30 December 2012

Ethiopia: Ideology Impedes Business


Traditions of anti-business and anti-trade attitudes run deep in Ethiopian society, but what has been the impact of the Revolutionary Democrats on these traditions?

While formally adopting Atheism, the Marxist government, the Dergue, thrived on many of these Orthodox Christian-based beliefs. Perhaps, the reason that Marxism was so easily adopted, inEthiopia, was the nice fit that it had with existing traditional anti-business attitudes.

The radicalised Ethiopian students of the 1970s, still the dominant force in both the Revolutionary Democrats and their main opposition today, embraced Marxism whilst rejecting the West. It was an odd choice; rejecting the West, whilst embracing one of the biggest ideas to emerge from 19th century Western thought; Marxism. It was indeed a big mistake.

It was a common mistake, at the time, where the advance of the West, particularly in light of colonialism, was seen to have happened at a great cost to the rest of the world. The popular Marxist 'Dependency Theory' quite plausibly concluded that capitalism only benefited the wealthy nations, and the poorer countries, throughout Latin America, Asia and Africa, were locked into an inferior economic position, which could only be broken by cutting-off Capitalism and seeking autonomous socialist development.

This lead many countries down a false path for decades. Only with the emergence of the 'Tiger economies', in Asia, and then the wider adoption of capitalist reforms, in China and India, was 'Dependency Theory' fully discredited. Autonomous socialist development, often accompanied by brutal 'workers', 'peasants', or 'peoples' regimes, failed to deliver economic growth. The Dergue was a classic example; paralysing Ethiopian development for 17 years.

During their struggle, the Revolutionary Democrats, rejecting both the West and the Soviet Communism of their enemy, the Dergue, moved even further to the left. Eventually, they even rejected Chinese Communism as 'too soft', and under the ideological leadership of the TPLF Marxist Leninist League (MLL), came to admire Enver Hoxha, the hard-line leader ofAlbania. The social and economic beliefs of the hard-line left underpinned the TPLF, during their last years of struggle. They were cemented into the various ethnic parties, which were forged to form the EPRDF when the TPLF reached the decision to take over all ofEthiopia, and not just a separatist Tigray region.

EPRDF's ideology was deeply rooted in communist traditions. A state run economy was assumed, although it would, of course, be a much better one than that of the Dergue. Of course, by the time the EPRDF gained power, in 1991, the goal posts had shifted radically.

TheSoviet Unionwas gone, and the golden regime of Enver Hoxha was finished.Chinawas far too busy making deals with the West to devote any substantial effort to the anti-imperialist struggle.

Apart from a few renegade regimes and some die hard, old style leftists from the West, there were very few ideological allies for this new revolutionary government ofEthiopia. They had to both adjust to the realities and rewrite their playbook pretty quickly.

Prime Minister Meles Zenawi proved to be much more flexible and pragmatic than most early observers would have guessed. Faced with the contradictions between the expectations of the West and his Marxist ideology, he came up with an eminently Ethiopian solution; embrace the Western model of markets and democracy on the surface, whilst rethinking and adjusting the true ideology underneath. This was the classic 'Wax and Gold', as outlined by Donald Levine (Prof.), in the book of the same name.

This was the long highland Ethiopian tradition of saying one thing on the surface, whilst meaning something completely different underneath. The state and party system could be organised along a similar principal; with official positions often held by powerless figureheads to fill the ethnic quotas, whilst the real power often lay with relatively minor state officials, who were powerful within the party.

The ideological discussions, secretly taking place within the party, used the same unreconstructed Marxist language, and still directed the fight against imperialism, whilst using 'the West'. A great internal party document, from the 1990s, was the tract entitled 'Hoodwinking the Donors'.

Despite the undercurrent of ideology, after 1991, Meles proceeded with reforms, which vastly liberalised the economy, in comparison to the previous Dergue regime, and produced a constitution that hit almost all of the good points expected by the West, at the time, namely; democracy and human rights.

It is interesting that a disbelieving West did not trust these commitments during the 1990s, but later become much more sympathetic towards them. Then, as now, the political principles, written on paper, were meaningless, if the ruling party deemed them in the way of their true ideological path, or indeed of party and state control, which trumped all. Economic reforms were genuine, if limited, and this unleashed a private sector that has continued to grow, and indeed, offers the best hope forEthiopia's future; and present, for that matter.

Of course, the ruling party did not let the economy slip out of its hands. The launching of the ruling party controlled companies, 'the party statals', allowed for the control of key sectors. Combined with the continuing major role of the state, this kept the private sector limited, in terms of what they could actually do. A heavy state presence in the crucial financial sector and the inefficient state monopoly of telecommunications still continue, to this very day. Additionally, both the anti-business traditions, nursed in the Ethiopian Orthodox Church and supplemented by Marxism, ensured that a heavy, and often unpredictable regulatory environment, hung over the business community, limiting their progress through a maze of red tape.

