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Monday, 18 November 2013

A Development Blueprint for Zambia

Editor’s note: This is a guest post by Michael Chishala, a Zambian writer and regular contributor to the discussions on the ZE Facebook page.  Follow him on Facebook
Many armchair critics rightly observe that many other armchair critics complain about problems in Zambia without offering solutions (ironically, they equally offer no solutions either). So today, let's debate some ideas about what specific steps a government of a poor nation needs to do to produce prosperity. I shall do things in reverse. Steps first with explanations, and then the main reasoning behind.

THE SOLUTIONS

Year One

a) Drastically cut the size of government to ten Ministries and get rid of all Deputy Ministers (we do not need 70 ministers). Reduce some ministries to small departments. A Kwacha in private hands produces more than a Kwacha in government's hands (they are driven by politics of the belly and the desire to remain in power forever).

Ministries Remaining:

1. Finance
2. Justice
3. Commerce, Trade and Industry
4. Defence
5. Home Affairs
6. Foreign Affairs
7. Health
8. Transport, Works and Supply
9. Lands
10. Local Government and Housing

Ministries reduced to small departments:

1. Information, Communication and Broadcasting
2. Education
3. Labour

Ministries Abolished:

1. Gender and Child Development
2. Chiefs and Traditional Affairs
3. Tourism and Arts
4. Natural Resources and Environmental Protection
5. Mines, Energy and Water Development
6. Youth and Sport
7. Community Development, Mother and Child Health
8. Agriculture and Livestock

Big government = Big taxation = Big waste, theft, abuse, misuse, disuse.

Smaller government = Lower taxes = Better use of resources.

b) Completely and totally privatize everything under the sun, starting with the biggest companies like ZESCO, Zampost, Zamtel, Zambia Railways, etc. Simultaneously liberalize the economy more, removing tariffs and regulatory barriers to entry (eg expensive licensing fees). This produces competition which leads to cheaper higher quality goods and services, translating into higher standards of living since the same money will now be able to buy more.

More disposable income = more savings and more credit = faster economic growth.

c) Change the Land tenure system back to freehold from leasehold. Convert all traditional land that is unused into free land up for grabs. Enforce land ownership with title deeds. Land ownership makes access to credit easier.

More credit = More business = More economic activity

d) Reduce the powers of the Executive. There should be mandatory parliamentary oversight of any major appointments like Chief Justice, DPP, Attorney General, Police Commissioner, Army/ZAF/ZNS chiefs, etc. Other positions should be advertized (ZNBC Director General, Board Chairmen, etc). Simultaneously amend contentious laws one by one, instead of wasting money on another useless constitutional review process. Public Order Act, Electoral Act to add 50%+1 system, Presidential running mate, Cabinet chosen from outside parliament, Freedom Of Information, etc.

Less political interference = More certainty = Better credit rating.

e) Simplify business procedures and make licenses dirt cheap.

Lower costs of doing business = more investment.

f) Remove the monopoly of ZIALE in admitting lawyers to the bar (allow other competing bodies). Reform legal system with ICT's (computers and online databases) and KPI's (eg set a time limit for judgements to be written).

Better judiciary = Better Rule Of Law = More business between strangers

g) Begin outsourcing to the private sector some government functions like tax collection, garbage collection, border processing, passports, NRC's, drivers and other licences, etc. Use a competing franchise system like in fast food restaurants.

More competition = Lower costs = Better Services

Year Two

a) Cut ALL taxes and introduce FLAT tax rates. 25% Income Tax, 20% Corporation Tax, 10% VAT/WHT, 5% Excise duty, 10% Import duty. No more tax tables or zero-rated items while others are 60%. This cuts administrative costs and make things more predictable.

More money in people's pockets = faster economic growth.

b) Go into PPP arrangements for schools and hospitals/clinics with a view to eventually make them self-sustaining through widespread medical insurance schemes and school vouchers.

c) Offload other assets like state farms, government houses, idle government land, etc. Lease all national parks.

d) Cut more fat from government by abolishing some bodies or turning them into small nimble departments. eg ERB, FRA, ZICTA, etc.

e) Privatize state media or else make it completely independent with no political appointees (eg BBC).

Year Three

a) Cut taxes even further as more irrelevant government functions are trimmed and the economy grows (eg FISP, Maize marketing, etc). 20% Income Tax, 15% Corporation Tax, 10% VAT/WHT, 5% Excise duty, 5% Import duty.

b) Start process of turning the nation into a Federal state, complete with Governors, Mayors and State Legislatures. Abolish Provincial Ministries and District Administrators.

c) Increase budget significantly for police force and Judicature in general.

d) Begin removing subsidies.

Year Four

a) 15% Income Tax, 10% Corporation Tax, 10% VAT/WHT, 5% Excise duty, 0% Import duty.

b) Continue removing subsidies.

