NDEMO: Let’s address the rising economic inequality in Africa - Daily Nation

Let’s address the rising economic inequality in Africa

Monday January 7 2019

By BITANGE NDEMO
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Kenyans welcomed the New Year with great optimism. Economists predict staller economic performance this year owing to relative peace occasioned by the ''Handshake''.

In the midst of this positive narrative is the rising economic inequality.

Across the world, economic inequality and the ability or inability of the political class to address it is a major concern. In the recent past, local media have shone a spotlight on the rising national debt as well as increasing taxation and spending. These policies are advanced by the government under the assumption that they will narrow inequality.

On the other hand, there are those who argue that taxation and spending should be decreased to enable private sector entrepreneurialism fuel economic dynamism.

While from the outset each side seems to make great sense, they are wrong. It is often presumptuous to think that the policies that buttress these views will be enough to guarantee economic prosperity and social stability in an environment with an uneven playing field.

CAPITALISM

There is no doubt that capitalism (where the market determines the price and characterised by private ownership of the means of production, distribution and their operation for profit) has played a pivotal role in many economies and brought out the best of human potential, but the system produces as much uncertainty to the have-nots as it produces paybacks to those who have.

It inevitably advances inequality, unless the underlying political systems keep it on check.

In my view, the world never kept pace with the intrinsic dynamism of the system that continuously re-invents itself. We need new versions of capitalism and democracy.

Many of the countries that have always embraced classical capitalism are in deep trouble as they watch the erosion of the middle class and the rise of poverty, with great accumulation of wealth in the hands of very view. In France there are street protests while Italy, Britain and Germany are experiencing great anxiety among the middle class.

Sharp differences of opinions on capitalism emerged in post-Obama US when President Trump began to erase some of Obama policies like Universal Healthcare that was considered anti-capitalist. Even the Unions resisted the same issue of health in Kenya.

The main problem in capitalism is that there are people who always have better information than the market has. And when this information asymmetry gets into the stock market, small investors, often the poor, suffer the most. Examples include the cases of Uchumi and Mumias where the rich sold out before trouble struck and left the poor with the burden of unchecked capitalism.

For a long time now, we have not had any new listing yet shared prosperity comes through such public offerings. Lack of avenues for public participation in ownership of profitable corporations is leading to greater inequality.

Jerry Muller, in his 2013 article, ''Capitalism and Inequality: What the Right and the Left Get Wrong'', argued that:

Inequality is indeed increasing almost everywhere in the post-industrial capitalist world. But despite what many on the left think, this is not the result of politics, nor is politics likely to reverse it, for the problem is more deeply rooted and intractable than generally recognised. Inequality is an inevitable product of capitalist activity, and expanding equality of opportunity only increases it – because some individuals and communities are simply better able than others to exploit the opportunities for development and advancement that capitalism affords.

In Kenya, although we identify with capitalism, in practice we are often in total confusion. Markets, especially on agricultural produce, have failed. Policy interventions are erratic and encourage false hope that disenfranchises some communities to continue hoping that the government will intervene. It is the reason why farmers will always ask what the government will do with overproduction of crops like maize.

When there are large number of individuals and communities that cannot exploit opportunities for development, then the system aught to be re-evaluated and some form of system that is closer to what they are capable of dealing with be installed. Otherwise only a few individuals will continue to accumulate wealth at the expense of others, widening the inequality that brings instability.

THE AFRICAN WAY

If we stopped looking elsewhere for signs of a new form of capitalism that is in line with the inherent behaviour of the African, we can find a new direction.

To fit capitalism into an African economy is as the old English idiom says, fitting ''a square peg into a round hole''. Africans by nature are socialist (having common ownership of means of production and distribution). Land, for example, was a common good that was owned by the community until the colonial governments began to create enclaves of ownership. As such, the effects of inequality were minimised.

There are great lessons to learn from China's state capitalism that has confounded many academics. It was not meant to succeed without basic freedoms that accompany free market economies.

There is an African form of capitalism that we have not exploited. It is deeply entangled in the traditional cultural practices of property ownership and moderated by cultural systems.

With a few tweaks, we may arrest the increasing inequalities. This will demand selfless leadership to implement.

The writer is an associate professor at University of Nairobi’s School of Business.