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Needed: a politician-proof economy

It’s nearly over. When the counting is done, we will know whether Kenya voted ‘Yes’ or ‘No’ for a new constitution. The absurd campaigns, the squandering of billions on hot air and empty rhetoric will come to an end, and we must thank heaven for that. Until the next time.

Meanwhile, a strange thing was happening. We know that the last cabinet meeting was held many months ago. We know that no minister could conceivably have given any meaningful attention to his or her official duties for several weeks. And yet the economy seems to keep humming along. The corporate world, whilst muttering about the imbecility of politicians, is busy producing goods and services and selling them at a profit. The informal sector is hustling and bustling as normal. And you’d be hard put to find an analyst who thinks we won’t pass the 5 per cent mark in GDP growth this year.

So we have to ask ourselves: do politicians and their loud shenanigans even matter in issues economic? Is there a model by which we can allow our ego-maniac leaders to continue their kelele, while the rest of us get on with the serious business of earning a living, investing in productive capacity and running profitable businesses?

To glean an answer, let us take our gaze elsewhere for a moment. Japan and Italy have faced political turmoil for decades. Their voters routinely elect unstable coalitions that totter from one political crisis to another. During one remarkable 12-month period in 1993-94, Japan gave us the spectacle of four different prime ministers. Italian politics is perpetually characterised by high-decibel squabbling, short-lived factional groupings and intense bickering over political appointments. Both countries have been rocked by serious corruption scandals at various points in their history. Yet Japan and Italy are both amongst the world’s largest economies, and have delivered a consistently high standard of living to their people through all the tumoil. How do they pull it off?

Let’s look at Italy first. This is not a country rich in natural resources or energy sources, yet it is one of the world’s most powerful economies. What it does have is a natural entrepreneurial zeal. Its people are natural traders and producers who have vast reservoirs of energy for business. Indeed, Italy’s economic strength comes from dense clusters of small, family-owned business: the average enterprise has fewer than 4 employees. This, coupled with liberal trade policies followed by successive governments, has allowed Italians to become world leaders in fashion, foodstuffs, motor vehicles, machinery and chemicals.

Successive Italian governments may appear shambolic, but they have succeeded in maintaining fiscal austerity since 1992. Italy has enjoyed a primary budget surplus for many years now. Tight monetary discipline by the Bank of Italy has also kept succeeded in reining in once-rampant inflation. Privatisation of government-owned enterprises is another initiative that has been consistently maintained, regardless of who happens to be in power. And so Italian businesses have been enjoying relative stability in key economic indicators: interest rates, inflation and GDP growth.

Japan, at least on the surface, is a quite different kettle of fish. Its economy requires no introduction: its huge global business houses straddle the world stage and are household names everywhere: Toyota and Nissan, Sony and Matsushita, Nippon Steel and Fuji. But what is often not appreciated about the Japanese economy is that it is two-tiered: in addition to many huge and powerful multinationals, it has a vast number of small, family-owned enterprises. In fact, Japan’s own estimates suggest that 99 per cent of enterprises are small or medium sized.

Japan’s economic success is often put down to heavy government intervention. Direct state participation is very limited, however; throughout the 1980s and 1990s the government privatised key institutions. Nevertheless, the government’s control and influence over business is probably stronger than most free-market economies. This control, crucially, is not exercised via coercion or interference, but rather through consultation. Joint committees of bureaucrats and business leaders set targets for and monitor the performance of all key economic sectors. In addition, special government agencies staffed by experts keep tabs on international trade, investment and prices, and work closely with the banking and corporate sectors. The result is mutual understanding and respect between government and business, and very strong long-term planning.

So what can we learn from these politically messy, economically productive countries? I think we must pick up three very important lessons.

The first is to continue “ring-fencing” the economy to keep it free from the whims of politicians. The Narc government started off very well in this regard: the strong management teams installed in key institutions like the Kenya Revenue Authority and the Central Bank of Kenya, coupled with the relative autonomy allowed to them, has produced unprecedented growth in tax collections, an economy showing the first signs of sustained growth, and stability in key indicators.

Yet the bizarre ‘State House Economics’ witnessed throughout the referendum campaign threatens to undermine these very gains. Land deeds, district boundaries, pay-rises, agricultural prices mechanisms, universities – all seemed up for grabs in return for votes. This is indeed a remarkable way to conduct our economic affairs, where resources go not to their best uses and towards the long-term building of national competitive advantage, but to the alleviation of political pain. One can only hope that this was a short-lived loss of reason induced by political desperation; nevertheless, the repercussions will be with us for some to come.

The second strand is to recognise that Kenya has a very strong spirit of enterprise and a very robust and diverse base of economic activity. We, too, have bustling businesspeople and indefatigable traders. We must protect these people from the ineptitude and malevolence of politicians. The policy measures we once thought of for our small and informal businesses seem forgotten amidst the political din: organised business parks; tax incentives to aid their inclusion in the formal economy; measures to boost micro-credit; resource-pooling and training initiatives are just some of the things we should have done by now. Our vast base of energetic small and medium businesses, if allowed to prosper and grow, will give us an economy for all seasons.

Finally, we must continue to get the heavy and bungling hand of government out of enterprise. Privatisation must roll on and accelerate. Rail privatisation is a great achievement, but we must ensure that our power generators, communications providers and roads managers are run by business-minded people who allocate resources intelligently and manage operations efficiently. Only the pressure of shareholders and competitors can allow us to produce world-class infrastructure in this country. Let us not shirk the challenge.

So, those who have a stake in this economy (that is, all of us) must vote emphatically for, clamour noisily for and lobby intelligently for its continued shock-proofing. Our growth and development will come from an unimpeded, vibrant business sector enabled and supported by intelligently and independently run economic institutions that deliver economic stability. If we achieve that, we can leave the pompous, feeble-minded wastrels who purport to lead us to all the banana- and orange-throwing that their little hearts desire.

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