOPIAN ECONOMIC DEVELOPMENT
By Mathza, May 20, 2010
I thank
EPRDF practices revolutionary democracy. Oppositions claim they are for liberal democracy. The former says group rights covers individual rights. The latter insists on individual rights. Liberal democracy is being used as a means by which the developed countries bring about political and economic changes in democratizing or non-democratic countries partly to advance their own interests.
In the developed world, particularly, in the USA, economic activities are the domain of the private sector. Privatization of government owned and run institutions and businesses became significant following World War II. This was particularly the case in the United Kingdom when the British steel industry was transferred to the private sector in the 1950s. Other European countries, including Russia and its former constituent parts followed after the end of the cold war in 1991.
There are three main routes to privatization: issuing shares, selling the whole asset and distributing vouchers to all citizens. The first is the most common in developed economies where the stock market is well developed. The second applies to developing countries. The third, although desirable, can be impractical because of the huge number of shareholders. The second, therefore, appears the most appropriate for conditions in Ethiopia. This actually is the case. This does not, however, rule out the first.
Nowadays, privatization is one of the pillars of capitalism. In this era of globalization it is one of the means by which international corporations, particularly conglomerates, absorb businesses all over the world. Corporations have the financial muscle, the technology, the market, the services, etc. to manipulate conditions to suit their needs. That is why they and their governments pressure developing countries to adopt the so-called free market. We are told that people would be better off with liberalism based on individual rights. There is no question that individuals have inherent rights that every human being should respect. Let us, however, not forget that man is selfish by nature, hence the need for law and order. In business or income generating activities individuals and companies are expected to maximize their profits. No body can dispute this. What is disputable is when they put at risk funds entrusted to them by individuals and businesses in order to reward themselves at the expense of the people and the country. This is what happened and triggered the recent global recession. As a consequence the developed countries have taken or are taking measures to curb repetition of such and similar blunders. The initiators and promoters of liberal democracy have, therefore, in no uncertain terms admitted that liberal democracy does not and cannot work without government mechanism to monitor it. In other words, such reversal by the developed countries has vindicated the Ethiopian government’s policy based on revolutionary democracy. Adios to liberal democracy adopted by Ethiopian opposition parties. Unconditional free reign without some kind of monitoring mechanism is asking for disaster. Ethiopia cannot afford this.
Free market (liberalism) has its pluses and minuses. It puts world economy under few individuals and corporations. It creates increasing disparity of income (annual remunerations ranging between hundreds of millions and tens of thousands of dollars, the latter stagnating for decades at the current rate) in developed countries with many of their people having difficulties meeting their basic needs. Despite the disparities, it is the developed economies that benefit the most. They and their corporations maximize their benefits by manipulating the market and imposing unfavorable conditions on developing countries. Every year they transfer huge amount of money in foreign currency to pay for capital repatriation, profit, dividends, interest payments, etc. Most of such money would be reinvested and raise the GDP if the investment were of local origin.
Developed countries and their institutions even go to the extent of refusing to give loans. A case in point is the World Bank’s unwillingness to lend money to Ethiopia for hydropower projects. The excuse was Ethiopia did not need additional electric power although the main reason was to guard the interest of third parties. Left with no alternative, Ethiopia was forced to use its own resources to finance two of its hydroelectric power projects. The country would not have experienced shortages of electricity and hence slow down of the growth rate of the economy had the World Bank acceded to Ethiopia’s request. At regional level, last week the World Bank’s share of votes of emerging countries increased at the expense of African countries whose share decreased a third. The developed countries could have easily absorbed the decrease.
Another case is the European Union’s apparent objection to the signing of the Nile water agreement by the upper riparian states on May 14, 2010. It seems that this encouraged Egypt to intensify various diplomatic efforts to block the new Nile deal. The EU knows that Egypt and Sudan over 10 years of negotiations did not budge an inch in the position they held for over a century. In all fairness, the onus of convincing to change should be directed at the two countries, not at the signatories of the agreement. If the World Bank and the European Union impose unfair pressure on Ethiopia and African countries what could restrain the private sector, particularly the corporations, from doing anything to unduly maximize their benefits at the expense of poor African countries?
In developing countries like Ethiopia there are certain social and economic activities that are better kept under the care of the government, at least, until they extend their services throughout the country. Schools, health facilities and institutional and physical infrastructures figure in this category. Although by their very nature require continuing government intervention, the first two have reached the stage of private participation. In regard to infrastructures, such as research and financial institutions, electric power generation, roads and railways, telecommunications and shipping, there is a long way to go. The government will and should continue to play leading role for some time to come. The private sector in the country does not have the capacity and capability in terms of huge financial and other resources. The government is in a better position to plan, organize, mobilize resources and implement the huge and expensive projects that is characteristic of infrastructures. Besides, the government can plow back income generated, where applicable, to further expand the infrastructure concerned to the remotest corners of the country. This was and is, apparently, what is happening in regard to telecommunications. It should be noted that the profit-motivated private sector would limit its development and operation to urban areas and increase tariffs to maximize its profits. Obviously, the public would be better off with government ownership of the means of production and distribution of the above institutions and infrastructures.
Of all economic activities, the industry sector is the most affected by liberalization in developing countries. The colonial legacy—developing countries exporting raw materials and importing finished goods—continues to this day. Following independence, African countries started to establish import substitution industries mainly based on imported intermediates and other inputs. Considering the almost non-existent industrial establishments in most of them at that time, that was the right thing to do for a start. Unfortunately, the majority of them have not been able to transit to the production of the intermediates. Limited national markets, lack of finance and appropriate technology and inability to compete with imported goods are among the reasons for such state of affairs.
Markets in Africa are flooded with imported goods. African countries have become damping grounds for both developed and industrializing countries. Because of economies of scale, ownership of integrated industries and services all over the globe and other advantages in the manufacturing/exporting countries, the prices of imported goods are cheaper than those locally produced by small-sized industries. The consequence of this is, let alone integrating backwards to intermediate production that should have been the logical step, the survival of whatever industries exist in Africa is at stake. This situation may be expected to worsen with deepening globalization. Ethiopia, a late-comer to industrial sector development, under the cut throat competition that is characteristic of liberal democracy, would have a hard time catching up and attaining its fair share of world industrial output. In any case, the industrial policy that it has been successfully pursuing seems to be paying dividends.
Conclusion: liberal democracy is not a panacea that opposition parties would have us believe. With the dominance of the few but dwindling numbers of conglomerates spreading like wild fire, Ethiopia and others like it will face difficult times to make progress as much as they want and need to. As far as infrastructures are concerned, Ethiopia, unlike most African countries, owns and operates its financial institutions, electric power generation and distribution, telecommunications and shipping lines. There is no reason and it does not make any sense why it should privatize them to foreign investors. It should remain a master of its own destiny in these critical areas, at least in the foreseeable future. All that is needed is to further improve their managements, where needed. Ethiopian Airlines is a model that the above entities could and should emulate.