Why Kenya needs more micro-economists

Early in the year, a friend gave me the book ‘‘Trillion Dollar Economists: How Economists and Their Ideas Have Transformed Business’’ by Robert Litan, one of the leading US economists.

He makes the case for why micro-economists need to be embedded in economies by explaining how they revolutionised the US business sector in the past 50 years, resulting in benefits estimated to be a trillion dollars.

The trillion dollar figure, which is more than the GDP of African countries, got me curious to analyse how micro-economics is entrenched in Kenya.

I started with our financial sector because financial markets have become incredibly powerful and a form of authority leading to high demand for economists in the sector.
For example, hedge funds are seeking more financial economists so as to be able to understand and predict markets using new statistical and computational techniques.

Also, it was economist Paul Klemperer who helped the Bank of England out of an impending liquidity crisis by developing a new form of auction for insurance operations that’s become vital to the UK financial markets.

Unfortunately for Kenya, banking and financial companies’ research departments are flooded by finance professional and actuaries jacking the trade.

Economists are pushed to the macro-economic analysis segment - studying of overall economy using inflation, interest rates, business cycles, unemployment indices – and because of its penchant for press it gives economists a false sense of prominence.

I later took the assignment of cross checking if the top 20 NSE listed companies have resident economists for their business forecasting and less than one per cent have one.
Safaricom, East Africa’s most profitable company, doesn’t have a chief economist like Hal Varian of Google who leads the team that designs advertising auctions, finance, corporate strategy and public policy for the organisation.

Kenya Airways, that’s in dire need of a turnaround, has no economists who can use statistics to figure out how to improve profitability.

But this is not only a corporate issue, it also extends to government bodies.

Gauging Kenya Revenue Authority through its design of tax audit mechanisms, basic economics of tax compliance has been awash bringing to doubt the right composition of tax economists in their research department.

National Social Security Fund and the National Hospital Insurance Fund, which spend more than half of their revenue on recurrent expenditure, have no resident economists to help them reduce administrative costs.

Expanding my research further to main regulatory bodies, apart from the Central Bank of Kenya, they are mainly led by lawyers with economists forming less than one per cent of the workforce, when the nuts and bolts of regulation policy is economics.

No wonder the best way to parley any regulatory challenges has now become price controls. If we are to assess our regulations policy from an economist’s lens, Kenya is close to Venezuela the socialist country than US the capitalist one.

The basic principle for regulatory framework that best analyses the real world is economic theory of regulation. Economist Ronald Coase won the Nobel Prize in 1991 for actually coming up with the concept called “The Coase Theorem” ,which is largely applied in regulation worldwide.

Today, economic policy advice in regulation is even shifting away from simple deregulation to designing “smart” regulation like pollution permits through Pigouvian tax collection (e.g. carbon credits).

Subsequently, it’s for this dire reason that, under the auspices of the Institute of Economic Affairs, plans to bring business economists under an association to mainly offer services in business economic forecasting in the market.

It’s due to this great contempt for applied economics that many Kenyans were convinced to bet on the standard gauge railway as a development cluster and bought land around its way leave when the microeconomics of transport had the contrary analysis.

I am also pretty convinced that if Nakumatt had resident economists within their team, they wouldn’t be folding up today but growing more wings to fly above the economic clouds.