How Kenya’s grasp of economy-friendly ideologies fails test

President Uhuru Kenyatta (left) and US President Donald Trump. FILE PHOTO | NMG 

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By MBUI WAGACHA

Summary

• Republican politics drive business-friendly tax cuts for investors and propel the rich, hoping the poor will come to work in their firms and earn a living.
• Democrats or Wanjiku pursue a vision of economic policies that develop low-income segments of society, with key policies that support equalising opportunity in society.
• In Kenya, these policies were notably unleashed in 2002 when Kibaki took up an economy squashed to a shell under Moi’s regime, with GDP growth of 0.5 percent.

During a two-day symposium on Zoom on June 23-24, which included top Sovereign Wealth Fund (SWF) leaders, a Nobel Prize winner in economics, and World Bank officials, participants heard economist Larry Summers lament the current US politics, ideology, and the economy.

A tested historical pattern emerges and concludes that by research, luck, or policy, Democratic Administrations achieve faster US economic growth in the long run- 1.6 times faster than Republicans. Democrats grow private-sector jobs even faster — 2.5 times faster. He should know. President Emeritus of Harvard University and architect of economic policy during the Clinton-Obama eras of US prosperity espouses macroeconomic policy rigour for government — laissez-faire markets at the firm level.

Under Clinton and Obama eras, skilled technical expertise in macro-policy mix revitalised markets at the sector level. Most recently, these policies routed imminent depression in the 2009 financial crisis. He contrasted this with current US uncertainties. The long-lasting pivot of performance rooted in ideology is now in Republican hands.

I thought of Kenya’s economy. How we run a broken fiscal policy and a banking system experiment where banks awash with liquidity flag down lending. Why? Government securities offer risk-adjusted returns that rival the interest charged on loans.

Our politics is more worrisome. Political parties splinter in endless tussles, paving the way under the radar for the segmentation to seep into broken markets.

The latter are fragmented to reinforce long-lasting racial and religious biases. It allows segments of the population to discriminate against locals in housing estates (African, Asian, and muzungu). We blindly maintain racist distortions such as segmented restaurants and conservation zones.

I hear eating breakfast with giraffes at one venue admits only foreigners.

Of the fragmentations, none beats current political games under Covid-19. Like the pandemic, political wars continue under cover of shutdowns in public gatherings, while the economy slumps.

Since history will judge this period harshly, we should understand when Kenya with a lack of political doctrines and ideology may have to rediscover its path to economic prosperity.

After independence in 1963, the founding fathers brandished Sessional Paper No. 10 of 1965 and opted for a mixed market economic policy, with state investments of a parastatal kind.

Then we killed or looted the institutions clean, draining them as if we had drinking straws dipped in frothy busaa (traditional brew).

The Moi rule emptied the gourds to the dregs at the bottom. With the party over, President Uhuru assessed the damage in 2013-2014 under the setup of the blue-ribbon Parastatal Reforms Implementation Committee (PRIC). Its ideas attracted global attention with proposed institutions such as a sovereign wealth fund, government investment corporation, biashara bank, Kenya development bank.

At the tipping point of implementation, we shelved even these tenets of modern economies that join ideology and institutions at the hip in development and growth.

So with frothy drink gone, politics still picks the bones of broken parastatals that subsist on a National Treasury now alarmingly in the red — stumbling from one budget year to the next.

What would Kenya look like if Larry Summers’s ideology-prone economics had a chance? Make the nearest analogies of his lament to Kenya’s boxing-ring politics, where fists without gloves and access to public looting displace ideology. Let the Democrats be Wanjiku and let the Republicans be the conservatives, acquisitive business, and political elites, etc. What doctrines would the respective economic policies take in ideology-based politics?

Republicans and acquisitive political elites guard their space jealously.

Accumulated wealth often has antecedents in post-colonial land grabs or the antebellum plantation slavery of yesteryear.

They fund police to get a grip on naysayers (mark the defunding movement in the US).

Their henchmen or bouncers put a knee on the neck of the likes of George Floyd, who cry, “I can’t breathe” until they die.

The current US administration fits the part of Republicans and acquisitive political elites.

They have defended law-enforcement and monuments to slavers, vociferously.

They turned a jaundiced, only half-open eye to Floyd’s cry.

In economic policy, Republican politics drive business-friendly tax cuts for investors, limit government, and propel the rich, hoping the poor will come to work in their firms and earn a living

Little bothered by inequality or the plight of heroes who fell in our struggles for freedom, it is not for them to pull society from below. Or drive spending on healthcare, or expand education. More on their economics below.

Democrats or Wanjiku pursue a vision of economic policies that develop and pull up low-income and middle-income segments of society, with key policies driving schooling, health, infrastructure, and social support that are major cogs in equalising opportunity in society.

Its policymakers and economists leave no doubts in the minds of investors and private sector actors that if economic activity veers off expectations to economic recessions, they will apply corrective macroeconomic policies, even deficit spending, as aggressively as needed to sustain growth and equal opportunity.

Democrats (Wanjiku) gained fame in episodes of successful macroeconomic management policies, deficit spending, and policy mix techniques.

They use economic conditions and indicators to fight macro-instability and recessions and maintain the path of potential medium-term growth.

Hence the almost double historical average rate of gross domestic product (GDP) growth rate compared to Republicans, which is also broad-based.

New trajectory

In Kenya, these policies were notably unleashed in 2002 when Kibaki took up an economy squashed to a shell under Moi’s regime, with GDP growth of 0.5 percent.

He drove economic recovery on a new trajectory. In 2003, 2004, 2005, 2006, and 2007, it clocked 2.9 percent, 5.1 percent, 5.9 percent, 6.5 percent and 6.8 percent respectively.

In the financial crisis of 2008-2009, a policy mix again revived GDP growth to 8.4 percent by 2010.

Fast forward to 2020, International Monetary Fund projects near-zero GDP growth.

A politics of equal opportunities results in highly inclusive and long-term economic growth. And it reduces inequality. It structures the public spending needed for this strategy in progressive taxation, and budgeters rigorously test implementation results.

Arrests with a knee on the necks of a downtrodden class to which Floyd belonged come second to a knee on thieves caught plundering and wasting public resources needed to drive the democratic ideology.

Political elites

In contrast, an economic vision called supply-side economics pleases Republican or acquisitive political elites. It argues cuts for corporate and high-income earners on the assumption they will hire more workers and thus propel output and demand.

The premise is that initial revenues lost through tax cuts to business and high-income earners are more than offset when the strategy propels high employment and tax collection in the resulting output growth. It prioritises the prosperity of investors and limits government spending on health education, retirement payouts, etc.

In economic downturns such as the Covid-19 debacle, it offers business tax cuts to investors.

And it attributes investor prosperity to the ethics of saving, investment, self-discipline, and entrepreneurship. It has failed repeatedly.

Investors may, for example, pocket the tax cuts and shed workers as they’ve done under Covid-19. Yet the zombie keeps coming back. Watch it stumble in Kenya over Wanjiku’s democracy.