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Saturday, 18 April 2009

A call for the return to UNIP policies?

Mbita Chitala, a close ally of President Banda, writing in The Post puts forward a "restoration program"that reads like a return to old UNIP policies. The problem of course is that MMD was founded on pro-market fundamentalism, so to get round that Chitala attempts to re-write history by suggesting that the original MMD founders where "socialists" and their extreme market tendencies was only "substituted later" :

Global financial crisis and a call for the return to mixed economy, Dr. Mbita Chitala, The Post (subscription), Commentary :

The causes of the current systemic crisis of capitalism and the way forward for countries such as ours are a matter of great debate and any meeting by citizens organized to discuss and seek solutions is always useful. I was not surprised to notice that many of the participants at the Indaba were yearning for change in the way we have been conducting our economic policies. In this recession where economic activity has slowed, there is a slowdown in our GDP growth rate, slowdown in investment, low capacity utilisation in our industries, and there are low real incomes of households and lower profits for companies, governments usually respond by adopting expansionary macro economic policies, such as increasing money supply (monetarists) increasing government spending (Keynesians), decreasing taxation (supply side economists) while laissez faire economists recommend that governments should not interfere with the so called market forces. What should be apparent in our country is the fact that the current international financial crisis points to the collapse of laissez faire economics and discredits market fundamentalism. This collapse of the Chicago School of Milton Friedman further implies the fact that Zambia, as is the case in many African countries, must break free from these failed neo-liberal policies and their institutions that have promoted them and define its own path of growth and development.

Causes of the crisis

The US sub prime mortgage crisis and the bursting of other real estate bubbles around the world were symptoms that helped create the global financial crisis. The real cause was however imbedded in the vagaries of the international capitalist system. The so called globalization simply refers to a phenomenon where the world is controlled by the financial oligarchy or what my good Egyptian friend Professor Samir Amin described as the “financiarised” groups – the oligopolies who do not produce profit, but rather, they just swipe the monopolies rent through financial investments. My other Ugandan friend Professor Dani Wadada Nabuere, in agreeing with Amin correctly argued that the core of the crisis is over-extension of credit on a narrow base resulting in a phenomenon where money has become detached from the material base of a money commodity that can measure its value such as gold or silver.

What do these observations by these eminent African scholars mean in reality? To understand this, we must go back in history. After the Second World War, the expansion of the world economy was based on the United States Dollar which provided the link between money and the gold standard. This link collapsed in the 1970s under the reign of President Nixon and the US Dollar became the global currency, but without a backing to this currency from a money commodity like gold as was the case previously.

Since the collapse of the gold standard, there has been unmatched expansion of global credit – growth of paper money and monetary instruments such as derivatives, future options and hedge funds at a faster rate while the productive base grew at a slower rate. Consequently, the “financial bubble” which the world has been experiencing lately became the logic of this imbalance. Samir Amin estimated that “the gross amount of financial instruments in 2008 amounted to two thousand trillion dollars while the world Gross Domestic Product (GDP) was forty four thousand trillion. This phenomenon was what precipitated the crisis. The growth of “speculative capital” has over-run the growth of “productive capital”. In other words, there are currently large amounts of credit circulating without the backing of any production at all. This “loose money” has completely run wild and is in a wild search to be given value. In other words, the owners of this “fake” money, those holding United States Treasury Bills and bonds, want to preserve their wealth and prevent themselves from financial collapse.

Results of the global crisis

Capitalism or more appropriately, this aging capitalism cannot re-invent itself. It is doomed by its greed to wither away. Its logic has resulted in or engendered global stagnation of production with its side effects of recession in the north and economic depressions in the south. The shrinking wages, the increasing levels of unemployment, the worsening of poverty and disease of many nations of the South – all this is symptomatic of aging capitalism gone senile.

For the Northern countries, the only way their aging capitalism can stay afloat, is by these states nationalising many of their key banks and corporations which can no longer survive because of the shortage of liquid cash. The world is now witnessing a situation where these capitalist countries are being forced to move back in the direction of central planning and management of economies - a phenomenon they hated so much not long ago.

