Wednesday, 17 August 2011

A Dismal Economic Outlook – What is Africa’s Response?

The world is not in a good shape. Perhaps this is the "final" crisis of capitalism long prophesied by Karl Marx and eagerly awaited by his ideological and spiritual heirs down the ages. Perhaps not. But whatever its description and origin, no country or region in the world is immune from the effects of the financial and economic crisis in which major world centres find themselves.

It is acknowledged almost by all experts and commentators that the current international quagmire poses a grave challenge to the post-war laissez faire economics and the faith that has been reposed in the “market”. The basic idea has been that there is no limit to growth and that growth by itself will at certain points deliver quality. China appears to prove the latter point, but unlimited growth is suffering from a serious credibility gap.

In the last two years, Europe and the USA, and to a lesser extent countries in South East Asia, China, India and some other economies have been grappling publicly with how to meet these challenges in the near and far future. As everyone knows, the defining divisions in politics in many countries such as the USA and the UK will be how to accept the unpalatable conclusion that unlimited growth has ended, perhaps for all time. The inevitable consequence of accepting this reality is the lowering of expectation; the question: whose expectations should be lowered?

We have already seen how that question translates into politics in the US. Basically, President Obama and the Democrats want to raise taxes, especially from rich corporate bodies to plug the tax hole while the Republicans have ruled out tax increases. However, the Republican position amounts to a tax on poorer people since budget cuts disproportionately affect people who depend on the state for some of the most essential services such health care and education. A similar situation is in Britain at the moment, and the riots that rocked British cities is seen as an early indication of the political and social cost of these policies.

The worry in all of these for us in Africa is that we do not appear to be learning any lessons from what is happening elsewhere. Even worse, there is no discernible preparation for the inevitable fallout that will hit us sooner or later. Bad economic situations in the countries to which we sell our produce such as cocoa, coffee and the rest means that they cannot buy as much as they used to or as much as we would wish them to buy. The result would mean less money for us. Another obvious consequence of the crunch in those countries is a cut in their aid budget.

This is tricky. Although there is a considerable opinion out there against depending on aid money, in truth our governments depend on them for major infrastructural works and so a diminishing of money from such sources will affect us rather badly. This too has already started happening with cuts in the aid money going to some countries severely reduced or removed completely. In the case of the UK cuts, even some projects that were thought to be untouchable in the past have been cut, including the funding of the BBC’s World Service.

So, what should Africa’s response be? Despite the differences in economic strengths and particulars, African countries share some common features that should enable a common response or formulated understanding to be possible even without burdening the African Union or even the UN’s ECA to harmonise or coordinate. It should be possible to draw simple lessons from which every country could tap needed strategies or policy prescriptions.

The first of these lessons is that it is better right from the start (start being where we are today) to build social equity into economic frameworks. For too long, we have been made to accept as almost an inviolable truth the assertion that trickle down works, and that if we stick at it long enough limitless growth will ensure that even those at the bottom of the socio-economic pile will rise. There is considerable evidence to support the notion that this is fiction, or perhaps fantasy, but it persists because it buys the advantages for wealthy today while postponing the anger of the masses. The current crises should tell us that it would be better to build in systems that avert social crises instead of postponing them.

We know from the current crises that contrary to assertions by market fundamentalists, the system has no self-correcting mechanisms. The theory is that internal workings of the market, such as demand and supply will always iron out any distortions over time and this self-correction would ensure prosperity and happiness for all. This lie has been exposed.

The current situation provides ample proof - via the massive bailout schemes that the US and Europe deployed to balance the books and save major financial institutions from collapse – that the state has a role to play in the ordering of social and economic priorities across the globe. The African state has been urged over the past four decades to abdicate its proper place as the fulcrum on which should rely efforts for equity and social well-being of all the people. In its place assorted non-state interventions have been promoted.

Today, the result of neoliberal economic policies that our governments have been forced to swallow is there for all to see. Paramount among them is the mass unemployment, especially among young people. It is estimated by most experts more than half of all unemployed people are under the age of 40, and this rate, at nearly 30 percent is rising. This is the time bomb on which most African countries are sitting.

It is only an ill wind that blows no good, as the saying goes. So Africa can make something positive about this dismal prospect but only if our governments will be bold enough to learn the lessons and apply them to real situations as opposed to applying prescriptions that do not work even for oversimplified synthetic situations. The choice is ours.

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