Year Five

a) 10% Income Tax, 10% Corporation Tax, 10% VAT/WHT, 0% Excise duty, 0% Import duty.

b) Remove all remaining subsidies and other freebies.

c) Begin the privatization of schools, Collages/Universities and Hospitals/Clinics by selling them to the Teachers/Lecturers and Doctors/Nurses running them. If an MBO cannot work, open it up to outsiders.

REASONING

Economic and political policies implemented by a sitting govt have a far greater impact on a nation than relatively short-term external shocks (eg export/import commodity prices). Perpetual poverty or prosperity is predictable based on empirical evidence we now have about what works and what does not. Centrally-managed economies (Socialist or Communist States) tend to do poorly compared to market-driven ones. Zambia started off as a more Capitalist nation, delved into Socialism and lost half its GDP per capita. After reversing course, the figures improved from 1999 by about 40%, though still below the 1965 peak.

THE WRONG POLICIES

In order to implement the correct policies, we must recognize the bad decisions made by previous governments and their root cause. In my view, the specific actions and policies that were disastrous to Zambia between 1964 and 1991 were:

a) One party state and state of emergency for 27 years. This created a bloated political monopoly which turned citizens into virtual slaves.

b) Nationalization which created inefficient wasteful monopolies that went bankrupt when economic liberalization was introduced.

c) Excessive expenditures due to dishing out freebies (free education, free health, etc, even though many Zambians could afford these things).

d) Pouring money into liberation wars which drained the treasury.

e) Zambianization which replaced competent white people with half-baked black Zambians.

f) Printing money in the late 80s which produced over 100% inflation in the 90s.

g) Politicization of the civil service which turned it into a bloated appendage of the ruling party UNIP.

h) Intolerance of dissenting views which made it impossible to correct these very gross errors.

FUNDAMENTAL CAUSES - WRONG IDEAS

The core philosophy of the freedom fighters was Collectivism, as opposed to Individualism. They thought by draining the treasury and spreading the money around for free, everyone would be happy. They thought by controlling the means of wealth creation (companies), they could milk them and spread the money around. By putting unqualified Zambians to run these nationalized companies, they thought citizens would be empowered and have better lives. They thought that a centrally managed economy was better. They thought that controlling citizens would make it easier to govern. Of course every one of these backfired and we are where we are today, much poorer than in 1964

AUTHOR
Michael Chishala is Zambian writer and regular contributor to the discussions on the ZE Facebook page. Follow him on Facebook 

11 comments:

  1. I have haven't read anything quite so lucid and refreshingly logical in years...are you standing for President in 2016 Michael? If not, would you please?

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  2. I would happily surrender my UK passport for a Zambian one just to give you one vote too! I think some of your tax reductions are overly generous but if only the encumbent UNIP dinosaurs could think as clearly as you the country might flourish again instead of everyone trying to tread water, sliding slowly towards ruin while we wait patiently for their extinction.

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  3. Interesting Michael. I do think though, that any developmental agenda has to have a theme. Zambia has a rich economic history to learn from. For me the themes are around regulation (to stem the continued after effects of the wanton deregulation and privatisation policies of the FTJ era especially regarding land, housing, education and health). Directed regulation can achieve positive effect; more deliberate policies to spread the control of the means of production (the Zambian private economy is still controlled by a select non-indigenous part of the population which narrows areas of investment e.g. We still have very little real money getting into education and health); Getting greater participation from the general citizenry in civic affairs.
    I feel these themes would then form the backbone upon which any economic development would be couched

    Muleba

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  4. Unfortunately, I am not running for president ever as I see myself as an adviser than a front man, but thanks for the vote of confidence. This is just a blueprint that needs constant refinement and monitoring and some measures may take many years to come to fruition.

    Zambia has had plenty of "directed regulation" with dismal failure. We need something new and radical.

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  5. Why is the 'new and refreshing' idea, just more of the same neoliberal economics that have been driving down the economies of Africa for the last 40 years? Only more radical and going beyond what has been done today. One definition of insanity is to do the same thing over and over again, expecting a different result every time.

    A flat tax simply shifts the burden of taxation from the wealthy to the middle class. Especially when there is massive inequality in incomes and property. The wealthy should always pay more in taxes, because they earn more, and because they use more of the public infrastructure. They use the roads more, the courts more, their employees have been educated by the public's taxes.

    " Better judiciary = Better Rule Of Law = More business between strangers "

    Actually business is held back by a lack of access to capital, not necessarily an absence of the 'rule of law'. There is little capital, because the state is borrowing most of it. However the state is borrowing most of it, because they are not getting revenues from the extractive industry, or the middle class. In fact the non-taxation of the mines and the emphasis on personal income tax (PAYE) again shifts the tax burden to the middle class and the working class.


