23 December 2012

Ethiopia: Be As Brave As China


There is a struggle, which is central to the success or failure of the Ethiopian economy. It is the battle between business forces, which have been partially unleashed for modernisation, since 1991, and more so, since 2005, and the combination of anti-business and anti-success traditions and ideologies.

This is in sharp contrast to China, which, by comparison, has embraced capitalism and unleashed business to drive the economy.

The analysis, of these constraints to development, is particularly timely, as the Revolutionary Democrats have recently lost their high priest. For the time being, the official line is to continue sailing through the path of the visionary leader. It is only a matter of time, however, before important decisions will need to be made without the great helmsman.

Meles Zenawi no doubt brought the country a long way, but everyone would acknowledge that there remains a long way to go. The argument is over the direction.

One example of the problem is found in the much vaunted 'Millennium Development Village' scheme. An apocryphal story coming out of the Millennium Villages, in Tigray, is a good demonstration of failure, due to an anti-business way of thinking.

Communities were given funds and told that they could spend it on projects, as they liked. One typical village decided to put in a grinding mill, run by the community. They previously had to depend on the 'middle man' or rent-seeking businessman down the road, in order to mill their grain.

The community mill was duly set up. The price for milling was set below the businessman's price, and he in turn went out of business. Once there was no alternative, the community leaders discovered that they were not recouping their costs at the price they had set. So they raised the price for milling, and then raised it again, until it was substantially higher than the price the businessman was initially charging.

As the mill was run by local authorities, who were busy in ideological discussions of the ruling party, the management was poor. The hours of opening were arbitrary, not to mention the frequent shut downs of the mill. So, thanks to the great development model, put forward by the economist Jeffrey Sachs, which fits so well with the traditional and ideological biases of the Revolutionary Democrats, the people were left with a worse service, at a higher cost. In addition to that, a small businessman and his family were out of work.

This calls for a focus on the founder and advocate of the Millennium Villages Project, Jeffrey Sachs, for just a moment. Jeffery Sachs is a perennial wrecker, who has unfortunately turned his attention to Africa. He ruined Boliviain the 1980s (through reducing agricultural subsidies and forcing farmers into cocaine production), Russiain the 1990s (through support for the hasty and mismanaged privatisation programme that created the oligarchs), and is now messing up Africa in the 2000s, as one wag said. Having been too market-oriented in the past, the Sachs pendulum has now swung far to the left. He now advocates for the unfettered showering of Western aid onto the states of Africa, no matter how corrupt or undemocratic.

His, is not a new theory; in fact, it already failed spectacularly once before. The theory is that there is an investment gap that can be filled by generous contributions, with the admonition to increase these exponentially, from the West to African governments. This is neo-Rostowism, which traces its roots to theUnited States' economist, Walt Rostow, who identified the investment gap as the only problem for underdevelopment. Despite attempts to apply this theory toAfrica, the economic situation continued to get worse in the 1970s and 1980s. Of course, Sach's supporters may protest that this is too simplistic an analysis and they have it all figured out, but, certainly, they do not!

Jeffrey Sachs is one of the leading Western voices encouraging the role of the African state in the economy. This has bolstered the remaining dictators and nationalists on the continent, and has in fact been against the grain of recent African development.

The emergence of the new African private sector, which is driving development on the continent, is based much more on the liberalising spring, which has affected Africa in the last decade. It has unleashed business from state controls; not the other way around.

InEthiopia, theDevelopmentalStateapproach was developed by Meles, but has found strong support from Jeffrey Sachs and other misguided commentators. Fortunately, Meles also set the road to private sector development inEthiopia, although this has only been partially achieved.

The path to business development in Ethiopia is not an easy one. The impediments to a change in attitudes and acceptance of business are quite huge; both traditionally and ideologically.

Better to turn to the details of these challenges. Doing so will help to explain why there is a perception by the Revolutionary Democrats, and much of the Ethiopian public, that business is free and supported (often, in fact, too free). The reality is that business is still being held back by invisible (and visible) chains of thought and practice.

There are fairly unique traditional impediments to progress and change inEthiopia, different from much ofAfrica; primarily feudal traditions. Countries with Orthodox Christian churches seem to have a hard time freeing themselves from harmful economic traditions, whether inRussia, South-eastern Europe orEthiopia. There seems to be a particular animosity to the value of trade and business in these traditions. They focus on the sermon that 'it is easier for a camel to pass through the eye of a needle than a rich man to get to heaven.'

A simple joke can illustrate the tradition that focuses on preventing others from getting ahead, rather than everyone improving themselves: God comes down to visit Russia, during the old peasant period, and goes around asking for a place to stay, in order to test the peasants' generosity. Finally, a peasant lets him stay in a small room. The next day, God reveals himself and offers the peasant a choice of reward for his generosity.

"Well," the peasant says, "I only have chickens, but my neighbour has a goat that gives him milk, so he is richer than I am."

"So, would you like a goat, like your neighbour?" God asks.

"Oh no," says the peasant, "I want you to kill my neighbour's goat."