Furthermore, this systemic crisis of capitalism is leading to a rapacious struggle for the earths resources. The 15 per cent of the planets population who currently consume 85 per cent of world resources want to continue with their opulent life styles at the expense of the rest. That is why the United States under President Bush wanted to continue with its global military control of the world by establishing Coricom on the African continent to secure the exclusive access to Africa’s resources against impediments that India and China may wish to introduce. Similar clouds of war as occurred in pre 1914 and 1938 are building up and the world should be preparing for self destructive acolyptic wars.

Collapse of market fundamentals

It has now dawned even to our most zealous market fundamentalists that markets are not impersonal beings. They are man-made forces influenced by greed and selfishness. Markets do not have self-correcting mechanisms. To most honest people, this neo-liberal dogma has collapsed. The devastation caused by the current international financial crisis where tax payers have been forced to spend trillion of Dollars to clean the toxic mess left by this collapse is a clear attestation to the collapse of market fundamentalism. Now, the ghosts of John Maynard Keynes and Karl Marx are coming back to haunt the neo-liberals. Now, policies such as nationalisations of banks and financial institutions, rescue plans for companies, the need for state intervention and attacks against unbridled capitalism – are now the real thing in global practice. The economist magazine of 2nd February, 2009 eulogized Karl Marx and put him on their cover page with the question “what would Marx think?”

The lesson for our country is that we must strive to free ourselves from the shackles of neo-liberal capitalism and explore new paths of development. In all religions of the world, countries are moving away from this discredited neo-liberal paradigm. Gordon Brown correctly characterised it as the collapse of the Washington Consensus. Of course, this change will require the political will of our leaders who must be willing and able to explore alternative development policies and programs. Our own Guy Scott prescription (The Post of 14 April,2009) that we must continue with the failed paradigms of the Washington Consensus is obviously a misreading of our history and a road to continued disaster.

SAPs are discredited

The G20 group of nations who met recently in London realised that the priority of all nations must no longer be inflation but jobs and economic recovery. The IMF and the World Bank who forced our countries to adopt Structural Adjustment Policies (SAP) have now changed their views and they are now supporting fiscal stimulus – that is, expansionary fiscal policies, rescue plans and nationalisation. These policies have since 1980s been denied to Zambia and all developing countries as these policies could impede the interests of global capitalism.

We must challenge and reject all the failed SAP policies. This is the same conclusion arrived by the Prof. Joseph Stiglitz Commission appointed by the UN General Assembly. We must use both fiscal and monetary measures to mitigate the impact of this financial turmoil. We must restore capital controls and reverse liberalisation of the capital account which, since 1993 in Zambia, simply opened doors to speculative capital flows, tax evasion and capital flight and has contributed to lowering of Zambia’s domestic savings while increasing our dependence on foreign aid.

We must do away with fiscal and monetary austerity as prescribed by the Breton Woods Institutions as this has been choking our economic expansion and limiting our public investment and social spending. We should learn from President Obama’s USA that stimulus policies in times of crisis are a historical necessity; while fiscal restraint has no economic logic.

We must reject trade liberalization and restore protection of our domestic market. Trade liberalization has simply increased Zambia’s external dependence, destroyed our domestic industries, accelerated our de-industrialization and led to the deterioration of our terms of trade. Our ability to feed ourselves has been compromised by the foolish conditionality that we must invest in cash crops at the expense of food production. The forced privatization translated into massive job losses and social exclusion of our people. We must learn from what is happening in the USA, Latin America and Asia where governments are taking back what was sold off to foreign interests in order to restore their people’s sovereignty over their nations’ resources.

The need for a developmental state

President Ronald Reagan in the 1980s wrongfully stated that the state was a “part of the problem and not of the solution”. As a result of this policy prescription, there was massive de-regulation and assault on the state, public service and ownership. Zambia and many African countries were subjected to devastating Structural Adjustment Programs (SAPs). Our countries were characterized by the so called Washington Consensus, as being “predatory, wasteful, rent seeking, corrupt and inept”(Thandika Mkandawire 2001 o.p.cit). They tried to weaken our states and forced us into imposed fiscal austerity programs, downsizing of our public service, dismantling our public sector and privatizing all state enterprises. These were policies to nowhere. It is now apparent that a strong developmental state is an indispensable and indisputable agent of development. It is now clear in all observations of countries’ experiences, that deregulation and market fundamentalism are part of our problems. We must restore the role of a strong and active interventionist state.

