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Jan 10, 2013

MAKING SENSE OF DEVELOPMENT THROUGH FREEDOM


Ethiopia’s late PM Meles Zenawi died convinced of a no relationship between democracy and development. He was wrong
Bisrat Teshome, Special to Addis Standard
The famous Economist and Nobel Prize winner of 1998, Amartya Sen, on his bestselling book “Development as Freedom” unwaveringly argues that development has to be seen as a process of expanding real freedom that people enjoy at different places and time.

Literature defines “freedom” as “The power or right to act, speak, or think as one wants without hindrance or restraint”. Put differently, freedom grants individuals to act according to their will and decide on their choices without obstacles. Development, on the other hand, is perceived by many developing countries as just a mere translation of growth in Gross Domestic Product (GDP) and Per Capita Income or Gross National Product (GNP). This can be assumed as one of the means towards development, but it can only be considered full-fledged when it includes other forms of human freedoms such as political freedom (the liberty to elect or be elected, the liberty to assemble and the liberty to speak freely among others), and social freedom (the chance of having alternative health care services, and educational facilities, for example).
Part of an indicator for a democratic system is therefore putting in place a system that guarantees development through peoples’ freedom to choose and participate in economic activities.


Free choice vs development
In Ethiopia the level of human freedom as seen from the angle of economic freedom does simply not exist. A deeper look into this dynamism reveals how lack of economic freedom is severely affecting competitiveness and growth in the economy. Ethiopia’s late PM Meles Zenawi, in one of his appearances during the May 2012 World Economic Forum for Africa held here in Addis Ababa, said, “my view is that there is no direct relationship between growth and democracy historically and theoretically.” He may have tried to prove his point when he added, “democracy is a good thing in and of itself irrespective of its impact on economic growth,” but in actual cases, we cannot separate development and freedom; but conceptualize development through freedom.

The Ethiopian government says it has been registering a GDP growth rate of more than 10% for the past eight consecutive years. A recent report by the World Bank vindicates this claim. But, is this phenomenon considered as development? Are we actually seeing increase in economic freedom to choose among alternative services? Is there enough competition in the private sector to ensure availability of various products in the market for the willing consumers?

To answer the above questions, one need not look beyond the laughable financial sector in Ethiopian economy. An Ethiopian economic update which was published in November 2012 by the World Bank argues that Ethiopia is the least competitive place for banks and other financial institutions from other countries surveyed in Africa. Clearly, this attributes to stringent policies of the government that prevents foreign banks and other financial institutions from operating in the country. The repercussions of this stringent policy is that many firms in the country end up not having sufficient access to finance and not been able to register growth as much as they could otherwise do.

Price cap and all that  
If the financial sector proves to be weaker to draw a stronger argument against Ethiopia’s adamant and inexplicably severe polices in opening the sector and hence leaving businesses in the sector with limited or no choice, (the government maintains it is doing so to protect the young financial sector), the general business atmosphere will not provide any comfort either. A 2012 business competitiveness report by the World Economic Forum places the country, the third largest populated in Africa, at the bottom of the table out of some 150 countries surveyed.

In January 2011 Ethiopia’s Ministry of Trade had introduced an unholy “price cap” on a number of consumable goods to control the ever increasing prices of consumable products in the market. The attempt has failed to calm the soaring prices because many businesses refused to sell products at state-fixed prices, stalling the market flow and import activities. Answering to questions by exacerbated MPs, including from his own party, the late PM Meles claimed that an increase in the nation’s export, which was never seen before, had resulted in an unusually large amount of foreign currency reserve, which forced the National Bank to print the birr. But the truth was the National Bank had printed, against rudimentary economic policy measures, a large amount of the birr and pumped it into the local market hoping to fill the birr’s circulation hole created by the price cap. This is further evidence that the government in Ethiopia is not focusing on facilitating competition in the market to increase the range of products to choose from, but rather fiddles on controlling the market.

Add to that in the past few years Ethiopia has been witnessing a galloping inflation unseen in any part of the continent except for Zimbabwe. In the year 2011, the average inflation rate was well above 30% largely for consumable products. The government has been giving many superficial reasons to explain the inexplicable; it blamed factors from imported inflation to excess supply of foreign currency in the market to rogue traders. On the other hand, senior economists counter argue that in a predominantly agrarian economy such as that of Ethiopia, it is rare to have such inflation rates unless there is severe shortage of supply of food and agricultural products. Bar for unproductive agricultural sector – which is the country’s endemic problem in the first place (and for obvious reasons) – indirectly this scenario shows that the economy frequently suffers from lack of freedom to choose the types of goods and agricultural items producers and traders can supply the market with and citizens can pick from.
Solution, solution and solution
The most pressing issue right now is to find the right doze of solutions that have the capacity to create a healthy competition in the domestic market and increase competitiveness of products of Ethiopia in the international markets. Competition is the main tool for ensuring product quality, cost efficiency and increasing the range of products for sale. It goes without saying that a healthy competition also promotes innovation, research and development across all sectors that are aiming for product excellence.

But for that to happen it is crucial that the government in Ethiopia begins to respect the freedom of choice by those who are doing business and those who are consuming, and work towards achieving a market system that can comfortably accommodate varieties of products that survive the pure interest of consumers. When consumers get the right to choose what to reject and what to accept, and when producers and traders get the right to choose on where and how to invest their hard earned money, then it is safe for one to argue that the country is developing and the development is in the consent of its citizens. That, for all intents and purposes, is the sacred relationship between the freedom to choose, which  a democratic system provides,  and development.

04, January 2013
Addis standard.

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