Business Daily (Nairobi)
Laila Macharia
1 May 2008
opinion
Kenya's current political upheaval shows how urgent it is to address the high unemployment rates. Today, over 11 million Kenyans are unemployed (not including those in the informal sector) of which an estimated three million are in the Rift Valley, 2.6 million in Eastern and another two million in Nyanza.
A large portion of these (almost 3.5 million) cannot read or write, with almost a million illiterate in the Rift Valley alone.
This poses a dramatic policy challenge, but a recovery programme in the 1930s United States offers lessons. The state of the US economy in 1929 was uncannily similar to Kenya's today. The 1920s saw an economic boom: increased investments fuelled high growth rates and a rise in the stock market.
Although wages in some sectors were rising, income inequality was severe. The US economy was pyramid-shaped with the vast majority of its 26 million households at the base. The top one per cent of the population enjoyed incomes 650 per cent greater than the 11 per cent at the bottom.
A full 71 per cent made less than $2,500 a year juxtaposed with the top one per cent making more than $50,000. Corporate power had also become more concentrated with business consolidations and mergers. By 1929, 200 corporations controlled 50 per cent of the nation's corporate wealth. These weaknesses were masked, however, by a sustained rally on the New York Stock Exchange.
With the stock market crash of 1929, the "roaring twenties" came to an end. Many blamed President Herbert Hoover and the "three Bs" - brokers, bankers, and businessmen - but today it is agreed that the roots of the Great Depression lay in the flawed structure of the American economy.
Tremendous concentration of wealth meant that continued prosperity depended on the conspicuous consumption of the few. So when the downward spiral began, it had a domino effect. The economy contracted severely with money supply dropping by one third from 1929 to 1933. Private income fell from $45.5 billion to $23.9 billion and by 1934, unemployment countrywide was at 25 per cent with another 25 percent of breadwinners suffering wage cuts.
Enter Franklin D. Roosevelt, elected president in 1933 on a platform offering a "New Deal" to the American people. The "people's president," he launched a weekly radio address, which was closely followed by the public. He also maintained a humble and pragmatic stance in public policy, creating a 'Brain Trust' of young, well-qualified intellectuals and businesspeople to advise him that included the first female Cabinet member in US history.
Once in office, Roosevelt launched an aggressive legislative programme that, among other efforts, established the Civilian Conservation Corps (CCC) to get young, unemployed men off the streets. Recruits planted trees, built wildlife shelters, stocked rivers and lakes with fish, and cleared beaches and campgrounds. In return, they were housed in barracks, ate three meals a day and received a stipend.
Another initiative, the Tennessee Valley Authority (TVA) increased the purchasing power of seven depressed, rural Southern states, mobilising the public in dam-building, electric power-generation and flood and erosion control.
In a subsequent phase of the New Deal, the Works Projects Administration (WPA) saw the construction of 116,000 buildings, 78,000 bridges, and 651,000 miles (1,047,000 km) of road. The arts also benefited. Close to 10,000 drawings, paintings, sculptured works as well as musical performances were produced and many public buildings (especially post offices) were decorated with murals. During its existence from 1935 to 1943, the WPA employed a full 8.5 million.
After 1933, the economy began to grow again, with GDP increasing on average at 6.7 per cent a year. With steadily increasing employment in the private sector, especially with the beginning of World War II, many 'New Deal' organisations were terminated. But they had played their role.
For a brief period in time, they sheltered American families from destitution. And FDR - the only US president to be re-elected three times - left a legacy that is treasured even today.
Today, the New Deal remains controversial. In the early years, business became an easy scapegoat with politicians demonising entrepreneurs and investors. A slew of left-leaning legislation ensued that had the unintended effect of deepening rather than improving the crisis. Artificial cartels in more than 500 industries limited competition, forcing business to cut output and increase prices.
Meanwhile, a new minimum wage was introduced and unionism made compulsory. Strikes escalated, increasing from 980 in 1932 to 4,740 in 1937. These policies increased the cost of doing business, making already struggling businesses reluctant to hire workers, especially the unskilled. As a result, private employment was lower in 1940 than in 1929.
So what would a Kenyan New Deal look like? To resolve our pressing infrastructural challenges, the youth should be out grading feeder roads, digging drains, constructing bridges and laying sidewalks in urban areas. An important contribution would be rebuilding homes for the internally displaced. To mitigate our energy shortage, they can build dams and windmills. For the environment, dykes and gabions can help to control flooding and erosion.
A special programme could reverse pollution in Lake Victoria and rehabilitate its dwindling stock of fish. To address our alarmingly low forest coverage rate, the youth can plant and then nurture fast-growing trees.
Garbage should be cleared off beaches and green spaces countrywide with plastic bags buried and organic refuse composted. On the cultural side, literate youngsters should be deployed to chronicle first-hand accounts from the independence and later generations for the national archives.
But if Kenya adopts a new deal, it must avoid the mistakes the US made. Being a compassionate nation is not the same as being communist. And the programme should keep in mind its limited goals: to get our unemployed youth off the streets as we nurture the private sector to absorb them.
Famously capitalistic, Kenya today stands at a crossroads where compassion and provision are needed to temper the harsh effects of structural inequality.
Dr Macharia writes on institutional reform, infrastructure and urban management.
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