6 October 2018

Ethiopia: The Developmental State Reaches Dead End

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Ethiopia's model of the developmental state has been employed for the past two decades. It has had its merits but government should adjust to the present times and allow the private sector a piece of the pie, writes Asseged G. Medhin (kolass799728@yahoo.com).

Ethiopia's economy for the last two decades has significantly transformed. It has resiliently grown, with billions of Birr in wealth being created each year. More people than ever are literate, have access to electricity and clean water, and roads and buildings have sprung up across the country in cities.

EPRDF has attributed the growth to its economic model of the developmental sate. It is a model characterised by the dominant involvement of government, pursuing an agricultural-led industrial policy and using massive state resources to achieve its goal.

Many economists praised the persistent growth of Ethiopia's economy, and it is indeed impressive. But it would be right to wonder if it has succeeded where it most matters, creating a sustainable and resilient economy.

The answer to this is no. Ethiopia's economy cannot stand by itself if it was left to its own devices. It does not have the competitive edge to even stand next to neighbouring Kenya. The government forgot that it is companies that compete with other companies located outside the nation's jurisdiction.

There is a fundamental disadvantage to the developmental state. It could be the perfect mechanism with which to create rapid growth, but it will not bring about what is known as creative disruption. In the developmental state the movement and allocation of resource is too predetermined, allowing little room for innovation.

They had a point in arguing that the neo-liberal path would create havoc upon the economy, with the neediest feeling the greatest burden as they would not be privy to sustained government support. EPRDF adapted the developmental state to cater to the ever increasing demand of society that lived in extreme poverty.

But they swung too far to the left. And their policies did not become relaxed with time. EPRDF undertook privatisation in the first decade since it became part of government. The party followed up by increasing the number of state enterprises which exerted much influence over the economy. Corruption, debt, wastage of resources and bad output came to sum up much of the past half a decade.

It was also argued that the developmental sate model will grow with the times, through constant modification. This was to prove that the developmental state will not be weakened by rapidly growing levels of globalization. But the government has never been known to be slow as a result of its sheer size if not influenced negatively as a result of politically inspired decisions.

The EPRDFites had found their inspiration from East Asian nations, which did grow in leaps and bounds. There is indeed truth in the argument that industries should be protected from competition against overseas firms until they can stand their ground. But industries, as it turns out, were protected even from the private sector. Worse still, the government was unable to sustain growth because it could not ensure long-term political stability.

What is unfortunate is that the success of the developmental state still comes to be viewed against its own targets and not the lost opportunities a more liberal economic policy would have allowed. Sustainability, dynamism and competitiveness should have served as the main parameters not the short-term growth prospects.

As some claim, liberal economic policies are not cursed. The meritocratic flow of capital between individuals entrenches competition within an economy, that brings with it the ideal allocation of resources in the economy.

The move to loosen economic policies in pace with the process of globalisation and the country's own macroeconomic problems raises questions the place the developmental state will have in the nation's future.

The focus should be to find an appropriate mixture of free market economics and government intervention, which can better stimulate rapid economic development. The Ethiopian development state model lacks the dynamism, the autonomous employment and inclusiveness necessary to sustain growth in the long-term.

This is the very least that double-digit inflation, low investment-to-saving ratio, unemployment, debt stress, large trade deficits and lack of a skilled human power can tell us.

We should not lose the opportunity to debate what place the developmental state would play in the life of the country. At the very least, the government's land and foreign currency policies should be re-analysed without fail with a view of finding the necessary compromise between protecting the neediest and the future health of the economy.

Ethiopia

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