የኢትዮዽያውያን ዴሞክራቶች ድረ-ገፅEthiopian Democrats' Website

'White' Capitalism

These days the meaning attached to capitalism by many of Ethiopian politicians, writers and academicians is coming to instigate misunderstandings and confusion among the mass. In fact, the real sense of the concept has been changed in the contemporary understandings of economists and policy makers. But the conception and usage of the term in our country is awfully different even from what the present-day economic literatures conceive it. Intellectuals at universities and colleges are instructing their students that capitalism is about free market with certain government intervention for the purpose of stabilizing the economy, promoting economic growth, provision of public and merit goods and ensuring equity. The cadres of the ruling party, EPRDF, are telling us, with utter mistake, that the economic policy they are pursuing is 'white' capitalism as the term is to mean extensive interventionism. On the side of the oppositions, it is being heard that ensuring welfare through selective government intervention is consistence with the policies of capitalism.

What does capitalism really mean? From where does this economic philosophy emanate from? Is capitalism not different from interventionism?

Capitalism is the economic policy of liberalism. It is a social system based on the explicit recognition of individual freedom, private property of the means of production and free, non-aggressive, contractual exchanges. It is an economic system where the function of a government is limited only to protect the life, health, liberty and property of individuals from the initiation of physical forces. The protection of individual rights is the only proper task of a government, hence the label a ?night watchman?. The foundation and essential nature of capitalism is the pursuit of harmonious material selfinterest of all individuals who participate in it under freedom.

Capitalism is a system of an unhampered market. The economy ? the process of production, distribution and consumption - is determined only by the unhindered market, without the coercive interference of the government. But such a system, which is completely free of government intervention, has existed nowhere in the world. Governments tend to interfere in the market whenever they feel necessary to do so. And now days, the sphere of government intervention is becoming wider and more profound. Following this, the period is becoming an era of interventionism.

Interventionism means that the government does not restrict its activity to the preservation of peace and order. Rather it tries to place its hand in the functioning of the free market, redirecting production and consumption in courses different from what the market sets down. Interventionism is known to be a system as far away from socialism as it is from capitalism. While its stance to permit government to obstruct the free functioning of the market makes it detach from capitalism, the fact that it still relies on the market, i.e., it does not completely abandon the market mechanism, differs it from socialism.

Here, what we have to keep in mind is that the seizure and operation of certain enterprises in the hands of the government does not imply that the system is a mixed, interventionist one as long as they are subject to the market in the purchase of inputs they use in their production process and in the sale of goods and services they produce. In so far as the power of the market in determining the economic activities remains basically unimpaired, the social system can still be considered as capitalism.

The economic policy pursued by the government of Ethiopia is interventionism. The policy holds the view that the vicious circle and poverty traps of developing countries can only be avoided by an activist, developmental State. It assumes that developing countries are characterized by deep and pervasive market failures so that development can not be conceived to be brought by the market mechanism alone. This is the excuse given by our government for extensive government intervention in the market. Whenever it feels there is a 'market failure', it interferes in the market to 'correct' the 'failure'.

This policy upholds partial public ownership of the means of production. For example, land is constitutionally settled to be owned by the state and the peoples of the country. Article 40 (3) of the FDRE constitution declares that ?land is a common property of the Nations, Nationalities and Peoples of Ethiopia and shall not be subject to sale or to other means of exchange. It is the government, on behalf of the people, that has the duty to hold and deploy the land for common benefit and development. Nevertheless every citizen has full entitlement over the material goods he creates on the land. Government is obliged to protect the welfare of the disabled, the aged and the orphans. It is also empowered to take all measures necessary to create employment opportunities for those who are in need.

Having secured a constitutional support, our country's economic policy stipulates that the creation of a stable macro-economic situation is the responsibility of the government. The government, with the aim to create such a situation, manipulates the prices of goods and services, capital and foreign exchange, and the amount of money supply (inflation). The other function of the government stated in the policy is to create a modern financial system. For this, the government established a central bank to control and regulate banks and insurance companies. It also provides credit and saving services for farmers and for those engaged in micro and small businesses.

The responses given to the fundamental economic questions, what to produce, how to produce and for whom to produce, are extremely influenced by the actions of the government. The produces of farmers and investors are directed, through the provision of selective incentives and imposition on some sectors of high taxes, towards the goods and services recommended by the government. Government further uses its policy instruments to influence the methods of production, the prices and the distribution.

The government of Ethiopia interferes in every aspects of economic activity. At macro level, it determines interest rate, exchange rate, GDP growth rate and the money supply using various monetary and fiscal policies. At micro level, it maneuvers the prices of goods and services either through a direct price control or by engaging in production. It should be noted here that government owns a number of enterprises starting from giant institutions like telecommunications, electric power and universities to medium and relatively small enterprises such as sugar and cement factory, coffee and fruit plantation and processing plans, and other small businesses including wholesalers and retailers.

This is not a policy of 'white' capitalism; rather it is a policy of interventionism: a social system in which the government terribly intervene in the economy to 'correct' the 'market failure'.

Semhal

What a Superb analysis.

Keep it up!

Semhal,

First, I have to tell you that I am verymuch impressed with your article.

I am interested to know what form of economic policies you recommend for Ethiopia. I assume you are a young woman. It is imperative that young men and women focus on solutions and way forwards than criticizms. I would like to see from smart people like you "We should do these"s than "We shouldn't do that"s.

With best regards,

I think the fundamental economic and political problems of ethiopia emanate from the lack of liberty and democracy. It is thus the government that is responsible for all the evils of our nation.

I am pro-liberal; liberalism - the classical one - will, I believe, avoid our trouble