With the advent of independence beginning with Ghana in 1957, a number of presidents introduced what they called African socialism. In Ghana, when one of Kwame Nkrumah’s most colourful ministers Krobo Edusei was asked what he understood by African socialism, he said it means you chop small and I chop small which can be paraphrased in the Churchillian sense as equal sharing of misery.
Edusei’s boss, the Osagyefo, launched a number of State enterprises all over the country realising that there was a dearth of indigenous entrepreneurs. The same thing was happening in South Korea, a country with comparable gross domestic product (GDP). Journalists and economists nowadays like to write that South Korea is 20 times richer than Ghana. Both countries subsidised their infant industries, but why do they differ so much in development?
By the early 1990s, most African governments were having heavy deficits, budgetary or on current account. This forces them to approach the World Bank, International Monetary Fund (IMF) and donors for budgetary and development assistance. The Bretton Woods institutions and the donors imposed stiff conditionalities for the assistance they offered: the aid recipient country had its State industries.
This was called privatisation. Subsidies of any sort had to be removed particularly on State produce agencies like Agricultural Development and Market Corporation (Admarc) which had to cease having monopoly powers and let private buyers compete with them. It was intended to assure smallholder farmers higher prices than Admarc was offering.
The disadvantages that would follow trade liberalisation were not fully considered. Perhaps Admarc was paying peasants less than the free market rates. But the differential was serving two purposes. It was in the form of tax. Since the setting up of the colonial and modern system of government, it was never stated that poor people should not pay taxes. They were paying poll taxes. With the abolition of poll taxes, a substitute source of government revenue had to be found. And this took the form of paying peasants slightly less than the free market price.
The monopoly accorded to Admarc as a produce buyer was also serving the purpose of compulsory savings, Admarc accumulated a lot of fund which it invested in several companies. Under donors’ pressure, these facilities had to be given up.
Our foreign advisers denounced subsidies as if their own countries had never adopted them. Economic history tells us that both the United States and Germany adopted a variety of subsidies to catch up with Britain, the forerunner of industrial revolutions.
According to economic journal Royal Economic Society dated October 2017, Western governments are subsidising innovation research by independent small and medium firms. Thus say the journal: “A typical example of a pro-entrepreneurial policy is that of R&D subsidies targeted at small and medium sized enterprises (SMEs). According to a report by OECD (2007) in 2007 several countries offered tax subsidies for R&D specifically targeted at SMEs. Examples are the UK, Canada, Japan, the Netherlands, Norway and Poland.”
In 2009, the United States Small Business Administration approved $13 billion in loans and $2.7 billion in surety guarantee to small businesses.
Thus subsidies have been and will be necessary elements in developing, reviving and sustaining industries provided they are appropriately applied. In Malawi, subsidies will do greater good if government sets up a Council of Economic Advisers to advise it. Too much political influence misdirects subsidies, they become rents.
Subsidies can be categorised as consumption or investment. Consumption subsidies may contribute to the health of the recipient, but not necessarily to ensuing himself sufficiency, economic advisers would advise whether subsidising a person’s roofing materials is the best way to help that person eventually become self-supporting, a worthy goal in life.
When South African States in 1910 formed the union, most businesses were being run by Anglo-Saxon members of the European community rather than the Dutch descendant called Afrikaner or Boers. When the National Party won the 1948 election, it set up helping the Boers (farmer) become entrepreneurs. It became a great success; hence, it continually won succeeding elections.
In 1994, the African National Congress (ANC) formed the first African majority government and set up a policy of Black Economic Empowerment (BEE).
There is a criticism that the policy has enriched only a few people while the majority blacks are still desperately poor. But the principle is commendable.
There is great need for assistance to incipient African entrepreneurs using the subsidies but politicism should adopt policies in consultation with topnotch technocrats who are not obsessed about winning elections but achieving higher economic and social growths. n