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Wednesday, 4 August 2010

The true source of our poverty

There is a challenge here to all of us: if we want quality political leadership, we should be prepared to contribute in one way or another to its construction. Let’s take time to participate in the affairs of our country’s political parties. Let’s make financial and other material contributions to the functioning of these political parties as far as possible as we can. 
- The Post (Editorial)
It has taken a while but I now believe we are headed in the right direction in putting a finger on the true source of our problems. We not there yet in understanding the important and well tested principle : we get the leadership we deserve.  When Zambians one day realise that politicians are supposed to govern in their interest, I believe that day poverty will be on its death bed.
I say we are not there yet because the Post Editorial is still emphasizing the financial aspect of the contribution. I certainly do think this area is important because investing in political parties will certainly ensure that we care more about how such political parties are run. This is partly why I oppose public funding of political parties. The last thing Zambia needs is public funding of political parties because it will just extend the "tragedy of the commons" to this already damaged area. But I digress . The main point I wanted to make is that the true source of our poverty, and this may upset some, may well be intellectual.  Yes, let us give these already greedy politicians more money, hoping to get a hook in their affairs, but more importantly, we must cultivate an intellectual renaissance. At present our attitude is worse than 18th Century Portugal, where Mary Brearle noted : "the bulk of the people were disinclined to independence of thought and, in all but few instances, too much averse for intellectual activity to question what they have learned".  

I believe in all honesty that much of what we need to change is intellectual. We need to gird our people with the right analytical armour. I find that usually Zambians-in-know ask the wrong questions. This is why mediocre explanations by Ministers and other lazy intellectuals can go unchallenged. We need to re-educate our people. Shift their mode of thinking to begin questioning those in authority - to begin thinking independently - we can and must hold our leaders to a much higher standard that at present. A big challenge here is our we get the message out to the rural constituents and chiefs in particular.

By God's grace we shall, that I am convinced of. Mediocre explanations and poor analytical thinking wont solve the deep challenges facing our people. Our problems are too great. Every minute a poor grandmother struggles to feed herself. A child roams the streets. Who will speak for them? It wont be our politicians or our MPs. Its 2010, but yet Zambia has worse housing conditions than pre-World War 1 Europe. I find that totally unacceptable. It is that moral outrage that should spur each of us to ensure that we leave Zambia better than we found it - which is not difficult for anyone born after1980. I am of the view that we don't have to be politicians to do our bit. But to bring about the change we all desire will require greater civic activism and innovate methods for getting the message out to the rural masses.

20 comments:

  1. The main point I wanted to make is that the true source of our poverty, and this may upset some, may well be intellectual. Yes, let us give these already greedy politicians more money, hoping to get a hook in their affairs, but more importantly, we much cultivate an intellectual renaissance. At present our attitude is worse than 18th Century Portugal, where Mary Brearle noted : "the bulk of the people were disinclined to independence of thought and, in all but few instances, too much averse for intellectual activity to question what they have learned".

    The real source of Zambia's 'poverty' is very simple. Look what is happening to the money.

    The government listens to it's source of financing before it listens to anyone or anything else. So where does the money come from?

    1/3 of the budget (in 2004) came from 'donors'. Why? Because it is safer to take 'donor money' than it is to tax the mines. But donor money is really a small part of the money we don't tax the mines for.

    In 2004, they made about $2.4 billion in profits and handed us back $600 million in 'donor aid'. Now if the mines were taxed at 50%, we would be receiving $1200 million, not $600 million. If the mines were Zambian owned, we would receive $2400 million, not $600 million.

    Plus missing out on the multiplier effect of $1200 million or $2400 million being invested in roads, bridges, schools, hospitals, factories, farms, etc.

    Plus, it would all be Zambian owned. It would not flee at the drop of a hat because taxes go up, or there is a global crisis, or there is another country with cheaper labour.

    That is the source of the country's poverty.

    Now what would happen if there was as change in the government? If the government goes that road alone, there would be massive retaliation, just as there has been against Zimbabwe. And by the way, what happened to Zimbabwe, is what Zambia was threatened with in 1991 to force it into 'multi-party democracy' and again in 1999, to force privatisation of the mines.

    It is economic warfare, nothing less.