    " More competition = Lower costs = Better Services "

    Well more competition does mean lower costs and better services, however, competition can only be maintained by the state. The second you allow infinite accumulation of wealth, you are on the way to first kartel formation (price agreements, non-competition agreements, etc.) and then inevitably private sector monopolies. Which are no better than public sector monopolies - except that they are unaccountable to the public.

    22 years after the MMD came to power, we can very clearly see the effect of privatisation, deregulation, free trade for corporations.

    Is there greater equality or less equality? Is there more poverty or less poverty. Over the last generation, has there been a single economy that has developed for the benefit of it's people, that went the privatisation route?

    I would say not.

    Here is an idea - every Province in Zambia gets it's own bank, that can only lend out money to businesses and consumers who are domiciled in that province. Or small municipal banks.

    If you have government regulation that limits the geographic area business can operate in, they will put all their money into that area, and not in government bonds, or foreign company stocks, or Swiss bank accounts.

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    Replies
    1. MrK,

      Economic History:
      Most countries in Africa dismantled the much more free market systems the colonialists left and implemented Socialism. In Zambia there was massive nationalization leading to an even more massive economic disaster. To claim that Zambia had in the last 40 years "neoliberal economics" is simply false. Can you honestly equate 1971-1991 and 1991-2011?

      Taxes:
      The wealthy contribute more in taxes than the poor (even at flat tax rates). They contribute more towards the building of infrastructure. The 2010 Living Conditions Monitoring Survey shows that half the income generated (and taxed) in Zambia is produced by the richest 10%. Progressive taxation is like deducting marks from the top students and giving them to dull students (Robin Hood rob-the-rich-and-give-to-the-poor schemes).

      Rule of Law:
      Your argument still begs the question; why is there so little capital in the first place? There was plenty in 1964 (over 100 million Pounds in reserves) but where did it all go? Why was it not replaced subsequently? It was wasted by Kaunda. Rule of Law broke down and foreign investors became wary of investing in Zambia since they could have their investments confiscated anytime. Studies show a clear relationship between Rule of Law based on Property Rights and prosperity. eg check the "Index of Economic Freedom", the "International Property Rights Index" and "Seven Habits of Highly Effective Countries" by Leon Louw.

      Competition:
      How can government know how much competition is enough? What is wrong with Microsoft, Intel or Apple gaining huge market share because they have the best or cheapest products? The same government you claim should maintain competition creates monopolies by shielding parastatals from competition via tariffs on imported cheaper goods or creating barriers. We have three mobile providers because government has refused to issue licenses to Vodacom and others. At one time, the license for an international gateway was $12 million, effectively making sure that only Zamtel had it so that they could milk the cash cow from the money paid to Zamtel to use its gateway (RBB cut the price to $350,000 and the other companies bought the licences in a week).

      It is unlikely that any relatively free economy can produce monopolies for long (only governments produce them). For example, John D Rockefeller's company Standard Oil reached 98% market share, but by the time they lost the anti-trust law suit brought against them, they had dwindled to 60%, proving that the free market always regulates itself as new competitors emerge. Who expected IBM to be overtaken by Microsoft who themselves were overtaken by Apple? Who thought Yahoo with 70% market share would be beaten by Google?

      Economics:
      Unless you are ignorant or dishonest, you cannot deny that Zambians are better off now than 1991 and were better off in 1964 than now. The vital statistics (GDP per capita, Life expectancy, GDP growth rates, HDI, infant mortality rate, etc) declined from 1965 to 1991 and improved about ten years after Kaunda left. Shortage of commodities or services have not been seen for 20 years except in areas where there is government-sanctioned monopolies or cartels (eg cell phones, electricity, legal services). And you are completely wrong to think Zambia is a deregulated economy. Zambia is 93 out of 177 countries on the Index of Economic Freedom, classified as "Mostly Unfree".

      Sweden's economy and resources (including land) is 90% in private hands. Your suggestion on banks is bad because you want to violate the right to private property. Everyone should be free to own and dispose of their property as they wish. You are basically advocating for more government force which we had during Kaunda's time and yet you are the same person using Einstein's argument about the insanity of doing something repeatedly and expecting different results.

      Delete
  6. " The core philosophy of the freedom fighters was Collectivism, as opposed to Individualism. They thought by draining the treasury and spreading the money around for free, everyone would be happy. They thought by controlling the means of wealth creation (companies), they could milk them and spread the money around. By putting unqualified Zambians to run these nationalized companies, they thought citizens would be empowered and have better lives. They thought that a centrally managed economy was better. They thought that controlling citizens would make it easier to govern. Of course every one of these backfired and we are where we are today, much poorer than in 1964 "

    First of all, this is 2013, not 1991. No one can argue that poverty decreased after two decades of the very same policies that are being proposed, as if they are something new.