Financing Development

Since it is foolhardy to expect external sources of finance to develop our country, we must raise resources internally. This policy prospective is also the view of the AFDB who have recommended that our countries must boost domestic resource mobilization, increasing domestic savings. The ecumenical organization Christian Aid (2008) in their publication “Death and Taxes: the true toll of tax dodging”, noted that our country has been losing billions of tax revenue due to lack of enforcing agreements with foreign mining companies who have been resorting to various means to avoid paying taxes. Our country has a large enough tax base to fund our own development. Judicious use of our pension funds as well as prudent use of our annual budgets can meet all our developmental needs. The argument as advanced by some right wing scholars that we must attract Foreign Direct Investment (FDI) is not sustainable as none will come however much we try.

Restoration of our self-confidence

How does Zambia get out of the mess? The conditions for a genuine positive answer to this question must be a return to the mixed economy where state capitalism co-exists with strong social democratic policies. We must return to democratic socialism (not totalitarian communism which is easy to vilify). The dream for democracy and socialism has been the dream of the pioneers of the MMD in their draft program which was substituted later by the doctrines of Milton Friedman and the Chicago school of economics – privatization, deregulation and cuts on government services. We must address our budget expenditure policy to reduce wastage by re-introducing Government Stores and eliminate unnecessary costs. It is unbelievable that a rim of paper that costs K18,000 in normal shops is bought by government departments at anywhere above K70,000. Tarring a kilometer of road which averaged $200,000 in the sub region is anywhere above $1 million in our country.

We must restore our self-confidence and trust in our own people and aggressively accelerate regional and continental integration of Africa. We must institute a public works program to address the employment needs of the more than five million Zambians that are currently unemployed or underemployed and many who hover between suicide and madness. We must nationalize those mining companies that want to stop mining and place their mines on care and maintenance, as well as increase our stake in all the other mines which must be declared strategic to our nation. Our government must raise capital and invest in power generation and restructure ZESCO, re-introduce an agricultural marketing board, re-capitalize NCZ, re-establish an agricultural bank, empower our own middle class, and invest in the social sector. The truth is that we are our own makers of our history and foreign aid as we have known it so far tends to make us complacent and non creative.

4 comments:

  1. Wow. I'm impressed that he is closely allied to Rupiah Banda.

    I wonder if there are more in the MMD who get it?

    Cho,

    Mbita Chitala, a close ally of President Banda, writing in The Post puts forward a "restoration program"that reads like a return to old UNIP policies. He is clearly talking about Social Democracy - so is the rest of the world. There is nothing particularly UNIP about that.

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  2. Mrk,

    Perhaps we have different recollections of the UNIP policies. I highlight in bold key examples from the last paragraph that are certainly UNIPist :

    "We must institute a public works program to address the employment needs of the more than five million Zambians that are currently unemployed or underemployed and many who hover between suicide and madness. We must nationalize those mining companies that want to stop mining and place their mines on care and maintenance, as well as increase our stake in all the other mines which must be declared strategic to our nation. Our government must raise capital and invest in power generation and restructure ZESCO, re-introduce an agricultural marketing board, re-capitalize NCZ, re-establish an agricultural bank, empower our own middle class, and invest in the social sector. The truth is that we are our own makers of our history and foreign aid as we have known it so far tends to make us complacent and non creative."I am not saying these are necessarily bad polices, I am simply point out that there's a reason why he speaks of RESTORATION and not innovation. Its obvious what he has in mind in terms of RESTORATION...its restoring old UNIP policies. Again, its a different question on whether that is desirable.

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  3. Cho,

    Ok, I get it. However, I'm sure the details can be worked out. There are many modern examples of Social Democracy and mixed economies, that Zambia could easily learn from. And even EU specialists of good will could help with.

    The old policies of universal education that the MMD has let go of, because 'the market would provide' education for all, somehow has not worked. An even more cynical view would be, that it is to the corporate, neoliberal advantage, to have large numbers of unemployed and uneducated masses, because it suppresses wages. They are of course all about suppressing wages, right down to shipping entire companies to low wage countries.

