Striking the Right Balance in the Economy




The fundamental difference between capitalism and communism is the economy. This fact seems to be lost on a lot of people, partly because governance deals with so many other issues, and partly because governments usually overplay and distort the meaning of these systems.

A communist state owns all the industries, everyone is a civil servant and wealth is distributed equally. A capitalist state just lets its people be, and leaves it to competition to stabilize the economy. A mixed economy tries to have the best of both worlds.

It has now been some time since communism showed its incompetence in generating wealth. The Soviet Union abandoned it, and China, despite how the Chinese Communist Party (CCP) sees itself, runs massively privatized and independent industries geared (arguably unsuccessfully) at domestic and international competition. It turns out, creating a classless system is harder than Marx made it out to be.

Capitalism is no saint either. A fully and completely free market system is in truth impractical. There is such a thing as monopolies and trusts. Wealthy businessmen could make life very hard for small businesses and entrepreneurs, all the more erasing the idea that capitalism is supposed to create competition. Worse, capitalism also has its off-seasons, called ‘busts’ – followed usually by a great period of boom – which brings the economy to its knees and results in mass unemployment.

A mixed economy is the best system for everyone involved: the people, whose dreams are to become middle-class, and the politicians, who do not want to be overthrown. But then again, just being a mixed economy does not necessarily mean the right type of mixed economy.

Most of the developed world is a mixed economy, the United States less so than the others. Countries like the United Kingdom, France and Germany have very comprehensive economic systems that remain immensely productive despite their modest populations. These mixed economies have given some part of the industry to the government, and most of it to private institutions. The government’s share of the economy is largely the welfare system, mainly health care, otherwise known as socialized medicine, and education.

Ethiopia too is a mixed economy, but a far more rigid one. Where most European idea of a mixed economy is to give the government regulating power over banking, money supply and the welfare system, the Ethiopian version gives the government almost monopolistic control over the telecommunication and transportation industries.

This nature of the nation’s economic makeup usually prompts most officials to compare Ethiopia’s economic progress to that of China. China is very famous for the double-digit growth it enjoyed since the early 1990s, almost unencumbered. It was able to do this without a single improvement over the constitution concerning social and political matters.

Much like Ethiopia is doing now, China all of a sudden began massive state-led investments in infrastructure, which created a lot of jobs. The country also opened its doors to foreign investments, and to a certain degree, tried to encourage competition between local and foreign businesses. More importantly, it privatized some major institutions and gave a certain degree of independence to the ones that remained under the state.

Despite this, the government is still the spine of the economy. And wherever a government is concerned, there is the inescapable presence of bureaucracy, dealing the death blow to creativity and competency, and thus productivity.

According to a study conducted two years ago by the Organization for Economic Cooperation and Development (OECD), and despite being the second wealthiest country in the world, China is not even in the top 35 most productive countries in the world.

This fact is clearer in the lack of recognizable Chinese brands (in smartphones, garments, cars, toys, furniture, etcetera) that can compete in the Western world. Most Chinese use Chinese brands – mainly because the CCP makes sure they do, through tariffs or downright bans on certain goods and services – but most of the outside world, most times rightly so, believes that most Chinese brands are of low quality.

And this dependence on quantity, over quality, the CCP has so flagrantly adopted, should give Ethiopians a pause. Economic prosperity is a great thing, but it should be of the right type, otherwise it will not be permanent. It will be terribly susceptible to major changes – like economic downturns or technological revolutions.

It is perhaps a pipe dream to hope that the Ethiopian government will relinquish control over the telecommunications and transportation anytime soon. I will be more realistic, and advice instead more independence be awarded to these industries, much like that given to the Ethiopian Airlines (leading it to be a major continental player). There also needs to be more work done in welfare, giving citizens affordable healthcare (for a healthy worker is a more productive worker) and more outward looking up-to-date education.



By Christian Tesfaye
Christian Tesfaye is a regular contributor to Fortune. He could be reached at christian.tesfaye@yahoo.com

Published on Apr 08,2017 [ Vol 17 ,No 883]


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