    Also, I don't like the low selfesteem that seems to believe that white people are somehow innately competent and African people are innately incompetent. Which is a very (white) colonial view to have. How can someone develop their country, when they don't believe in their own country or people. Answer: they don't. They want whites to run giant corporations in their country, and call that 'development'.

    Don't confuse the failure of neoliberal economics (not only in Zambia, but worldwide) with the ideology of the Liberation Movement.

    Robert Mugabe has the right idea, and he is succeeding despite of economic sanctions and a massive propaganda campaign. He is the true threat to the De Beers owned economies of South Africa, Namibia, Botswana, Zambia and until recently, Zimbabwe.

    And look what happened - the growth that is taking place, is completely internally driven. Very little state support (which is one of the intentions of economic sanctions). However, their land reform program is more successful than South Africa's. Why? Because without either central direction from the state, and without being bound by 'the rule of law' that is designed to protect colonial property rights, the process is driven by the people. It is working for the people - not De Beers, not the IMF. South Africa's land reform is being stifled by Boer obstructionism and the State's view of what 'proper' agriculture must look like. Therefore, they are trying to force huge schemes on the people, with their ideology of the efficiencies of scale and industrial agriculture. In reality, small farms (50 to 100 hectares) are much more productive, diverse in what they produce, and don't have the problems of massive monocultures (like pest outbreaks). Also, organic agriculture relies much more on labour than on pesticides, fertilizers, herbicides, etc.

    Read more about it, on prof. Ian Scoones' Zimbabweland Blog.

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    Replies
    1. "First of all, this is 2013, not 1991. No one can argue that poverty decreased after two decades of the very same policies that are being proposed, as if they are something new."

      Which policies? UNIP or MMD?

      "...I don't like the low selfesteem that seems to believe that white people are somehow innately competent and African people are innately incompetent."

      It is a historical FACT that there were not enough qualified Zambians to run businesses for a long time after 1964 (it is still true up to now). This has nothing to do with self-esteem. Telling yourself you can do it does not mean you have the capacity to run ZESCO as a middle manager for example. Zimbabwe for example did not rush to remove whites from businesses and look how far they went until Mugabe started his madness. To this day, a Zimbabwean trained artisan is far better than a Zambian one (my friends use Zimbabweans when building their houses).

      "Don't confuse the failure of neoliberal economics (not only in Zambia, but worldwide) with the ideology of the Liberation Movement."

      Are you suggesting Zambia is or has been a relatively free economy? That view is false as I stated above.

      "Robert Mugabe has the right idea, and he is succeeding despite of economic sanctions and a massive propaganda campaign."

      If being among the top five poorest countries in the world in terms of GDP per capita is your idea of success, then futher discussion along this line is pointless.

      "And look what happened - the growth that is taking place, is completely internally driven."

      Some growth started after the GNU with Tsvangirai, nothing to do with Mugabe's "good" policies.

      "However, their land reform program is more successful than South Africa's."

      Grabbing land from whites and giving it to your corrupt cronies is success? Destroying the economy in the process is success? The rest of your comments show you know little about Zimbabwe's agricultural sector.

      Delete
  7. On the effect of these very same neoliberal policies on Egypt (however you can fill in Indonesia (1965), Chile (1973), Argentina, Ethiopia and Somalia (1980s), Russia, and right now the UK, Greece, and parts of the United States:

    " (Today's Zaman) The failure of neoliberalism in Egypt
    12 August 2013, Monday

    The neoliberal policies of Sadat and Mubarak made the country's economy more vulnerable to possible economic crisis. While these policies were making a group of elites richer, the majority got poorer. For instance, in Mexico, where the same neoliberal policies applied by the government, 11 government-supported billionaires came out of the “global financial crisis” quite a lot richer with a 127 percent increase in their wealth while the poor, which make up 44 percent of the total population, were severely affected by the crisis. The same thing has happened in Egypt and the gap between the rich and the poor has increased to a large extent. In addition, the role of the army in the Egyptian economy stayed the same as a dominant economic figure with many factories and corporations. "

    Neoliberalism isn't 'development', it is a transfer of wealth from the people to the rich.

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    Replies
    1. If you are arguing that Capitalism has failed, then you need to do some more reading. Egypt and most countries in the world are not examples of free market economies which is what I advocate. Even America is less free economically than Singapore, Australia or Hong Kong.

      So if you are going to disprove my arguments, address them instead of attacking a straw-man or misrepresenting events. Chile for example was in a crisis until Augusto Pinochet took the advice of Milton Friedman. Inflation was brought under control and the economy began growing again. Russia privatized and liberalized and growth began. It would be folly to attribute their current growth to anything that happened when they were a centralized communist state.

      Delete
  8. Is this really the cause of neo-liberalism or not just corruption. It appears that the corrupt which is often just the elite take advantage of every situation to loot and plunder. However if they were not so then then the policies would work.

    ReplyDelete

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