In the secret discussions, within the ruling party, concern for democracy and human rights were surely always known to be a façade. Economic reform was more complicated. How could one reconcile with both tradition and ideology hostile to business?

This was the issue that Meles wrestled with, and he failed to be convincing with his move towards private markets. In the 1990s, a skeptical West, particularly as represented by the World Bank and the International Monetary Fund (IMF), preached toEthiopiaabout opening up for trade, investment and the private sector.

Deeming progress to be too slow, support and credits were withheld fromEthiopia. This left Meles with an abiding anger towards the West and the Bretton Woods Institutions, in particular, which were pushing him fast in a direction towards which he was only willing to go at a snails pace, and whilst maintaining a great deal of control. When developing relationships with the anti-neoliberal crowd rebelling against the IMF and World Bank, led by Joseph Stieglitz (Prof.) and later Jeffrey Sachs, Meles found support and sought to develop his own theory of development, in opposition to the neoliberals.

TheDevelopmentalStatephilosophy was the answer, as outlined in papers by Meles, made public in 2005. Here was a way of combining the anti-business traditions ofEthiopia, the watered down and more modest Marxism of the second millennium, and the need for unremitting control, by the ruling party.

Most Western analysts deplore the lack of separation between politics and business that has typified much ofAfrica. Recent rule changes, in many places, which provide an opportunity for ordinary business people, politically detached, has brought a welcome separation between politics and business.

The 'crony capitalism', modelled in Indonesia, which saw business dominated by well-connected political leaders and families, initially seemed successful, but crashed badly in the 1990s. The most extreme examples of politically controlled economies were the predatory regimes of Mobutu Sese Seko, inZaire(now the Democratic Republic Congo or DRC) and others in this generation of post-liberation dictators. These regimes crashed and burned, both economically and politically.

To give him credit, Meles was part of a generation of African leaders, along with Yweri Museveni, inUganda, Paul Kagame, inRwandaand (who remembers this?) Issayas Afeworki, inEritrea, who were praised for taking a new path, after the debacle of Mobutu, and others of his ilk. They were acutely aware of the dangers of the predatory state, but each of them adopted a model that still produced revenue for the ruling elite. With Museveni, this was through the more traditional African approach of, benefits and connections, for the ruling family. For the other three, it was the ruling party that jumped into the economy, and that, despite screams of protest from the Revolutionary Democrats to the contrary, has ensured that the grease for the political system and elites has come from rent seeking in the business sector.

The ruling party companies are a convenient way of rewarding loyalty with benefits and jobs. One does not have to completely believe the long list of ruling party companies and reports on bank accounts, hidden away by the top party officials and so popular with the opposition Diaspora, to know that this holds true.

In the meantime, a nimble private sector has been developing in the space permitted, although it is a complex and not altogether pretty picture.

The business community includes the clunky old style banks and insurance companies, most of which are clones of state institutions, which churn out amazing profits, year after year, for their elite ownership. With few exceptions, these institutions are old boys clubs with tight relations to government or party players, and gain their profits, not through benefiting their customers, but by their myriad of fees and construction schemes. Any institution that tries to break this model, and actually act like a world class financial institution, such as Zemen Bank, is hounded by authorities, besetting them with unreasonable rules and regulations.

Another big part of the business community is the 'Merkato clique'; the Islamic businessmen who control, by some accounts, over 50pc of the private market capital in the country, and have their fingers in nearly every pie. They largely act outside of the public eye, at least as much as they can, and are mostly concerned with securing or maintaining monopolies on the marketing of imported and domestically produced goods. Most shop owners, of any stripe, do not take this clique lightly, if they want to see stock on their shelves.

The Merkato clique cares little for taxation or regulation, which, of course, brings them into direct conflict with the Revolutionary Democrats. The strength of the clique lies in its secrecy and solidarity; the attempts to control them have been clumsy and ineffective, and perhaps even contributed to the strong religious unrest, in Merkato, over the previous months.

Finally, there is a class of domestic and international businesses that, heaven forbid, actually seem to just want the opportunity to make an honest buck. They pay their taxes, look for opportunities and follow them. If the government throws a roadblock in front of them, they climb over it. If they get a new regulation thrown at them, they adjust to it.

Sometimes they are stopped in their tracks, as with the recent urban land regulation changes, which suddenly defined many legal property transactions as 'rent-seeking' and brought numerous deals to a shuddering halt. There is a race-within-a-race, between the nimbleness of the genuine and modern private sector, which can drive wealth growth in the country, and the state driven control that seeks to thwart them at every turn. Who wins this race is critical to Ethiopia's future.

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