‘To be uncertain is to be uncomfortable, but to be certain is to be ridiculous. There is nothing certain, but uncertain. If we begin with certainties, we shall end in doubts; but if we begin with doubts, and are patient in them, we shall end in certainties.’ (A Chinese proverb)
How appropriate that we shall start with a Chinese proverb at a time when the Chinese presence is prevalent across every sector and every aspect of life in Ethiopia.
‘There are only two things certain in life, death and taxes.’ (Benjamin Franklin) This is probably because he did not meet any of the current tax evaders and tax ‘advisors’.
Back to China, during the Communist years when the means of production was under the ownership and control of the ‘proletariat’, and the mantra was, ‘From each according to his ability, to each according to his needs’, the Chinese economy was fully centrally controlled, vastly inefficient and poor.
Chairman Mao and the rest of the leadership of the Chinese Communist Party were certain that Communism would cure the economic and social ills of the country. Those who opposed the Communist Party, its principles and programs were harshly dealt with. Hundreds of thousands were purged or killed. Even when the evidence showed the contrary, the leaders were convinced that their way was the only way. They were certain.
However, with a large and growing population and a stagnant & poor economy, China had to change. They were no more certain that pure communism was what they thought it would be. Hence, in 1979 the Chinese Government started to implement a free market economy and opened the economy for foreign investment. However, it avoided large scale privatisation of State-Owned Enterprises. Only small-size local firms were privatised. Many of the biggest companies in China are still state owned. According to a 2019 World Bank report by Chunlin Zhang, in 2017, Chinese State-owned Enterprises contributed 23.1% of GDP.
Since the beginning of the reform program, the Chinese economy has been one of the fastest growing economies of the world. The World Bank described the Chinese economic growth as ‘the fastest sustained expansion by a major economy in history.’ This Chinese model is officially called the Socialist Market Economy which is effectively a mixed economy.
The Chinese are now ‘Certain’ that their socialist market economy is the best way. So far it has worked for them. However, though they are certain about their economic model, the Chinese have also been very good at adopting to changing world economic and political situations. Now a days, they are critical players in world economics and politics. They changed and developed their economy because they abandoned their certainty about the virtues of Communism.
During the same period, and especially during the years of the Cold war, in the West; governments, politicians etc. were certain that the cure for the world’s economic and social ills was the Private sector and hence privatisation. They believe that the market should be owned and run by the private sector and governments should set the rules (Soft rules, or Soft-touch regulation, Gordon Brown), and only intervene when the market fails, as it did in 2008 with a loss of Hundreds of billions of dollars and pounds to the tax payer.
As a result, in the 1980’s and 1990s the UK government under Mrs Thatcher sold off a number of state-owned companies to the private sector. Mrs Thatcher and her ministers and advisors were convinced that private ownership would bring competition, efficiency and wider share ownership. They were not listening to anyone who differed with them, because they were certain.
It is evidently clear that there is no direct relationship between ownership and efficiency. Instead the biggest determinants of efficiency are competition and management. But Mrs Thatcher was certain that private companies were more efficient than state-owned companies.
The Thatcher government was also certain that privatisation would lead to more direct investment by the new private owners of the former publicly-held companies. However, in many instances this turned out not to be the case. The new owners, especially in the water industry chose to borrow rather than invest their own money. This resulted in huge interest payments and a real increase in prices to customers. Of course, benefits to executives and dividends to shareholders were increased too.
The government was also certain that privatisation would lead to increased shareholding by the masses. However, once again this is not now the reality. Many of the former publicly held companies are owned by institutional investors some of whom are owned and controlled by foreign governments.
Worse still some of the privatised companies rely on huge government subsidies, and there is huge dissatisfaction with their services. As a result, the Labour party has now made the renationalisation of Rail, Water and Energy companies as well as British Telecommunications (part of) and Royal Mail as its official policy.
Once again, the problem here was the absolute certainty of the policy makers. There was no room for doubters or for those who suggested alternatives. Those who did not support Mrs Thatcher’s hard-line policies were considered week or ‘WET’.
Generally, when one is certain one starts not to listen. They would ignore the facts and the experts even when the evidence show they were wrong. In fact, they would try to bend the facts to suit their narrative. For instance, in the Brexit debate some are certain that the only way for the UK to survive is within the EU. On the other hand, the hard-line Brexiters are certain that the UK would be better off completely outside the EU preferably without a deal. This is against all the evidence that shows, the UK economy, outside the EU, would significantly slow down, and UK’s influence in world affairs would significantly diminish. They do not listen, because they are certain.
The Ethiopian government supported by the World Bank and the IMF has embarked upon a huge privatisation program apparently without significant public consultation. There is no problem with the idea or the plan itself. Privatisation, in some selected sectors can work as long as it is done in a considered way and with the right market regulations and regulatory bodies. However, the problem would be if one thinks privatisation is the solution that fits all, because it does not.
The World Bank and IMF whose decision-making body is dominated by Western Countries do believe and are certain that Privatisation is the best way regardless. That is their view, advice and in fact probably their loan requirement. There is no problem with that. It is their view which they are entitled to have.
It would be then up to the Ethiopian government to choose what is best for the country. It should consult wisely and widely and consider all options. There are some indications that the government is listening, as it apparently did with ‘Golden Share’. On 4th December 2019, it was announced that the Council of Ministers approved a draft legislation authorising the government to own Golden Shares in the soon to be privatised publicly-held companies. Please check out my article on Golden Share; Capital, 4th November 2019.
As always the devil is in the detail and I will return to this topic in the coming weeks.
Learning from the mistakes of others (A clever man learns from his own mistakes, but a wise man learns from the mistake of others), the government should continue to listen and chart out a unique way for Ethiopia and avoid the trap of certainty. The Five ‘C’s of decision-making suggested by the Industrial Society are: Consider, Consult, Crunch, Communicate and Check, in that order.
‘I have lived in this world just long enough to look carefully the second time into things that I am most certain of the first time.’ (Josh Billings)
By the way what is the correct preposition that comes after certain? Is it; about, of, in, to,……?
Are you certain?
Getachew Beshahwred BA (Dist.), MBA, BFP, FCA, Cert CII, PMP is the Managing Director of GB & Co Ltd, Chartered Accountants and Management Consultants, London. Getachew can be contacted at email@example.com. GB and Co, in association with the Chartered Insurance Institute, London and the London Institute of Banking and Finance provides Executive Training for Insurance and Banking personnel from Ethiopia. The training is done either in London or Addis Ababa. Contact Getachew for further details.