Personal Finance

Lessons on political economics from emerging markets

JKUAT

From left: Kiambu deputy governor Gerald Githinji, JKUAT vice chancellor Mabel Imbuga, ICT secretary Fred Matiang’i, JKUAT chancellor Geoffrey ole Maloiy and Gatundu MP Moses Kuria listen as third year student Denise Wambui explains the features of the Taifa laptop during its launch at the Norfolk Hotel in Nairobi on Friday. PHOTO | DIANA NGILA

It is some of the best news I have heard this year. Local universities have been tipped to supply the Sh17 billion primary school computers as the government changed execution of its digital plans, from supplying laptops to every Class One pupil to building computer labs.

This wonderful news was announced by Information Secretary Fred Matiang’i last month. The Ministry of Industrialisation and Enterprise Development has been tasked with ensuring local assembly of the devices.

I will tell you why this is such good news. In economics there is something called “Free Trade.” The belief in free trade is one of the hallmarks of the neoclassical school of economic thought that began with Adam Smith in 1776. It argues that almost everyone’s material welfare will be increased if all countries specialise in what they are good at.

This proposition seems plausible on the surface, and there has been a lot of mathematical economic theory to support it.

Unfortunately, like so much else in economics, the model is, to quote the humorist H.L. Mencken, “neat, plausible, and wrong”.

According to the theory of free trade, the great comparative advantage of developing countries is low wages. And it is true that all recent or late industrialists have relied on unusually repressive labour conditions to grow.

Nevertheless, cheap labour has been an insufficient competitive asset in all but the most labour-intensive industries. And industries relying on unskilled labour have not acted as an engine of growth or provided an entry point to the more advanced sectors requiring complex skills and modern capital equipment.

I have preoccupied myself with the analysis of the process by which some developing countries have managed to industrialise and accelerate their pace of economic development. The Republic of Korea, Taiwan Province of China and the so-called emerging economies have been my pet studies.

According to the economics that I was taught at the university, all that these countries needed to do to catch up was to let market forces operate freely and follow an open-door policy in foreign trade and foreign direct investment. Guess what, they didn’t.

The reality is that the theories and practices of trade and industrial policies are surrounded by a number of fallacies. One of them is that universal liberalisation benefits all developing countries. The other is that developed countries became industrialised without government intervention.

The hard truth is that price mechanism is slow to create markets and develop non-price factors. Market mechanism can deal with gradual and marginal changes, but it is inadequate to accelerate growth of supply capacity and promote dynamic comparative advantage.

It cannot make inefficient industries efficient and competitive. Hence, some government intervention is required to complement market forces at all levels of development.

Our universities have their own enterprise consultancy firms. The University of Nairobi has the Nairobi Enterprises and Services Limited while Jomo Kenyatta University of Agriculture and Technology (JKUAT) has the Nairobi Industrial and Technology Park, a subsidiary that recently launched a locally-assembled laptop.

They will not start by making classic products. But a journey of a thousand miles begins with one step. The Taifa laptop that was conceived and designed locally by JKUAT is retailing at Sh46,720 and runs on Microsoft Windows software and an Intel microchip.

This is good for Kenya. Money will circulate within the economy and the project will be more sustainable. After all, all top manufacturers in the world get lots of orders from their governments.

And remember, even Steve Jobs started by assembling in his garage.

Mr Waswa is a management and HR specialist and managing director of Outdoors Africa. E-mail: [email protected]