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  2. South Korea calculated that the economy grew by 6% for every year added to education. This means that if we educate every child through grade 12 instead of grade 7 we should add 30% to GDP. Some drastic improvement in the quality of education would help as well, also in its diversity (not every child is academically able
    some have more practical talents)
    There would be an immediate increase in employment of teachers and builders and a later increase in colleges required.
    Educated people are more likely to challenge or question the nonsense that we hear every day but not necessarily in a meaningful or productive way. (Note how many people will complain about the ZESCO increase after the next bill as opposed to the 46 who bothered to complain before the increase when it could still have an effect!)
    Another thing that could be done in Zambia to boost the economy is to pay the retirees. We have a very low retirement age (55) and if people get their benefits the invest in business or agriculture or something productive. They are often successful as they have years of experience behind them. The whole economy would grow as a result. If all retirees had to be paid before any MP I think it would get done.

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  3. Cho asks, 'What is the true source of our poverty?' He attributes it to 'the failure of Zambians to realise that politicians are supposed to govern in their interest'. He says we must put on 'the right analytical armour', and he enjoins 'moral outrage' at existing housing conditions. MrK thinks we should 'look what is happening to the money'. R. Henson advocates more years of schooling and prompt payment of pensions - again more money.

    The economist Peter Bauer was once asked 'What are the causes of poverty?' His reply: 'There are no causes of poverty. There are only causes of wealth.' Education certainly helps, but hard work, enterprise and integrity are crucial.

    Governments do not create wealth. They often squander or steal it, as we know very well for the reports of our Auditor General, which concern civil servants even more than politicians. The best we can hope for from governments is that they will desist from overtaxing us and printing money, and will help to enable the creation of wealth by the people.

    So the responsibility comes back to us as individuals. Instead of blaming others and adopting an attitude of victimhood, we need to learn from the work ethic of successful countries, including China.

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  4. I would say that good management at every level (national, local and personal) is essential to reducing poverty. In this respect, Sakism is much more relevant than irrelevant to Zambia. Look at what successful countries have done, understand why they have done it and emulate them.

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  5. I suggest everyone checks out this article:

    The Republican plan to wreck the economy and then blame the Dems. Will it work?
    By Richard Clark
    opednews.com

    The government can't create wealth? Tell that to the Chinese, Japanese, Koreans, Taiwanese, whose economies are run by parastatals, or have a look at successful State Owned Enterprises worldwide, like the US Postoffice.

    What we are seeing is the end of the theology of free marketeerism, which is so bad and unsuccessful, that needs to be renamed every 20 years. (Laissez Faire, Supply Side Economics, Thatcherism, Reaganomics (which his co-president and later successor George Bush sr. called Voodoo Economics), and now neoliberalism.)

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  6. It is a pity that MrK is blind to the success of private sector businesses as compared to state owned ones. For a prime example he need only look at Zambia!

    In general, as one looks around the world, private sector companies are by far the most successful. They have to be: unsuccessful private companies collapse. The US Postal Service only survives because it has a monopoly to deliver to mail boxes. Most successful companies in China, Taiwan and South Korea are privately owned. Free competition is essential for good performance in business as well as in government.

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  7. Hi Murray,

    It is a pity that MrK is blind to the success of private sector businesses as compared to state owned ones.

    You made a very concrete statement, namely: "Governments do not create wealth."

    That is a Republican Party (dare I say, Fox News Channel) talking point.

    It is also a clear, testable hypothesis. Using Aristotle's principium contradictionis, if we can show that the direct opposite of a statement is true, namely that there are parastatals that do create wealth, then we can disprove that hypothesis. Example.

    Saudi Aramco - from Wikipedia:

    Saudi Aramco is the state-owned national oil company of Saudi Arabia. It is the largest oil corporation in the world with the largest proven crude oil reserves and production.[2] Headquartered in Dhahran, Saudi Arabia,[3] Saudi Aramco also operates the world's largest single hydrocarbon network, the Master Gas System. It was known as just Aramco between the years of 1933-1988, an acronym for Arabian American Oil Company.

    I would say that when SAUDI ARAMCO pumps oil out of the ground and sells it for (right now around) $80,- per barrel, they in fact are creating wealth.

    LAP Green - the Lybian government investment vehicle that has just taken over ZAMTEL, showing that not every privatisation is a privatisation. From their website:

    The LAP Green Network is part a part of the Libya - Africa Investment Portfolio (LAP) that was incorporated in 2006 as a Libyan foreign investment vehicle primarily focusing on contributing to the development of African countries. The state owned vehicle had an initial capital of US $ 5 Billion.

    That is $5 billion of oil dollars. In other words, oil drilled by the Libyan government, not a US, Australian, Canadian, Indian or Chinese company, and as a result, they kept all the profits - which they are now using to buy up utilities companies all over Africa.

