Ganging up against liberalism

By Joseph Were

Museveni’s schmoozing with Stiglitz bad news for Mutebile

When President Yoweri Museveni spoke at this year’s Joseph Memorial lecture in Kampala of the desirability of a “hybrid” economy, he marked a retreat from the current free market regime to his mixed economy days of the 1980s.  Time has indeed made those dark days glow and Museveni was cheered on when he announced his support for adequate regulation and the return of state parastatals.

The main speaker at the event was economics professor Joseph Stiglitz, who is a regular columnist for The Independent’s Global Comment series. Stiglitz won the Nobel Prize for showing how so-called free markets always invariably fail and is an advocate of state regulation of markets.

The superstar academic was, therefore, the right speaker at a time when the free market, as advocated by his host, Bank of Uganda Governor Tumusiime  Mutebile and the bureaucrats at the ministry of Finance led by PS Chris Kassami, have failed to rein in double digit inflation, lower lending rates, and spur economic productivity in Uganda.

But since no economy can exist without laws, taxes, and other oversight, a completely deregulated market is inconceivable.  Therefore, at least in the Ugandan context, increased state regulation of the market as advocated by Stiglitz means more government tinkering with the autonomy of the central bank and private sector, fixing of lending and currency exchange rates, and power and commodity prices. If that is what Ugandans want, then the tide is in favour of Stiglitz’s ideas. But if it is not, then he and Museveni are sailing a damaged vessel.

The Stiglitz lecture comes barely a year since President Museveni raided the central bank for trillions to purchase jet fighters and finance his re-election. The resultant depletion of the national reserves, soaring inflation, and macro-economic instability has led to donor and foreign investor disillusionment and capital flight.

As the discussant Prof. Mahmood Mamdani pointed out, Stiglitz cannot be relied upon. While serving as the chief economist in the U.S. government of then-president Bill Clinton, he ushered in the era of financial sector deregulation that is now blamed for hemorrhaging the U.S. economy and wreaking financial havoc globally. The question Mamdani raised and which our macro-economic policy framers need to answer is whether more state regulation of the financial sector as advocated by Stiglitz, can in fact save Uganda’s failing economy.

Since coming to power in 1986, President Museveni’s government has a record of gathering local and international economists whenever a rethinking of the macro-economic framework becomes inevitable. In the early years, the question was whether to pursue an open or closed economy, to reform and pursue the so-called Washington Consensus or maintain state control.  In was at such a gathering at the Conference Centre in Kampala in December 1989 that Museveni announced his acceptance of the IMF/World Bank-backed policies of liberalization, privatization, and Structural Adjustment Programmes.

Central Bank Governor Emmanuel Tumusiime Mutebile, who had bought into these reforms in the early 1980s as the Chief Economist of then-president Milton Obote’s regime, surged to the fore in the early 1990s when the control policies of revaluation of the shilling, fixed prices, and Museveni’s barter trade failed to stem moribund inflation, currency instability, and macro-economic performance. The ascendancy of the free-market doctrine was cemented in 1992 when Mutebile was appointed to the important position of Permanent Secretary to the combined Ministry of Finance, Planning, and Economic Development. It crested when he became governor of Bank of Uganda in January 2001.

Recently, however, Mutebile’s star has appeared to flicker amidst allegations of collusion with the state to deplete the reserves and making questionable pork-barrel payments to the ilk of business-speculator Hassan Basajjabalaba. His current five-year term ends in 2016 when he will be 67 years old and it is unlikely he will be reappointed.

Meanwhile, uncertainty looms over the free-market policies he has pushed since he joined the ministry of Finance in 1981 as under-secretary.  In the Mutebile-driven free-marketeering school bus, Museveni has always been a follower but never a believer. It was, therefore, interesting to see him champion the market as a creator of freedom of action and chiding Mamdani for attempting to steer the debate on the economy in a totally new direction.

Museveni’s Marxist-socialists roots were on show when he asserted that China is using capitalism to achieve socialism and ascribed the shift to Russia’s Vladimir Lenin. The reality is that the policy reform in China is ascribable to Deng Xiaoping and is in an inverted sense from socialist-communism to a market economy. Like Deng, Museveni has in the past shown that he does not really care whether the cat is regulated free market or statist, as long as it catches the rat of economic growth and development. Some have labeled this opportunism while others perceive it as pragmatism.

During the lecture, Museveni spoke of big fights going on among the big brains about the new direction for the economy. He also revealed that he had rushed from the African Union heads of State summit in Addis Ababa, Ethiopia, in order not to miss sharing the dais with Stiglitz.

In this context, Stiglitz’s being feted at the Central Bank is inversely proportional to the decline of the Chicago-schoolers and the resurgence of the statists. It showed why the most profound announcement in the 2012/13 budget was the move by the state to control the largest pool of private savings in the National Social Security Fund, the resurgence of the cooperative movement, and the perpetuation of tax exemption for favoured businesses.According to Stiglitz, the capital and financial liberalisation policies advocated by the Washington Consensus have not led to the promised deepening of financial markets or increased competition in the financial market and reduction in transaction costs. The only effects of the liberalisation are the negative ones; corruption, foreign domination of the economy, capital repatriation, decreased investment in productive sectors, and the pursuit of agency rents other than production incomes by the private sector. Stiglitz showed how incentives and opportunities within the system breed corruption. Ugandans have seen it under Museveni. Unfortunately, more interference in the market by the Museveni-led state is likely to lead to more, not less, insider trading, cronyism, foreign exchange manipulation, and interest rate fixing. That is why Mamdani is right. Instead of the mess advocated by Stiglitz and Museveni, Uganda’s economic policy framework needs to enter a new epoch in which both the state and the market are regulated by society in a free democratic dispensation.

Joseph Were is the managing editor of The Independent magazine.