The Intrinsic Genius of PM Meles Zenawi.

Washera_2000
March 16, 2008

I was preparing for a debate at the Ethiopian Television Network in Virginia on a variety of issues including the remarks of Senator Feingold on the senate floor of the Foreign Relations Subcommitte, Human Rights Practices in Ethiopia, the upcoming Ethiopian elections and whatever crumbs are left over from HR2003, when I stumbled across a document sent to me by a friend a while back. It was a Preliminary Draft (Not for quotation) prepared by Prime Minister Meles Zenawi on "African Development: Dead Ends and new Beginnings". It was a 50 pages plus draft for discussion with selected extracts of a monograph under preparation. Over 190 references were also included at the end.

It has been a while since I concluded that the PM is a hard working and very intelligent individual. I must say I was truly touched by his analyses and supportive arguments in this document and also ended up well informed by the time I completed reading it. I hope to highlight some of his impressive arguments and personal views about how to tackle this vicious cycle of poverty and bad governance in Africa. I will also include definitions of a few economic terminologies that may sound Latin for the average reader.


The thesis of his argument is that the neo-liberal paradigm of pervasiveness and efficient competitive markets to promote economic development in Africa is flawed and as a result has failed. It has made colonial Africa a weakened and predatory state (rulers extract tax for their own use) that is rife with rent-seeking (making money by manipulating the economic and/or legal environment) political economy tittering on the brink of collapse.

Neoliberalism was a right-wing libertarian political philosophy that gained ground a great deal after the stagnation crisis of the 1970s and the Developing World Debt Crisis of the 1980s. As articulated by John Williamson's Washington Consensus, it felt that government control over the economy was inefficient, corrupt or otherwise undesirable. As a result it proposed a means of transferring control of the economy from the public to the private sector. Specifically, Williamson's list included 10 points: 1) Fiscal policy discipline, 2) Reduction of public spending in education, health and infrastructure, 3) Tax reform, 4) Moderate interest rates, 5) Competitive exchange rates, 6) Trade liberalization, 7) Liberalization of inward FDI (Foreign Direct Investment), 8) Privatization of state enterprises, 9) Deregulation, and 10) Legal security for property rights. Thus the neo-liberal paradigm was put into action in many countries including South America. Its disastrous dead end in the African context has been chronicled by many respectable economists and Nobel laureates and PM Meles Zenawi proposes an alternative approach to get out of this dilemma.

He argues that the state should not be restricted to protecting individual and property rights in the form of services like the Police, Judiciary, Prison and Military (Night Watchman State), but must actively participate in the social and economic development of its citizens. Letting the market do its wonders has wondered off the target for too long. He proposes a paradigm shift (major change in certain thought patterns) to create a proper blend of norms, values and rules for a needed accelerated economic growth and social transformation. He refers to this as a Democratic Developmentalist Paradigm and backs it up with an impressive argument for the establishment of a dynamic agrarian democracy, much like the one advocated by Thomas Jefferson and help it evolve into a mature urban democracy.

He proposes to convince the developed countries to put their money where their mouth is. In this age of globalization where African countries are important as sources of transnational security threats, a breeding ground for drug trafficking and killer diseases as well as hundreds of thousands of refugees generated by failing states, it behooves the developed world to invest in his win-win proposal. He points out that pulling Africa out of its misery and into a successful democratic development will be in their basic economic interest.

PM Meles goes into specific steps to follow to accomplish this, like removing the vertical linkages of patronage in the rural areas, political reforms to remove the predatory state (rulers extract tax for their own use) and overcome rural marketing problems, promote civic engagement through horizontal networks and associations, promote civic virtues and democratic pluralism including religious and ethnic pluralism. Although the skeptics may question his methods, he strongly believes that is where the NGOs and donors (FDI) should direct their resources.

Not only does he believe that the doctrine of "There Is No Alternative (TINA)" be replaced by "There Are Thousands of Alternatives (TATA)" precept, but that his highly articulated vision is the best among such alternatives and with the right leadership that works toward a global and a solid domestic developmental coalition, the African state can be rebuilt and the pervasive rent-seeking phenomenon drastically reduced.


PM Meles expostulates convincingly that in an environment where most (3/4) of the agricultural production is non–tradable and leads to low income, production constraints and limited growth of rural farm and non-farm income is the rule. He proposes a mechanism for removing this demand constraint through increased productivity through technological change and decreasing transaction costs. This in turn will lead to greater sale outside the locality in greater volume and/or value which boosts farm income. The non-farm activities will get a shot in the arm and further increase demand for agricultural products completing this virtuous (not vicious) cycle. To break the dead end that has been made worse by the failed neo-liberal agenda, PM Meles proposes a massive investment in rural physical infrastructure, in market support institutions, in institutions for technological capability accumulation and government intervention to save agriculture for the credit crunch ( a state in which there is a short supply of cash to lend to businesses and consumers and interest rates are high) that it finds itself in.