    British Petroleum (BP). BP started out as Anglo-Persian, then Anglo-Iranian Oil Company, wholly owned by the British government. It wasn't until Margaret Thather and the 1980s, that BP was privatised.

    By the way, I am still waiting for Kafue001's example of a country that developed through Free Trade, and not by protecting it's infant industries, government involvement in setting up large (parastatal) corporations, etc.

    My point is that if neoliberal economics was as self-evident as the theory's proponents would claim, then there would be plenty of examples and evidence around of it working.

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  10. MrK,

    Malaysia is an example of a country that has developed through an open trade policy:

    http://www.undp.org.my/malaysia-international-trade-growth-poverty-reduction-and-human-development

    "Its openness to international trade has led to three and a half decades of rapid economic growth and a spectacular decline in poverty rates."

    Also important to note:

    "Though the evidence suggests long-run economic gains for all from trade liberalization, there will be short-term winners and losers. Compensatory policies are needed to help the poor deal with the transition costs of adjustment and benefit from open trading regimes. Trade liberalization in Malaysia was thus accompanied by pragmatic social and macroeconomic management as well as investments in human capital, especially health, education, and women's empowerment."

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  11. Just to add, proof that parastatals can be run badly, is not proof that they cannot be run well. And that is what we need to focus on.

    A clear separation of the State (civil service, parastatals) and the Government (President, cabinet and MPs) through the Constitution.

    Hiring based on merit, not connections - no more 'cousins of' in management positions. And an end to 'privatisation' as an alternative to good governance. This is what helped kill ZAMTEL - the non-payment of bills by the government, because 'we're going to privatise it anyway'.

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  12. MrK,

    Saudi Aramco and LAP Green are not good examples of your typical parastatal. In both cases their results are affected by the huge profits generated by oil. A more typical example is Zesco or the previous Zamtel. Privatizing is a better option, because there is always the possibility of government interference in the operations of parastatals even though there may be a separation of the state and government in the constitution as you propose.

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  13. Kafue001,

    Privatisation in Malaysia does not predate the Margaret Thatcher era. Like all other East Asian countries, Malaysia developed through the creation of State Owned Enterprises during the 1950s, 1960s and 1970s, by both State and lower government levels. In fact their development is characterized by the creation of parastatals. From The United Nations:

    PRIVATIZATION AND RENATIONALIZATION IN MALAYSIA: A SURVEY 1
    Jomo K. S. and Tan Wooi Syn

    The Growth and Privatization of Malaysian SOEs

    Colonial policy in British Malaya was essentially conservative. The colonial authorities recognized the need to develop utilities and other infrastructure so crucial to profit making in the colonial economy. Hence, public enterprise or state owned enterprise (SOE) emerged during Malaya’s colonial era to provide the public goods and services needed by British private enterprise to secure profits from their control of tin mining, plantation agriculture and international commerce.

    Faced with a communist-led insurgency and the prospect of a debilitating stalemate or, worse still, defeat in its economically most lucrative colony after the Japanese Occupation during World War Two, the colonial authorities sought to win ‘hearts and minds’ from the early fifties after little success with its original strategy of repression from the late forties. In this context of social reform to complement repression, the British colonial authorities established new SOEs oriented primarily to rural development efforts to consolidate a Malay yeoman peasantry as a bulwark against a Chinese-led rural insurgency with some peripatetic efforts to encourage petty Malay business in the face of ubiquitous Chinese dominance of petty trade and industry.

    The advent of an elected Malay-dominated post-colonial government saw a deepening of such efforts, by the ruling Alliance led by the United Malays National Organization (UMNO), mindful of its primarily Malay electoral base. Hence, after independence in August 1957, rural development efforts intensified, with some proliferation of new rural development agencies. The momentum to advance Malay business interests accelerated from the midsixties, especially after the convening of the first Bumiputera Economic Congress in 1965.

    From the early sixties as well, the post-colonial government’s import substituting industrialization policy required the establishment of some SOEs to provide industrial financing and organize factory sites on industrial estates, but little more, as the conservative Alliance government was concerned to ensure that it did not upset British and other foreign companies seeking to consolidate their market shares in the growing post-colonial market by relocating some plant and machinery, primarily for assembly and packaging, in the former colony.

