PETER Schiff once said: “You don’t drive an economy by consuming, the consumer is not an engine, the consumer is a caboose.”
Schiff’s argument is that, for a person to consume, he must first produce for consumption is a function of production.
This means wealth creation is squarely a matter of sustainable-continuous- productivity growth in the economy, all the way from an individual to the national level.
In fact, President Yoweri Kaguta Museven of Uganda has described Africa’s main source of poverty as the lack of know how about wealth creation through production.
But in economics as in politics on this part of the world, it is not that many think consumption cause wealth but they always go farther to commit a fatal theoretical blunder by thinking it is consumption that causes production. In any case, this is the original sin of the first misconstrued approach.
This description is harmful at the individual level as at the national level. It is production that causes consumption and therefore it is production that causes wealth.
AT INDIVIDUAL LEVEL
Individual consumers must first produce for them to have exchange for the goods and services of their desire. It is known as Says Law named after the 19th century French economist Jean-Baptist Say.
Consider this example.
You really need a kilo of peanut butter from your local shop, but you don’t have money! So, how do you get peanut butter?
The only way for you to have 1kg peanut butter is to offer a shopkeeper something she wants more. May be you make chapati she wants, for you to trade for for peanut butter.
As it is evident already, your production for chapati is what makes you satisfy your insatiable demand for peanut. As Steve Horwirtz argues,; “We can not exercise consumption demands without having first produce value”. Nothing you can get from someone without something for trade.
This economic logic must also obtain at the national economy.
NATIONAL ECONOMY
Are strategic infrastructure development projects( at least as they call them) a path into building a consumption oriented economy or a production oriented economy given the current state of affairs?
I believe, this must be a question boggling the minds of economic and policy wonks both within and without the corridors of power. Of course, if they choose to do the job as required. This article emphasises it better.
A consumption-oriented economy in this case(boundaries of definition considered) is characterized by; excessive government spending, policy-wise uncoordinated projects from one government department to the other and non-scientifically appraised- infrastructure projects. All being financed by the swelling public debt and incentivized by corruption.
A production-oriented economy on the other hand, is characterized of transformational policies that address three components; job creation, income and poverty alleviation. In other words, the overall policy of government in managing the economy is mass prosperity.
With specificity, we can juxtapose the obtaining condition between the two lines of economic thinking in this country.
1. Does the government lavish spending style fit into poverty alleviation strategies of any poor country?
2. Is the Dar es salaam Port “current” investment decision in sink with our path to wealth of a nation?
3. Is the Bus Rapid Transport proposed management model a business strategy or a national economy strategy? For whose interests?
4. Did the construction of Mwalimu Nyerere Dam reflect the standards of public- investment- project appraisal? Is the present leadership doing enough to undo that which is not economically viable?
5. What about the Standard Gauge Railway unintended consequences?
6. Are the energy schemes a model for productivity growth?
7. Is the Build Better Tomorrow(BBT) any attempt to raise Total Factor Productivity(TFP)?
These questions and many others point to an economy centred on consumption for a few leaving the many wallowing in abject poverty.
They directly tell the caboose nature of our economy. But first things first.
So, what is at stake?
Presenting the government’s recommendations for the National Development Plan 2024/25 in Dodoma last month…the Minister of State in the President’s Office(Planning and Investment), Prof. Kitila Mkumbo stated that the priority will be the completion of strategic development projects and poverty alleviation.
Against that priority, he anchored his “hope” for building an inclusive growth to reduce poverty and bringing prosperity. Indeed, the Minister is trading on hope.
I can’t recall when “hope” was such a grand economic strategy.
Instead of relying on hope to finish the so called strategic development projects, the National Development Plan-2024/25 would have cut Tanzanians some slack to answer the following questions regarding the same;
1) What is the financial appraisal status of these projects so far?
2) Is the social appraisal of the projects in tandem with the aspirations of socio-economic development agenda of the ending Vision 2025?
How? The Rifiji way?
3). Considering the CAG’s perennial reports on the rapacious nature of these projects, what is the current state of the cost-benefit analysis of the strategic development projects?
4) Does the economic appraisal of these projects so far give a green light for more resource allocation from the citizens?
I ask the questions because it is only through this way we can certainly know if the NDP-2024/25 is economically justified to prioritize these projects.
Disregarding these questions can only mean our economy is managed on “sunspot” ways. In economics lingua- sunspot equilibrium is when resource allocation is done without considering economic fundamentals.
When our politicians speak in “economic rhetorics” as my favourite economist Dreidre McCloskey would call them, you would quickly think they mean what they boastfully say.
Alas! Unless you are new in Jerusalem, these are normal, usual, perennial talking points in every budget cycle. Tundu Lissu called it a “silly season.” And now we are here; income, jobs, growth, poverty alleviation are talking points with no solid policy implementation road map.
What is even more frightening is the tendency of equating infrastructure construction to development by our development aficionados.
In a well written document of the NDP- 2024/25 by our experts, you can not help but read in their minds that they intend to change the the economy from consumption to production with a shift from a spending-to a saving hungry economy strategy.
But upon a careful reading of the document, it is astonishing to find their proposals are logical monstrosities and for the most part fanciful. No evidence of the supposed economic charge.
At least for them, unlike politicians they don’t show up in public to parrot vapid economic rhetorics.
Also, it is upon these rhetorics we hear a lot of GDP(Gross Domestic Product) as economic growth. Because the economy is recklessly consuming, GDP accounting becoming a target for political score.
Luckily, this column has previously explained why GDP is not economic growth.
What is important at this stage in our economy is a reflection of what economic laws do we need to apply and in what sense with regards to the empirical analysis.
Even as we do that, it behooves us to know that, economic laws in whatever shape are not derived from empirical data; they help us understand empirical data.
