Why poverty and progress co-exist in Nairobi County

A couple of weeks ago, President Uhuru Kenyatta publicly reflected on the contradiction of Nairobi County being the most important city in East Africa while at the same time being in a deplorable condition.

“If you go around the city you will find people living without roads, water, electricity and sewage yet we call Nairobi the richest city in East Africa,” he said. It is a contradiction that has affected many cities around the world, and one which has attracted thinkers over the last 150 years. In the end, it comes down to the proper stewardship of the factors of production: land, labour and capital. What remains now is the aptitude to learn from economic history and the courage to implement the policies that will steer the countries towards a path of unity and prosperity.

The earliest insightful analysis was delivered by Henry George in his 1879 book Progress and Poverty. He sought to explain why poverty exists notwithstanding widespread advances in technology, even where there is a great concentration of wealth such as in cities. In his observation, technological and social advances in areas such as education and public services increased the value of land, and it was, therefore, only reasonable for the local authority that provides the public services, to collect part of that increase in value through a single tax. This view has had a major influence in countries such as Denmark, the United Kingdom, Australia and New Zealand. Kenya has also addressed this issue through land rates. The main challenge, however, has been the inability of counties to keep up with current market value rates. In Nairobi, for example, land rates have been anchored on land prices in 1980 — a solid 40 years out of date! A proper execution of this policy is likely to lead to counties generating enough local revenue to drive their independent growth agenda.

It took another 12 years for the world to seriously consider the place of labour within a modern economy.

Interestingly, the insights this time were coming from outside the economics discipline and specifically from the Church. In an encyclical titled Rerum Novarum and subtitled ‘On the Conditions of Labour’, Pope Leo XIII identified with “the misery and wretchedness pressing so unjustly on the working class.” The right to a fair wage and appropriate working conditions emerged as a fundamental part of creating a stable harmonious society.

This is an area in which Kenya has greatly struggled, ultimately leading to widespread exploitation of cheap labour and the creation of slums and an urban poor.

The long-term effects can only lead to widening social inequalities and less harmonious relationships.

While the role of land and labour had initially dominated discourse on economic development, it would take another 70 years before the world would fully appreciate the impact of capital, particularly money supply, in generating wealth in an economy. The diligent work of Milton Friedman in studying monetary history and observations of how fluctuations in money supply, could mean the difference between prosperity and depression, remain true today.

As Kenya marks the 10th anniversary of the Constitution, a deep reflection of the strengths and weaknesses of the current dispensation will be required.