    From the mid-sixties, most Malaysian state governments also began setting up state economic development corporations (SEDCs) to enhance the flexibility of the state governments in undertaking initiatives of their own, particularly in exploiting their own natural resources and trying to ensure some spatial dispersal of new industries. The abolition of municipal elections – typically won by opposition parties since their advent in the fifties – from the mid-sixties may well have inadvertently pre-empted similar initiatives at the municipal level.

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  14. Making the transition to export-oriented industrialization in the late sixties with the exhaustion of import substitution, various federal and state government agencies provided much of the necessary infrastructure and other facilities to attract foreign manufacturers to relocate in and use Malaysia as their new export platform offering relatively cheap, docile and largely un-unionized labor.

    The May 1969 elections and ensuing race riots and palace coup within the UMNO – and hence government – leadership resulted in very significant regime changes, resulting in the tremendous expansion of state intervention and the public sector for the next dozen years (until Mahathir’s elevation to become Malaysia’s fourth Prime Minister in mid-1981). The new national leader, Razak announced a New Economic Policy (NEP) committed to achieving national unity by reducing poverty and achieving inter-ethnic economic parity, especially between the politically dominant Malays and economically ubiquitous Chinese.

    From 1971, the Malay elite-dominated Malaysian government’s NEP was officially committed to reducing poverty and inter-ethnic economic disparities, ostensibly to achieve national unity, understood primarily in terms of reduced inter-ethnic resentment. New statutory bodies, government corporations, government-owned or controlled publicly listed companies as well as government-owned or controlled private companies all became means to achieve government objectives, including – but not only – the NEP’s corporate wealth redistribution target of increasing indigenous (Bumiputera) ownership share to 30 percent by 1990 from 2.4 percent in 1970.

    The NEP’s Outline Perspective Plan for 1971-1990 (OPP1) also envisaged the creation of a Bumiputera commercial and industrial community (BCIC), while the Fourth Malaysia Plan for 1981-1985 expected Bumiputera ‘trust agencies’ to account for 83 percent of Bumiputera share capital in 1990, i.e. only 17 percent – or 5.2 percent of total share capital – was to be held by Bumiputera individuals. By 1990, however, Bumiputera share capital2 had risen to 20.3 percent of total share capital, with trust agencies accounting for 6.3 percent and individuals for 14.0 percent, i.e. 31 percent and 69 percent of the Bumiputera share respectively!

    Existing SOEs were strengthened and new ones created to achieve these goals. Intensified rural development efforts continued to be directed mainly at the Malay peasantry. Greatly expanded educational efforts, particularly at the tertiary level, rapidly grew to expand and consolidate the Malay middle class. Malay employment in the modern sector grew rapidly, both in the public and private sectors, though not without some state coercion in the latter case. And perhaps most importantly, in terms of what the NEP has come to mean in Malaysia, various ‘Bumiputera trust agencies’ rapidly acquired tremendous corporate wealth, ostensibly on behalf of the predominantly Malay indigenous (Bumiputera) community.

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  15. The conservative fiscal policies of the early post-colonial era were abandoned in favor of growing deficit financing, primarily from domestic sources, mainly the forced savings of the Employees Provident Fund (EPF), set up as part of the labor reforms of the early fifties. The discovery and extraction of newly discovered petroleum reserves, as international oil prices rose from 1973, greatly increased the Malaysian government’s degree of freedom in terms of spending, and hence, SOE expansion, which extended to regional and spatial dispersal objectives as well. Malaysia’s newfound status as a net petroleum exporter from the mid-seventies enabled it to continue to increase public spending until the end of the decade without any dramatic increase in foreign borrowing.

    END QUOTE


    Here is a description of Malaysia's state owned oil company, PETRONAS, which is among the Fortune 500 companies:

    Petronas, short for Petroliam Nasional Berhad,[1] is a Malaysian-owned oil and gas company that was founded on August 17, 1974. Wholly owned by the Government, the corporation is vested with the entire oil and gas resources in Malaysia and is entrusted with the responsibility of developing and adding value to these resources. Petronas is ranked among Fortune Global 500's largest corporations in the world. Fortune ranks Petronas as the 95th largest company in the world in 2008 and 80th largest in 2009. It also ranks Petronas as the 8th most profitable company in the world and the most profitable in Asia.[2][3][4]

    Since its incorporation, Petronas has grown to be an integrated international oil and gas company with business interests in 31 countries. As of the end of March 2005, the Petronas Group comprised 103 wholly owned subsidiaries, 19 partly owned outfits and 57 associated companies. Together, these companies make the Petronas Group, which is involved in various oil and gas based activities. The Financial Times has identified Petronas as one of the "new seven sisters":[5] the most influential and mainly state-owned national oil and gas companies from countries outside the OECD.