He chronicles how financial institutions have failed to perform their task of mobilizing savings and directing them toward profitable investments. He goes on to detail the issue of high interest rates, high incidence of non-performing loans, excess liquidity and low savings to accounts that has made them risk averse because they are operating almost in the dark. The absence of tax returns, proper audit reports or the absence of proper information on businesses has made them skittish about loans to ordinary businesses or the average guy. The financial sector liberalization as advocated by the neo-liberal dogma did little to resolve the problem and Meles believes that it contributed even more to the above dilemma. The liquidity in some banks was so excessive that some banks have been known to turn away savers.


Beginning with his belief that agriculture is the engine of growth, PM Meles writes that rather than a mere liberalization of agricultural products markets, equitable distribution of assets in the rural areas plays a critical role in accelerating agricultural development and structural transformation. The role of equitable asset distribution in accelerating the growth of technology, building linkage with other disciplines and accumulation of social capital which in turn accelerates development is beautifully contrasted with the neo-liberal theory that asserts that pareto efficiency (given a set of alternative allocations of, say, goods or income for a set of individuals, a movement from one allocation to another that can make at least one individual better off without making any other individual worse off) is neutral vis-à-vis equity.

In the context of reforming the agricultural sector, Meles writes about very high transportation costs, fragmented and oligopolistic (monopoly, dominance) private sector marketing that causes high transaction costs and low productivity that must be combated to increase trade volumes rather than deregulation and liberalization of markets which has failed miserably.

Arguably, PM Meles believes that vicious circles and poverty traps that these states face can only be removed by state action, provided we believe that development is a political process first and economic and social process later. He believes in the creation of a political set-up that is conductive to accelerated development.

This is where his political talent shines through. Starting with a consensus on the rule of the game, he explains why it is important to involve people to actively participate in public affairs. This builds social capital, politics is not taken as a zero-sum game and flourishes democratically relatively free of rent-seeking and patronage. That is why he argues for the need for stability and continuity of policy if there is to be sustained and accelerated economic growth and that such stability can be achieved through long-term coalitions which stay in power for a long period but do so by democratic means.

For PM Meles, that coalition building starts with the rural agriculture-dependent population which will be responsible for much of the work of accelerated growth. Whether through his socialist leanings, his acute understanding of the economic miracle in South East Asia or his long leadership experience, Meles strongly believes in the peasant, which has historically been the victim, as the bedrock of a stable developmental and political coalition force. By building rural infrastructure, spreading primary education, introducing the peasant to new technologies and commercialized farming, and also sowing the seeds of participatory democracy, PM Meles believes that a stable democracy can emerge even in a poor country and can be governed democratically.

He does not rule out the urban middle class and labor from this endeavor. On the contrary, he believes that this group could also be members of this coalition. Although this group has been known to benefit form patronage and rent-seeking, he argues in their favor by noting that they are easy to organize, more democratic in their orientation and will benefit from job creation in the context of accelerated growth that is broadly equitable.

I see a close relationship with this philosophy and with what EPRDF is trying to do to change the social structure in the rural areas to establish a solid base for a stable and politically strong developmental coalition. The upcoming elections are a work in progress in that direction. It behooves Ethiopian political opposition groups to understand this man very clearly and articulate an alternative vision for the country if they disagree with him, or stop wringing their fingers and join his efforts in tandem. Their zero-sum politics, as he likes to call it, or run to third parties to wedge complaints and accusations (sic HR2003) is not going to get them any closer to the people or renew their badly bruised political clout.

When PM talks about the African Renaissance and the need for a Paradigm Shift, he does not implicate the neo-liberal agenda for causing the dysfunctional economy and abject poverty of Africa, but blames it for making it worse.

With a need for building rural infrastructure including roads, irrigation and water harvesting facilities and capacity building, he emphasizes the need for attracting productive FDI (Foreign Direct Investment) while demanding a long-term non-reciprocal access to developed country markets to overcome the pervasive market failures in Africa.

PM Meles bases his arguments on all the above observations and taps a lot from the experience of some East Asian countries. His own personal experience and dedication to see the establishment of a healthy democratic pluralism of a broadly based agrarian democracy that is capable of evolving into a mature urban-based democracy is to be applauded.

This may be just a draft for a PhD thesis in Economics, but he has already won me over with his clear understanding of the economic and political dilemma that African states face and makes me proud to know that he is at the helm of the Ethiopian state steering it in the right direction.

I tip my hat off for all his efforts and I am proud and glad he is one of our own.