    From the article:

    My other Ugandan friend Professor Dani Wadada Nabuere, in agreeing with Amin correctly argued that the core of the crisis is over-extension of credit on a narrow base

    I would suggest it goes back further than the 1992 onward policy of keeping interest rates low, and that this policy was a reaction to the fact that after the roaring 80s, and the collapse of the market in '87, the economy did not come back, even by '92, because during the 1980s, huge numbers of people had lost their jobs because of deregulation, corporate raiding and other 'free market' policies. Deregulation and the corruption it lead to, the corporate raiding had suppressed incomes.

    Keeping interest rates artificially low only covered up the disastrous impact of deregulation on the US and global economies.

    resulting in a phenomenon where money has become detached from the material base of a money commodity that can measure its value such as gold or silver.

    Which is an implied plea for a return to the Gold Standard. This coincides nicely with the analysis of the Association of Bureaux de Change's Paul Kalumba, that it is the loss of Zambia's commodity base to foreign corporations, that has undermined the national currency. I quote: the kwacha has not benefited from the rising copper prices because the mines have continued to be controlled by foreign investors. Who of course pay no taxes, and share no profits (if they would even declare all their profits honestly to begin with - their incentive is not to do so, so they won't be taxed on them).

    And it supports my suggestion to build reserves of raw materials, to boost the currency.

    SAPs are discredited

    The G20 group of nations who met recently in London realised that the priority of all nations must no longer be inflation but jobs and economic recovery. The IMF and the World Bank who forced our countries to adopt Structural Adjustment Policies (SAP) have now changed their views and they are now supporting fiscal stimulus – that is, expansionary fiscal policies, rescue plans and nationalisation. These policies have since 1980s been denied to Zambia and all developing countries as these policies could impede the interests of global capitalism.
    Completely on point. These Structural Adjustment Programs were designed to steamroll Zambia (and Zimbabwe, and South Africa, and Argentina, and Chile, and Russia, etc.) to become part of this globalized free trade economy.

    They had nothing to do with real development, let alone Zambia's development. Why would we continue the policies of a failed ideology? An ideology, which has once again brought economic disaster, as certainly as it did in the 1920s, and again in the 1980s?


    By the way, have you had a chance to read Thom Hartmann's article on the real Boston Tea Party, on the Common Dreams website?

    Please check it out here:

    The Real Boston Tea Party was an Anti-Corporate Revolt
    by Thom Hartmann
    Published on Wednesday, April 15, 2009
    by CommonDreams.org

    Cho,

    I apologize for not reading the article more carefully, and to Yakima too for the same reason.

    However, we should also not lose sight of the big picture, which is that sentiment is changing worldwide, from corporate free trade, to Social Democracy as it is known in Western Europe. So rather than be apprehensive about a return to what was wrong with UNIP (the one party state, lack of freedoms, etc.), we should look at what Social Democracy already exists and can do in a Free Society. We need the capacity building, that is represented by universal education and healthcare. We need to make raising wages, not the attraction of FDI, the single most important factor in economic policy. Wages represent demand in society (in the broadest sense of the word - an educated workforce, infrastructure, services), and if we can raise demand, the providers and goods and services will follow. Instead of the 'if we build it, they will buy it' mentality of supply side economics.

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  4. Just a few quotes from Thom Hartmann's article:

    The real Boston Tea Party was a protest against huge corporate tax cuts for the British East India Company, the largest trans-national corporation then in existence. This corporate tax cut threatened to decimate small Colonial businesses by helping the BEIC pull a Wal-Mart against small entrepreneurial tea shops, and individuals began a revolt that kicked-off a series of events that ended in the creation of The United States of America.

    They covered their faces, massed in the streets, and destroyed the property of a giant global corporation. Declaring an end to global trade run by the East India Company that was destroying local economies, this small, masked minority started a revolution with an act of rebellion later called the Boston Tea Party.
    And...

    Although schoolchildren are usually taught that the American Revolution was a rebellion against "taxation without representation," akin to modern day conservative taxpayer revolts, in fact what led to the revolution was rage against a transnational corporation that, by the 1760s, dominated trade from China to India to the Caribbean, and controlled nearly all commerce to and from North America, with subsidies and special dispensation from the British crown. Read the rest here...

    ReplyDelete

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