By Daniel Teferra (PhD)*

From Julius Nyerere’s Ujamaa to Meles Zenawi’s developmental state, the model of economic development in Africa has not changed much.  It is still an anti-market, socialist paradigm.  Its main argument is that the task of economic development should be handled by the state rather than the free market.

The intellectual origin of the socialist paradigm in Africa was Julius Nyerere of Tanzania.  In the writings of Nyerere, capitalist accumulation is condemned.  He advocated what he called Ujamaa or extended family-hood (African Socialism) for economic development in Africa.

Nyerere said, “Africans must return to their traditional attitudes and values of the extended family where all men are regarded as brothers and the society was an extension of the basic family. In the African society we were individuals within a community.  We took care of the community and the community took care of us.  We neither needed, nor wished to exploit our fellow men.  Then colonialism introduced capitalist attitudes and values.  Capitalism seeks to build a happy society on the basis of the exploitation of man by man.”

Nyerere’s thinking is filled with nostalgia and assumptions about the communal system.  Consequently, Nyerere failed to see the essential role that capitalist accumulation plays in increasing society’s total income.

Nyerere thought that when the profit of the capitalist increases, total income will decline.  But this is not necessarily true.  The capitalist system is not a zero sum game. An increase in a capitalist’s profit does not make someone else worse off.  In fact, as the capitalist’s profit rises, the incomes of other members of society will also rise. The capitalist invests his/her profit in new production techniques, thereby increasing the society’s total income.

On the other hand, a communal system is an anti-profit, non-innovational system; and consequently, it cannot ensure an increase in total income.  In fact, as population increases, average income in a communal society will decline, resulting in starvation and famine.

The other problem with Nyerere’s thinking is his attempt to equate the capitalist system with colonialism. But these are two different things. Colonialism is a system of domination. On the other hand, a capitalist system is a free enterprise system.

Like Julius Nyerere, Kwame Nkrumah of Ghana had an exaggerated view of the communal system.  He said, “Africa’s traditional communalism is the natural ancestor of modern socialism. The traditional face of Africa was a socialist-egalitarian view of man and society; there was no sectional interest but only the welfare of the people. Colonialism changed all this.”

According to Nkrumah, “colonialism infected the African society with capitalist ideals through its economic, political and social activities.”  He believed that “the capitalist system is guided by the profit motive; and as a result, it is an exploitative system.”

Nkrumah, like Nyerere, failed to examine whether African communal values are compatible with modernization imperatives. For instance, emphasizing group interest, African communalism discourages individual initiative and wealth creation. Nkrumah viewed profit as a form of exploitation. His perception of profit is not right. Profit is income, earned by the capitalist for taking risk and investing in newer production techniques to increase society’s total output.

Marxist intellectuals, concerned with Africa’s development, are also opposed to the profit motive and have argued that the development of African societies is hampered by the world capitalist system. They assert that profits are being drained away by overseas firms. Therefore, they argue that “socialism is a historical necessity for African development. Africa should reject the market rules of resource allocation and replace it with a direct assessment of needs.”

Contrary to the assertions of these intellectuals, the market rules of resource allocation have substantially improved the lives of the majority of the populations in the now industrialized societies.  Marxist intellectuals have written an extensive critique of the capitalist system, but they have failed to explain how socialism can create a modern economy with high productivity. Arguing without evidence that socialism will yield a better outcome, they reject the market system that is the basis for technological advance and economic development.

The free market system is also rejected by the developmental state paradigm, which argues that economic development should be managed by the state.  Meles Zenawi, the late Prime Minister of Ethiopia, was a proponent of the developmental state paradigm.

Zenawi argued that economic development is a function of social capital accumulation, which is creating what he called “the proper blend of norms, values and rules.” He said that social capital accumulation is a public good, and like all other public goods it is undersupplied by the market. Thus, according to Zenawi, the state has to run the business economic development “by undermining patronage networks, through sanctions and socialization and by promoting equity and democracy.”

Zenawi’s definition of economic development is subjective. By treating economic development as a public good to fit his own argument, Zenawi failed to acknowledge the primary role that the free market plays in creating economic development. Economic development is inherent to the free market system; it cannot be based on other than the free market.

The key and essence to economic development is improving labor productivity and standard of living, which in turn depends primarily on continuous technological advances. Technological advance is not self-willed; it is to a large extent imposed by competition for profit in the marketplace. Consequently, society thrives on modern technology as the capitalist producer is forced by the profit motive to try newer and newer production techniques. Neither socialism nor the developmental state possesses such inner laws that can compel persistent technological advances and economic development.

Zenawi argued that national innovation systems can be developed to assimilate technological advances. But technological assimilation requires a free market economy with a social group that can see profit in borrowing and internalizing modern technology.  It was largely the availability of such internal capabilities rather than so-called national innovation systems that made the spread of the Industrial Revolution in the now advanced societies possible.

In order to support his argument, Zenawi mentioned Japan, South Korea and Taiwan as examples of developmental states that have “engineered successful market economies through land reform, education and infrastructure.” Well said, but he immediately contradicted himself, stating that “patronage and rent-seeking in much of rural Africa has to do more with rural marketing and state power than landownership.”

