FROM NYERERE TO NEO-CLASSICISM

‘Nyerere dies and is met by St. Peter at the Pearly Gates, only to be told that Heaven is full and that he will have to go to Hell. When St, Peter sees Nyerere’s face fall he relents a little and says that the best he can do is offer Nverere a choice of a Socialist Hell or a Capitalist Hell. Nyerere says he will opt for a Socialist Hell. St, Peter expresses surprise, Hadn’t Nyerere had enough, seeing as he had been living in a Socialist Hell for the past twenty years? Ah,’ says Nyerere, ‘you don’t understand, Your chances in a Socialist Hell are so much better – there’s no matches, a shortage of firewood, long queues for paraffin, and the man who lights the fire is a government employee who is always away at a CCM party meeting, In the Capitalist Hell, there’s plenty of cheap matches, firewood and paraffin, and the man who lights the fire is paid on piece-rates, so you get burnt straight-away,’

This is one of several jokes that could be heard in Tanzania directed against the Socialist development strategy. This strategy is now being changed. Why are the changes being made and are the new policies proving successful?

The Nyerere Years
‘I think I must be a Neo-classical economist – in any case, that is what people who don’t like me have taken to calling me,’
The above quotation is from the 1987 Nobel Prize-winner in Economics, Robert Solow. It serves to illustrate the dislike of Neo-classical economics in some quarters. Neo-classicism economics argues that competitive markets, with firms striving to maximise profits, lead to the most efficient use of a country’s resources. In the 1950s and 19605, the general feeling was that free markets and private enterprise did not meet the development needs of poor countries, The criticisms that economies did not function as Neo-classical theory demanded and gave rise to unacceptable income distributions, carried the day. The advice offered was that government intervention by way of planning, fixing prices, and running productive enterprises would increase the pace of economic development and ensure that the distribution of income was fair.

These views were nowhere more apparent than in Tanzania’s Ministries and in the University of Dar es Salaam. At Independence there were precious few Tanzanian economists working in senior positions in government. It was the political Scientists, sociologists, lawyers and historians, stiffened by expatriates attracted by Tanzania’s commitment to African Socialism, who were giving the lead on development policies. The Socialist commitment of the University was reflected in the policy that staff going to study or research abroad should go to Eastern Europe or the Soviet Union. No African country pursued non-market ideas more vigorously in this period than did Tanzania.

Under the Arusha Declaration there were widespread nationalisations and people were grouped in villages and encouraged to farm collectively. The prices of some 3,000 items were fixed by the authorities. Foreign investment ceased and imports were controlled. While Tanzania was implementing these policies, the economy was buffeted by a series of adverse external shocks which included the oil price rises of 1974 and 1979. drought in 1975 , the break-up of the East African Community in 1977, and the war with Uganda in 1979.

After good results in the 1960’s and satisfactory results in the 1970’s Tanzania’s economic performance began to deteriorate seriously in the 1980s. During the 1970s mainstream development economists had begun to change their ideas. Two decades of ineffective planning, and expanded, corrupt bureaucracies led to the realisation that planning failures might lead to worse economic performance than inefficient markets. Developing countries which relied on international trade, and had strong private sectors, such as Singapore, Hong Kong, Taiwan, Singapore and South Korea, and in Africa, Ivory Coast, Malawi and Kenya, had done well. Certainly the market mechanism had a lot of flaws, but the message seemed to be that economies expanded output faster with less government intervention. And although the rich might get quite a bit richer, the poor get better-off as well.

The Mwinyi Reforms
‘Mwinyi is more popular than ever Nyerere was. Everyone is happy there are goods in the shops again. I tell you, there are people in my village who have tasted sugar for the first time since Independence.’

All Hassan Mwinyi took over as President of Tanzania having had a record which reflected mild encouragement for the role of the private sector. Any changes in economic policies were expected to be minor, at least until Nyerere relinquished the Party leadership. In the event, the changes were sudden and extensive.

In June 1986, Tanzania came to a new agreement with the IMF. Tanzania had to agree to undertake reforms that would bring the economy more under the control of market forces. This meant a reversal of the Socialist strategy followed since 1967. But it is also clear that there is a huge gulf between the Government and the Party on economic strategy, and this split poses a problem for the Government, bound as it is by Party directives.

In this context Nyerere’s role as Party Chairman over the next five years is likely to be critical. One view is that he will use his position to reign in Mwiny’s reforms. The other is that he supports the reforms, and that as Party Chairman, reinforced by the immense respect in which he is held, he will be able to ensure that the Party does not thwart Mwinyl’s plans.

From Mwalimu to the Market
The eighteen-year-old Tanzanian on the bus from Nairobi to Dar es Salaam described himself as a businessman involved in the export-import business. In the luggage compartment of the bus he had 400 pairs of plastic sandals purchased in Nairobi for Ksh 7 a pair. They should be sold for Tsh 300 a pair in Dar es Salaam. At the time, the official exchange rate was Tsh 3.3 = Ksh 1, with the black market rate at around Tsh 6 = Ksh 1. The importer had official documents allowing him to import goods into Tanzania, but he was not allowed to purchase foreign exchange with Tanzanian shillings at a bank. So as the bus entered Tanzania, he changed money for travellers, giving them favourable black market rates for their Kenyan shillings. Here’s how the transactions work out. The consignment of sandals cost the equivalent of $US 200. They would be sold for a equivalent of $US 1,333 when the Tanzanian shillings are converted at black market rates. Expenses such as bus fares both ways, bribes at border posts and road blocks and accommodation in Nairobi and so on would be under $US 100, giving a profit of well over $US 1,000. One trip a week would yield an annual income of $US 50,000.

The initial reaction to the changes has been very favourable. The trade liberalisations have made basic commodities more readily available. 1986 saw the first rise in Tanzania’s living standards since 1981. Despite these encouraging beginnings however, there is a long haul ahead.

Neo-Classicists Rule
For the past twenty years the best economics graduates have been studying in America and Europe where they get a thorough training in Neoclassical economic theory. They appear to have enjoyed themselves and liked what they saw of market economies. Their experience is in marked contrast to those who went to Eastern Europe and the Soviet Union. As well as the burden of having to learn another language, they have been unhappy with living conditions and dismayed to see how poorly the industrialised planned economies perform. The experiences related on their return have led to the best graduates opting for study in Europe and America. Western trained economists are now in senior positions in the key Ministries, and in the University. Visiting officials and academics have observed that the present group of economists in Tanzania are the most able in Africa. The new generation of Tanzanian economists do not feel that they have to persuade other social scientists that their views are correct. They have the ear of government, and their advice is that the market works and it works for everybody. Let’s hope for Tanzania’s sake they are right.
Michael Hodd

Mr MICHAEL HODD teaches at the School of Oriental and African Studies and works on the economies of East Africa. He visited Tanzania in 1974, 1983. and 1986. He is the author of African Economic Handbook (Euromonitor 1986) and Editor of Tanzania After Nyerere which is reviewed in this issue of the Bulletin.

1 Comment »

  1. Tanzanian Affairs » 36 YEARS OF TANZANIAN AFFAIRS – PART 1 said,

    September 3, 2011 at 10:56 am

    […] of attempts to destabilise the Union (Issue 31, 33 and 34). An article by Michael Hodd entitled “From Nyerere to Neo-Classicism” about some of the reforms initiated by President Mwinyi generates a vigorous debate in the […]

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