This high degree of jealousy and reluctance to see others get ahead still persists in Ethiopia today. Another metaphor is driving in Addis. Move to pass a car on the left, they move that way, to the right and they move that way; if you don't believe this - try it for yourself. The chief objective is not to get where they are going, but to prevent anyone from getting past them.

An old campaign to put little stickers on cars pointing an arrow to the left to pass, and a little stop sign on the right to indicate not to pass, failed spectacularly because drivers simply did not want to get passed at all. Combine that with selfish drivers who try to sneak around, or inch in from the side when there is traffic, and you have a recipe for paralysis - whether in traffic or in the economy!

The word in Amharic which describes this tendency is Mekegnenet, which roughly translates as 'envy'.

This mentality of jealousy feeds into the pervasive anti-market and anti-business attitude, which is traditional inEthiopia. Everyone hates the middle man, and thinks that they are being cheated by the storekeeper.

In a market economy, the solution to this is to have open entry and exit to the market. This ensures that there are enough sellers, and therefore, competition to keep the prices down. In traditional anti-market societies, which were pretty much dominant over the whole world before 1500 or so, people looked down on trade and most would not participate in it.

A recent example of how strong anti-market sentiments remain inEthiopiawas the wide public acceptance of the price controls put on various commodities in 2011. Price controls are widely discredited, and quickly failed on most commodities inEthiopia. However, the instinctive reaction of the person on the street was to support them, in order to get at the 'price gougers' and 'middle men'.

Naturally, it is easier to blame the guy selling teff than to see the underlying causes of poor production or monetary policies, which are responsible for pushing the prices up. In the end, prices of goods such as meat go up and imports dry up.

Even, the ongoing wheat flour price control and subsidy, by the Revolutionary Democrats, failed to dampen inflation for too long. A new round of dumping wheat flour on the market at fixed prices began again in 2012. Hopefully consumers learned something from that experience, but probably not.

Another factor, which holds back both business and politics in Ethiopia, is the highly pervasive warrior culture mentality. Donald Levine (Prof.), a sociologist, in his hallmark 1960s anthropological study, entitled "Wax and Gold", reported that although there were mechanisms for dispute resolution in highland Ethiopia, the tendency to solve disputes through courts was inordinately high.

He compared the Ethiopia of the time, unfavourably, to China, where peasant land disputes were mostly solved through arbitration. The unexpectedly high murder rates in feudal Ethiopia, at the time, can too be attributed to this warrior culture, with the main reasons of the killings being land and romantic disputes.

The warrior culture mentality too shows up in an uncompromising approach to business. Ethiopian business is wracked to an unusual degree by boardroom disputes and courtroom battles, usually at the expense of both parties.

Money seems to be forgotten in these disputes, which become modern expressions of warrior posturing and a determination to kill, at least metaphorically, business rivals. An inordinate degree of energy is put into these money wasting disputes, instead of into the money making actives, which businesses need to focus on.

Traditions in Ethiopia combine animosity to trade, with; wealth, a high degree of jealousy and a warrior mentality, with the additional contempt for artisanship and blacksmithing. These were trades, which were traditionally ostracised in highland Ethiopia. Progress was hampered by the social taboos against any kind of work with your hands, outside of farming.

For a long time, the Jewish 'Felashas' or 'BêteIsrael' people fulfilled many of the roles of artisans, in northernEthiopia. The only respectable occupations were the nobility (although they tried to avoid using their hands), including; the army, the priesthood, teachers and the bureaucracy, and, of course, the farming peasants.

Artisans were treated with even more contempt than traders. Up until today, other traditions of ostracising artisans are alive and well in the rural areas. Associations of potters and blacksmiths are formed so they can invite each other to weddings and funerals, from which they are otherwise excluded.

How do you build an industrial society with that attitude?

In Addis, today, it is replicated in the challenge to get 'educated' Ethiopians to do jobs that they feel are demeaning. Waiting tables at restaurants or making things are considered to be beneath them by their families. As a result, they often end up doing nothing at all.

It is all evident in the current debate on the employment of young people in urban areas ofEthiopia.

There are constant complaints from employers that although they need employees they have a hard time finding anyone who will do an honest job for honest wages. What is the problem?

Ethiopians are traditionally hard working. One only has to look at the back breaking labour involved in eking out survival on the tiny plots, most highland farmers have. Notions that peasants are lazy or have so many church holidays that they barely work at all, simply, do not hold water. When the need or opportunity for labour is there, most will work hard every day, including on most church holidays.

As in many poor countries, there are hard working, poor people, given appalling wages to work in agribusiness or factories. This may even be a step up in security from the peasant agriculture they are escaping from.

So, the base of the labour force works hard. What about the elite, who have at least some degree of education?

Again, there is a strong tradition of hard work, amongst bureaucrats, in Ethiopia, particularly when they are given some decision-making power. They work late hours and weekends without complaint.

The group that is the target of employer complaints is the new generation of workers. They come out of school with their certificates and seem to expect to receive high paying jobs, without having the necessary skills or the need to work hard.

Constant battles at the workplace, by the employer to get the job done and by the employees to get more for doing less, have become the talk of the town. I do not have a solution as such, but this is such a strong feature of the scene in Ethiopia these days that it should not escape attention.

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