Zenawi failed to recognize that the countries, he cited “engineered successful market economies” by implementing land reform to solve the problem of initially unacceptable and unjust property rights. His assertion touts the government’s selfish land law, which stood against developing property rights in Ethiopia. The law accorded the state land monopoly instead.  Peasants in Ethiopia are denied the right to own land.  They are allowed use right only. Thus, they work the land as tenants of the state, lacking the pride and security of an owner. In Addis Ababa and other urban centers, the government enjoys monopoly profit by displacing people at will and leasing the land to developers.

Zenawi said, “The former Japanese colonies of South Korea and Taiwan had an early and successful introduction to the nature, instruments and characteristics of a developmental state. The Japanese colonial state was just as interventionist as the developmental state in Japan. Later on when industrialization began in the colonies, it was state-led with the involvement of Japanese companies as subordinate participants in the exercise.”

Zenawi’s interpretation of the relationship between state and business in Japan is inaccurate. The relationship between the two has always been as collaborators rather than as leader-follower or as mutually suspicious adversaries. Furthermore, the former Japanese colonies were able to develop when officials turned away from government initiative as the spearhead for development and relied instead on private entrepreneurs and the market.

Zenawi’s argument also confuses government intervention with the developmental state paradigm, which is a state-controlled economy model. The state is primary in economic decision making under the developmental state paradigm. Government intervention, on the other hand, is a totally different concept.

For instance, in the industrialized societies, governments intervene in the free market to improve market outcomes, such as, combatting monopoly to increase competition, regulating private production and consumption to reduce pollution, or narrowing income gaps through progressive taxation.  But governments do not control the economy; people do, making their own economic decisions as consumers and owners of the factors of production in response to market forces.

Regarding equality and democracy under the developmental state, Zenawi wrote, “One of the defining characteristics of a developmental state is that it must be autonomous from the private sector. It must have the ability and will to reward and punish the private sector depending on whether its activities are developmental or rent seeking.  It cannot do so if the private sector is in the coalition.”

Zenawi’s developmental state (unlike Japan and its former colonies) sees the private sector in a subservient manner, consistent with Ethiopia’s age old anti-business ideology. Historically, in Ethiopia, the private sector has not been accorded a social status commensurate with its economic strength.  Jealous of rivalry by domestic entrepreneurs, the rulers of Ethiopia always hired their own commercial agents or left the private sector to foreign residents. In order to maintain its own interest, therefore, the private sector had to share portions of its profits with the rulers as bribes and gifts. Merchants and entrepreneurs have to contribute huge sums of money for so-called “development” projects or “charitable” causes. Otherwise, their licenses will be suspended, or their businesses will be confiscated. For instance, the current regime has ordered private banks to purchase government bonds equal to 27 percent of their annual loans.

Zenawi’s developmental state fits Lenin’s so-called democratic centralism, a one-party dictatorship, rather than a free market democracy. It was the free market system that gave birth to democracy. Democracy is a universal concept. Therefore, democratic centralism or democratic developmental state is just an ideological label.

Furthermore, Zenawi’s developmental State is a discriminatory, tribal state. Ethiopia is currently divided into ethnic territories (kilil). In each territory, people are further divided into natives and settlers (so-called Amhara naftanya). The latter are barred from possessing use right over land. They cannot work in the local bureaucracy. They cannot participate in the political process. Thus, they live as second class citizens in their own country in fear and humiliation. Ethnic discrimination is offensive to human dignity.  It needs to be mentioned that it is important to be an Amhara, Oromo, Tigray or any other ethnic group, but it is more important to be human.

Turning to the African experience, Zenawi concluded that the development models, followed by many African countries “have failed and failed disastrously,” and he said that this encourages people to look for alternative paradigms “as a means of national renaissance and survival.”  Zenawi, however, did not supply any evidence to support his conclusion.

Africa is a vast continent, consisting of different countries. Therefore, it is risky to make a generalization about Africa. Yet, it can be argued safely that the market-based economies in Africa have performed much better than the state-controlled ones.

Human beings, for countless centuries, dealt with the problem of survival by means of either tradition or command.  However, the rise of the free market system offered a third and lasting solution to the problem of human survival.

Adam Smith, the father of economic development, described the free market system best: “Each should do what is in his/her best interest. The lure of gain, not the pull of tradition or the whip of authority, steered each person to his/her work. And yet, although each was free to go wherever his/her acquisitiveness directed him/her, the interplay of one person against another resulted in the necessary tasks of society getting done.”

The free market system is a new conception of economic life that developed historically.   It is the only system that achieved individual freedom and economic development for the first time in history. The free market helped improve human behavior by replacing destructive warrior culture with safer pursuits of commerce.  It produced a large and strong middle class by promoting mixing across wider areas through trade and business deals thereby softened the sharp edges of ethnic conflicts and rivalries. Through a democratic system of government, the free market allowed people to vote and determine public policy.

Socialism, on the other hand, developed first intellectually as an alternative theoretical structure to existing systems and later began to be applied on a wider scale. Socialism was primarily based on state ownership of the means of production and centralized decision making. Unlike the free market, it did not have embedded in its system the machinery for further growth, upward mobility and participation. Thus, it ultimately failed.

The developmental state paradigm subscribes to the fundamental principles of socialism.  Under the developmental state model, the state owns most economic resources and makes most economic decisions. Thus, the developmental state paradigm is not a new idea.  It is an old idea that has already been tried and failed. The developmental state paradigm is just a euphemism for socialism.

*Daniel Teferra is Emeritus Professor of Economics at Ferris State University; still teaching at University of Wisconsin-Whitewater.