    END QUOTE

    Here is a list of government owned corporations, by country.

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  16. MrK,

    From your citation above:

    "The colonial authorities recognized the need to develop utilities and other infrastructure so crucial to profit making in the colonial economy. Hence, public enterprise or state owned enterprise (SOE) emerged during Malaya’s colonial era to provide the public goods and services needed by British private enterprise to secure profits from their control of tin mining, plantation agriculture and international commerce."

    In other words, the government focused on infrastructure related enterprises to facilitate the growth of private enterprises.

    "Making the transition to export-oriented industrialization in the late sixties with the exhaustion of import substitution, various federal and state government agencies provided much of the necessary infrastructure and other facilities to attract foreign manufacturers to relocate in and use Malaysia as their new export platform offering relatively cheap, docile and largely un-unionized labor."

    Again, more infrastructure related facilities provided by the government to facilitate free trade. So my argument that free trade results in development still holds in reference to my original citation.

    Petronas like Aramco is an oil company, whose operations are affected by the huge profits from oil. It is not typical of a non-oil parastatal.

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  17. Kafue001 said...

    MrK, Saudi Aramco and LAP Green are not good examples of your typical parastatal. In both cases their results are affected by the huge profits generated by oil.

    So? There are huge profits generated by copper, cobalt, gemstones too. I don't see how because PETRONAS and LAP Green get their profits from oil, somehow they don't count as successful parastatals?

    What does it matter where they get their profits from? They are wholly state owned, and they are generating massive profits. And they're not owned by foreign corporations, or the private sector, and as such their profits stay in Malaysia, even when the Malaysian state expands into owning businesses abroad.

    This is why Asia is leaping ahead and Africa is standing still - they don't give away their national resources to foreigners for some spurious theoretical reason.

    Also, they don't make education conditional on the ability to pay. They have universal education, which is boosting their human capital.

    In other words, they are doing all the old 'socialist' things, but they make sure they're doing them right.

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  18. Mr K,

    We are discussing the general feasibility of parastatals vs. the private sector. A resource based parastatal is not comparable to a non-resource based parastatal, hence you can not use it for comparison purposes with a non-resource based private company when determining which type of entity is better. It is like comparing apples with oranges.

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  19. Just in case there is anyone left around here who believes in deregulation, privatisation and the right of way for global corporate capital, at the expense of labour and real national development, one of it's architects is jumping off the economic Titanic this ideology has created. Reagan adviser David Stockman:

    http://www.marketwatch.com/story/reagan-insider-gop-destroyed-us-economy-2010-08-10?pagenumber=1

    Reagan insider: 'GOP destroyed U.S. economy'
    Paul B. Farrell ›
    Aug. 10, 2010, 12:45 a.m. EDT

    ARROYO GRANDE, Calif. (MarketWatch) -- "How my G.O.P. destroyed the U.S. economy." Yes, that is exactly what David Stockman, President Ronald Reagan's director of the Office of Management and Budget, wrote in a recent New York Times op-ed piece, "Four Deformations of the Apocalypse."

    Get it? Not "destroying." The GOP has already "destroyed" the U.S. economy, setting up an "American Apocalypse."

    Jobs recovery could take years

    In the wake of Friday's disappointing jobs report, Neal Lipschutz and Phil Izzo discuss new predictions that it could be many years before the nation's unemployment rate reaches pre-recession levels.

    Yes, Stockman is equally damning of the Democrats' Keynesian policies. But what this indictment by a party insider -- someone so close to the development of the Reaganomics ideology -- says about America, helps all of us better understand how America's toxic partisan-politics "holy war" is destroying not just the economy and capitalism, but the America dream. And unless this war stops soon, both parties will succeed in their collective death wish.

    Read More...

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  20. The economic situation in America is not as bad as Farrell's commentary indicates. The employment rate is 90.5%, there are numerous social safety nets, unemployment rates in America vary state by state, one can always move to a state with a lower unemployment rate since there is freedom of movement in America. What is considered as poverty in America would be considered as luxurious living in many poor countries.

    When there is deflation or low inflation with a high unemployment rate, then stimulus or other ways of increasing business activity such as increased investment lending should be used. It is like driving an auto at a steady speed, at certain times the accelerator pedal should be depressed more, at other times the pressure should be relieved.

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