Liberalization is very much the flavor of the day. Even the former prime minister says he is for it. The new prime minister seems to favor it. Elites in the media argue liberalizing the economy creates more employment, more foreign currency, more prosperity, more of everything. They say ‘Liberalize…’ and you will see ‘heaven and earth will conspire to deliver the bounty to the people of Ethiopia’. Yet there is little in economic theory or the empirical evidence on privatization that lends support to such a simplistic belief.
By the way, those who think ‘liberalizing the economy’ means a general ‘Retreat of the state”, have wrong perceptions of the evidence. The state in a “liberalized regime” acts almost exclusively in the interests of global capital and the domestic oligarchy that gets integrated with it, which means inter alia a withdrawal of state support from traditional petty production, including subsistence farming.
In his Project Syndicate piece ‘The False Promise of Financial Liberalization ‘Dani Rodrik of Harvard argues that there is little evidence that financial liberalization is beneficial for developing countries.
Here is an extract of that article:
Freeing up capital flows had an inexorable logic – or so it seemed. Developing nations, the argument went, have plenty of investment opportunities, but are short of savings. Foreign capital inflows would allow them to draw on the savings of rich countries, increase their investment rates, and stimulate growth. In addition, financial globalization would allow poor nations to smooth out the boom-and-bust cycles associated with temporary terms-of-trade shocks and other bouts of bad luck. Finally, exposure to the discipline of financial markets would make it harder for profligate governments to misbehave.
But things have not worked out according to plan. Research at the IMF, of all places, as well as by independent scholars documents a number of puzzles and paradoxes. For example, it is difficult to find evidence that countries that freed up capital flows have experienced sustained economic growth as a result. In fact, many emerging markets experienced declines in investment rates. Nor, on balance, has liberalization of capital flows stabilized consumption.
Most intriguingly, the countries that have done the best in recent years are those that relied the least on foreign financing.
In other words what Rodrick is saying is that global corporations’ aim is not to develop countries but to exploit profitable opportunities.
The developmental state model currently implemented in Ethiopia has in a way failed to gain the full support of citizens despite all the hype that was created around it and the ‘positive’ growth it recorded in the last two decades. This can be explained by a sad story of inexperience, incompetence, failure to mobilize the mass, corruption, growing bureaucratization, ethnic antagonism, decline, indebtedness. Under liberalism, the future prospect of Ethiopia may be even bleaker.
By the way, such predicament persists across the continent; not even the World Bank’s experts pretend otherwise for most African countries. Without a change in World Bank/IMF policy on debt relief, without the end of dogmatic market liberalism as a condition of aid, without a clampdown on predatory outside forces, without protection of all sorts, Africa seems doomed to stay marginalized. Yet many of our elites advocate blindly for market-oriented policies.
Let me conclude by simply reminding readers that Ethiopia’s growth rates, (as far as official national or UN figures can be trusted) are today about four and a half times those in the eighties. What more could anyone ask for from a ‘non liberalized’ Ethiopia, apart from more of the same?
Well, I suppose one could ask for much more progress in establishing an enabling business environment, reforming the financial sector and state enterprises, and improving infrastructure. But for this to happen the new prime minister and his team need to discard the current Ethiopia’s dysfunctional state development model, and start from scratch to build an inclusive democratic political system whose character is developmental in nature, while at the same time secure the support of citizens to make it a success.
The odds may look uncertain, but I don’t see any alternative.